S&P Global Ratings has revised its outlook to positive from stable and affirmed its 'BB-/B' long- and short-term issuer credit ratings on Kapital Bank OJSC, Report informs referring to the rating agency’s website.
“We expect that Kapital Bank will continue to exhibit better profitability than domestic and international peers. Kapital Bank's position as the third largest bank in Azerbaijan and its good diversification between corporate, small and midsize enterprise (SME), and retail banking support its track record of displaying the largest absolute profit in the domestic banking system,” reads the report.
“Its return on assets (ROA) averaged 4.5% in 2020-2022 versus the banking system average of 1.8%, and its return on equity (ROE) was 36% versus 14%. These profitability metrics also compare favorably with large banks in peer countries such as Egypt, Kazakhstan, Armenia, and Uzbekistan. Although we expect a mild deterioration in profitability metrics in the next two years, we believe that Kapital Bank will preserve its leadership among peers.”
“Kapital Bank has shown good improvements in asset quality, and we expect its Stage 3 loans to remain among the lowest of domestic and international peers. The bank's Stage 3 loans reduced to 2.3% of total loans at year-end 2022 from 3.9% a year earlier, reflecting recoveries and write offs,” S&P noted.
“The fact that Kapital Bank mostly provides consumer loans to its deposit customers safeguards its asset quality. Even though we expect some mild deterioration in asset quality in the next few years as loans season and the bank gradually builds up its lending to SMEs, we believe that Stage 3 loans will remain lower than the domestic and international peer averages. For example, we expect Stage 3 loans in Azerbaijan to be about 6%-8% of total loans in the next 24 months. Positively, provisions covered Kapital Bank's Stage 3 loans by 173% at year-end 2022.”
“We anticipate that Kapital Bank's risk-adjusted capital (RAC) ratio will remain stable and higher than the peer average in 2023-2024. We forecast budgeted loan growth of about 25% in 2023 and about 15% afterward, as well as good profit generation, will support capitalization at adequate levels. This is despite high dividend payouts of about 60% of net income and no planned capital injections. We forecast a RAC ratio of 7.5%-8.5% in 2023-2024 compared with 8.5% at year-end 2022,” reads the report.
“The positive outlook on Kapital Bank reflects our expectation that it will continue to outperform the majority of domestic and international peers in terms of profitability, capitalization, and asset quality in the next 12-24 months.
“We could raise the ratings within the next 12 months if Kapital Bank continues to outperform its domestic and international peers, demonstrated by ongoing sound performance, stable asset quality, higher capital buffers, and adequate liquidity.”