Privatization of Azer-Turk Bank (ATB), where the share of state participation is 75%, is not envisioned in the coming years, Report informs referring to the international ratings agency S&P Global Ratings.
“We consider ATB a government-related entity (GRE) and believe there is a moderately high likelihood that it will receive timely and sufficient support from Azerbaijan's government if needed. We think the bank has a limited role for the government as a small commercial bank without any special social role, which serves the same customer base of corporates and individuals as other Azerbaijani commercial banks.
We believe that ATB has a strong link with the government, which owns 75% in the bank. However, there is no track record of the government providing support to the bank in case of need since its ownership change in 2014 because ATB did not need extraordinary support. Privatization is not envisioned in the next few years. All three members of the bank’s supervisory board represent the government,” reads the message.
“ATB has shown good progress in cleaning up its balance sheet from legacy, mainly corporate, nonperforming loans, which peaked at 12.6% of total loans at year-end 2018, through write offs and sale of collateral. We expect that Stage 3 consumer loans could increase to 6%-7% of total loans from 3% at Sept. 30, 2022, and total Stage 3 loans to 3.5%-4.0% from 2.0%, as loans season over the next two years. This will still be lower than our forecast for the Stage 3 loans system average of about 6%-8% in 2023.”
“We believe that potential credit quality deterioration could come due to rapid growth in unsecured consumer lending. ATB's credit portfolio expanded 39% in the first nine months of 2022, which was above budget and double the system average of 17%. This strong growth was largely driven by unsecured consumer loans (about a 55% increase in 2022), which accounted for 42% of total loans at September 30, 2022.
We expect ATB will maintain its adequate risk position over the next year. This reflects the bank's well-structured risk management; the concentration of its loan portfolio on residential mortgages under government support programs and unsecured consumer loans, which we view as less risky than corporate and SME loans in Azerbaijan; and our expectation of only moderate deterioration of asset quality in the next two years as consumer loans season,” reads the message.
A strong correspondent banking business, an expanding retail franchise, and government ownership will continue supporting ATB's moderate business position.
With total assets of about Azerbaijani new manat (AZN) 821 million ($483 million) and gross customer loans of about AZN306 million ($180 million) as of September 30, 2022, ATB had a market share of about 2% in retail loans and deposits and a very small portfolio of small and midsize enterprises (SME).
“Its competitive position will remain significantly weaker than that of the top-three Azerbaijani banks--International Bank of Azerbaijan (not rated), Pasha Bank (B+/Stable/B), and Kapital Bank OJSC (BB-/Stable/B)--which hold a combined market share of about 55% by assets and over AZN7 billion [$4.117 billion] of assets each. We believe that the government's 75% ownership is positive for ATB's reputation, cost of funding, stability of retail deposits, growth in correspondent banking, and business growth, without the negative consequences of government-directed lending. Although the bank is developing a new medium-term strategy, we expect that it will continue expanding its retail business and retain its focus on correspondent banking, while the volatile geopolitical situation in the region will help it maintain its strong market positions in this segment,” S&P noted.