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Credit rating of International Bank of Azerbaijan can be upgraded

Redemption of distressed assets and the subsequent privatization of bank could have a moderate positive impact on bank's creditworthiness and ratings

Baku. 23 July. REPORT.AZ/ International rating agency Fitch said that the financial health could have a favorable impact on the ratings of the International Bank of Azerbaijan Republic (IBAR).

Report informs, the agency notes that the planned purchase of distressed assets and the subsequent privatization of the bank could have a moderate positive impact on creditworthiness and ratings of the bank.

On July 15, Azerbaijani President Ilham Aliyev signed a decree on measures to restore the financial position of IBAR for the preparation of the bank's privatization. According to the decree, the state credit institutions "Agrarkredit" JSC will release government-guaranteed bonds and use the proceeds of the issue for the acquisition of a number of impaired and/or high-risk assets from IBAR.

If this process is done, it may lead to increased stability rating bank. According to Fitch, the size of the problem assets IBAR is significant, despite the fact that non-performing loans and extended credits were only moderate at 7.2% and 6.6% of gross loans at the end of 2014, respectively.

According to the agency, other high-risk loans in the largest number of bank loans amounted to about AZN 1 bn. (11% of gross loans) at the end of Q1 2015. Additional problems with asset quality and corporate governance associated with the old portfolio of promissory notes (about 700 mln. AZN, less allowance for loan losses), the largest of which is related to the construction project in Russia with high risk of non-completion. Coverage of NPLs reserves are at an acceptable level of 135% at the end of 2014, but extended credits, large high-risk loans and promissory notes portfolio with three times the fixed capital by Fitch's at the end of 2014.

Fitch notes that, if sale of troubled assets and the planned capital injection will lead to a marked strengthening of the capitalization of the IBAR, can be considered the possibility of increasing the bank's ratings.

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