Moody's: Reliance of Azerbaijan's Kapital Bank on market funds is limited

Moody's Investors Service (Moody's) upgraded the Baseline Credit Assessment (BCAs) of Azerbaijan's Kapital Bank to ba3 from b1, and the long-term deposit ratings to Ba2 from Ba3, 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 ba3 from b1 reflects the healthy performance of its loan book as well as its solid profitability and liquidity. The upgrade of the local and foreign currency long-term bank deposit ratings to Ba2 reflects both the improved creditworthiness of the bank and Moody's assumption of a high support to the bank from the government of Azerbaijan.

"Kapital Bank's loan book performance continues to benefit from the bank's focus on its existing deposit clientele, including payroll customers, budget recipients and pensioners," the agency says.

As of year-end 2021, the ratio of problem loans to gross loans was 3.5%. The bank's capitalization (TCE/ RWA of 13.6% as of end of 2021) and strong pre-provision profitability (ratio of pre-provision to risk-weighted assets was 8.6% in 2021) that is supported by high net interest margins and strong efficiency, provide the bank with good buffers to absorb loan losses.

"Kapital Bank's reliance on market funds is limited, with a market funds ratio of 6% and a loan-to-deposit ratio of 50%. Concurrently, the bank holds good buffers of liquid assets with the proportion of liquid banking assets to tangible banking assets at 55%," Moody's says.