Moody's: TCE ratio of Azerbaijan's Bank Respublika to remain stable

Moody's Investors Service (Moody's) affirmed the Baseline Credit Assessment (BCAs) of Azerbaijan's Bank Respublika at b3, and the long-term deposit ratings at B3, Report informs, citing the agency.

"The affirmation of the bank's BCA and Adjusted BCA at b3 reflects its resilient asset quality and satisfactory liquidity buffers that is moderated by relatively weaker capital.

Despite Bank Respublika's material focus on small and medium enterprises (SME) lending and unsecured consumer lending, its problem loans to gross loans ratio declined to 2.0% at year-end 2021 from 7.1% in 2020. This is attributed to stronger underwriting standards, stable USD/AZN exchange rate which will likely be supported by higher oil prices, and the scale of state support provided to households, entrepreneurs and SMEs in Azerbaijan following the pandemic," reads the agency's report.

However, the rating agency expects the bank's credit losses to remain elevated, and the problem loans to display some volatility in the near future, but within a tolerable range for a b3 BCA. Bank Respublika's profitability is constrained by weaker efficiency with a cost-to-income ratio of 89% in 2021 and a net income ratio of 0.8%.

"Bank Respublika's TCE (tangible common equity) ratio is weaker when compared to its global and domestic peers, and it reduced to 9.6% as of 2021 from 14.5% in 2020. This followed a 59% growth in loans and advances in 2021, which ballooned the banks' risk-weighted assets," says Moody's.

The rating agency expects the bank's TCE ratio to remain stable in the next 12-18 months because retained earnings will support capital generation, moderating impact of higher risk-weighted assets. In line with the high loan growth, the bank's liquid assets ratio declined to 27% in 2021 from 42% in 2020.

Moody's expects the funding and liquidity to stabilize at the current levels.