"S&P": Pasha Bank's market share in corporate sector will increase

Pasha Bank's strong market position in Azerbaijan's corporate lending segment continues to support business stability. The Bank's market share in this segment increased to 18.6% as of Oct. 1, 2019, versus 15.6% at year-end 2018, and it may reach 22%-24% in 2020, Report informs, citing S&P Global Ratings.

S&P Global Ratings today lowered its long-term issuer credit rating on the Bank to 'B+' from 'BB-.' The outlook is stable. The S&P also affirmed its 'B' short-term rating on the Bank.

"However, contrary to what we expected earlier, the growth in market share has not led to meaningful customer diversity, which remains weaker than for leading banks in neighboring countries. This, in turn, reflects the relatively small size of Azerbaijan's economy and the Bank's business model with its exclusive focus on corporate business," the statement said.

S&P thinks that the Bank's ample liquidity buffer and stable depositor base support its credit profile. As of year-end 2019, liquid assets, including cash, interbank deposits, and liquid investment in securities, covered about 48% of customer deposits.

On June 30, 2019, the stable funding ratio was about 214%, versus the 140% peer average, while customer loans to customer deposits stood at 45%, compared with the 120% peer average.

The stable outlook on PASHA Bank reflects S&P's view that Bank's solid corporate business franchise in Azerbaijan, high liquidity buffer, and stable customer deposits will support its credit profile over the next 12-18 months. Despite a somewhat more aggressive capital policy, the stable outlook includes the ongoing benefits Pasha Bank receives as part of the larger PASHA Holding.

Nevertheless, several mitigating factors are also noted. First, the Bank's asset quality is now close to that of the rest of the system. Second, cash collateral covers about 40% of total problem loans. Finally, besides the two problem borrowers, the rest of the portfolio demonstrates a good performance with past-due loans (NPLs) at around 5.0% of the portfolio.