Moody's expects liquidity of International Bank of Azerbaijan to remain high

Moody's Investors Service (Moody's) upgraded the Baseline Credit Assessment (BCAs) of the International Bank of Azerbaijan (IBA) to b1 from b2, and the long-term deposit ratings to Ba3 from B1, Report informs, citing the agency.

These rating actions reflect the rating agency's view that the operating environment for Azeri banks will improve in the next 12-18 months, as reflected by the upgrade of Azerbaijan's sovereign rating.

The upgrade of the bank's BCA and Adjusted BCA to b1 from b2 reflects strong performance of IBA's loan portfolio as well as its robust profitability and capital adequacy levels. The upgrade of the bank's local and foreign currency long-term bank deposit ratings to Ba3 from B1 reflects both the improved creditworthiness of the bank and Moody's assumption of a high support to the bank from the Government of Azerbaijan.

"IBA's asset quality continues to benefit from its modest exposure to sectors and segments that were more significantly affected by the pandemic-induced economic disruption. The bank's problem loans to gross loans reduced to 4.2% year-end 2021 and while the rating agency expects it to deteriorate slightly on account of high loan growth in 2021, it will remain contained," the agency says.

Moody's estimates IBA's capital adequacy, as measured by tangible common equity (TCE) to risk-weighted assets (RWA), at 31% as of year-end 2021 and considers this capital cushion, along with pre-provision income, strong enough to absorb higher loan losses.

"The bank's profitability is underpinned by its strong efficiency, with a cost-to-income ratio of 48% at year-end 2021. IBA also carries large volume of liquid assets, with a ratio of liquid banking assets to tangible banking assets at 68% as of end of 2021 and has a low reliance on market funds," reads the agency's report.

Moody's expects the bank's liquidity to remain high in the next 12-18 months.