Fitch affirms Accessbank's rating - UPDATED

***10:05

Baku. 7 September. REPORT.AZ/ Fitch Ratings has affirmed Accessbank's long-term issuer-default ratings (IDRs) at 'BB+'and outlook negative.

Report informs citing Fitch, the agency has also downgraded AB's viability rating (VR) to 'b+' from 'bb-'.

The 'negative' forecast affirmed according to the country's independent rating. 

***10:48

"AB's Long-Term IDR of 'BB+' and Support Rating of '3' reflect the moderate probability that the bank would receive support from the bank's international financial institution (IFI) shareholders. The European Bank for Reconstruction and Development (AAA/Stable), KfW (AAA/Stable), International Finance Corporation and the Black Sea Trade and Development Bank each hold a direct 20% stake in AB. A further 16.5% is held by Access Microfinance Holding, in turn also controlled by IFIs."

Fitch views the propensity of AB's shareholders to provide support as high because of the IFIs' strategic commitment to microfinance lending in developing markets; the IFIs' direct ownership of AB, stemming from their participation as founding shareholders; the significant integration of IFI guidelines into AB's risk management; and Fitch's expectation that a full exit of the IFIs from the bank in the next few years is unlikely", the agency states.

"However, AB's ability to receive and utilise any potential support could be restricted by transfer and convertibility restrictions, as reflected in Azerbaijan's Country Ceiling of 'BB+'

The downgrade of AB's VR to 'b+' from 'bb-' reflects significant deterioration in the bank's asset quality and performance following the devaluations of the Azerbaijan manat in 2015. Positively, AB's VR reflects the bank's still reasonable capital levels and manageable refinancing risks. 

At end-1H16, AB reported sizable non-performing loans (NPLs; loans 90+ days overdue) at 20% of the total portfolio (57% covered with impairment reserves), up from a moderate 5% at end-2015 (97% covered). Restructured loans comprised a further substantial 54% of the portfolio, as the bank actively extended maturities on USD-denominated exposures following the devaluation of the manat in February and December 2015. The ultimate credit quality and recoverability of these restructured loans is yet to be tested", Fitch writes.

Fitch sees significant further downside to AB's asset quality, performance and capital, since at least some of the AZN64m of unreserved NPLs (68% of FCC at end-1H16) or AZN388m of restructured loans (4.1x FCC) may result in additional impairment charges. Fitch estimates that AB's regulatory capital buffer is only sufficient to absorb additional charges of 5% of gross loans before reaching the regulatory minimum of 10%, which would be barely sufficient to fully cover existing NPLs.

Near-term refinancing needs moderated in 1H16, but remain significant. At end-1H16, the bank's wholesale funding maturing within 12 months was equal to around 30% of total liabilities, although the available liquidity buffer was equal to 92% of this. Refinancing risks are reduced by AB's firm access to IFIs and parent funding.