The international ratings agency S&P Global Ratings has for the first time assigned its 'B+/B' long- and short-term issuer credit ratings to Azer-Turk Bank, the outlook is stable, Report informs referring to S&P.
The starting point for our long-term rating on ATB is the anchor of 'b+' for commercial banks operating predominantly in Azerbaijan. This is based on an economic risk score of '8' and an industry risk score of '9' for Azerbaijan under our Banking Industry Country Risk Assessment.
“The stable outlook on ATB over the next 12 months reflects our expectation that the bank will moderate growth in unsecured consumer lending and retain sizable correspondent banking business, while its internal profit generation supports its capitalization. We also expect that asset quality will not worsen materially as consumer loans season and remain better than the sector average.
“We could lower the ratings over the next 12 months if ATB's asset quality deteriorates rapidly, coupled with inadequate provisioning of problem loans or insufficient capital support from the government. This could be either from weaker-than-needed capital support or paying dividends that would lead ATB's capitalization to weaken. Beyond the next 12 months, a negative rating action could follow a material weakening of the bank's correspondent banking business, leading to a substantial decline in fee income, especially if it is not compensated by other revenue sources,” reads the message.
“In our view, a positive rating is unlikely over the next 12 months. Beyond then, we could raise the ratings if ATB strengthens its capitalization and demonstrates a track record of stable retained earnings and commitment to maintain its RAC ratio sustainably above 7%, while its asset quality remains largely stable.”
“We expect that the bank's capitalization will remain at moderate levels in 2023.We estimate that the bank's capitalization, as measured by our risk-adjusted capital (RAC) ratio, declined to 6.0%-6.5% in 2022 from 7.6% at year-end 2021, reflecting ATB's very rapid balance-sheet growth, especially in unsecured consumer loans, despite very strong net income of about AZN10 million [$5.882 million] that has strengthened its capital base.
We expect a subsequent decline to below 7% in 2024 due to continued balance sheet growth and lower net income than the exceptional result in 2022 as income from correspondent banking normalizes,” S&P noted.