Moody's: Bank of Baku's business model is sensitive to economic cycles

The Basic Credit Assessment (BCA) is constrained by the OJSC Bank of Baku's business model focused on the unsecured consumer lending segment, which is sensitive to economic cycles, as well as its modest liquidity cushion at 18% of total assets at the end of 2023, as was reflected in Moody's rating activity for the Azerbaijani bank, Report informs.

“We upgraded the bank's BCA to b1 from b2 and upgraded to B1 from B2 the bank's long-term bank deposit ratings. We also changed to stable from positive the outlook on the B1 long-term deposit ratings. The upgrade of the bank's BCA to b1 from b2 was driven by a combination of Azerbaijan's higher banking system Macro Profile at "Weak" from "Weak-" previously, the lower downside risks in the current operating environment as well as the bank's improved liquidity profile. Bank of Baku's b1 BCA reflects improved asset quality and profitability in recent years with problem loan ratio of 2.8% of gross loans at the end of 2023 and return on tangible assets at 3.5% in 2023,” reads the information.

According to Moody's analysts, Bank of Baku's long-term deposit ratings of B1 are based on the bank's BCA of b1 and do not benefit from any uplift from our assumption of a low probability of support from the Government of Azerbaijan given the bank's relatively small size and lack of systemic importance.

The outlook on Bank of Baku's long-term deposit ratings is stable, reflecting our view that the bank will maintain its robust credit metrics over the next 12-18 months