Fitch downgrades rating of Azerbaijan's bank

Baku. 11 August. REPORT.AZ/ Fitch Ratings international agency has estimated rating of the Atabank OJSC based in Azerbaijan. 

Report informs, the agency has downgraded Azerbaijan-based Atabank OJSC's (AB) Long-Term Issuer Default Rating (IDR) to 'CCC' from 'B-'. 

"The downgrade of AB reflects Fitch's view that the post-merger credit profile has turned out to be weaker than previously anticipated and no longer commensurate with the 'B-' rating level. Specifically, asset quality is worse than expected due to additional deterioration in 1H17, offsetting the positive impact from the merger with the stronger-capitalised Caspian Development Bank OJSC (CDB), with the volume of unreserved non-performing loans (NPLs, 90+ days overdue) equaling a high 1.2x Fitch core capital (FCC) at end-1H17", the agency states. 

Fitch also estimates that cash-based (excluding non-received accrued interest) pre-impairment profitability was about breakeven in 2016-1H17, which makes reserving of problem loans challenging without external capital support.

"Atabank's NPLs increased significantly to 42% of total gross loans at end-1H17, from 14% at end-2015, while the loan book grew 14% in the same period with more than 40% of this growth being uncollected accrued interest. Reserve coverage of NPLs weakened to 26% at end-1H17 from 39% at end-2015 and their additional provisioning could erode the bank's capital position. Even after the merger with CDB in May 2017 and a further AZN20 million equity injection in 1H17, AB's unreserved NPLs were a significant 1.2x FCC at end-1H17", Fitch Ratings writes.