S&P raises long-term ratings of Azerbaijan's PASHA Bank

The international rating agency S&P Global Ratings has upgraded the long-term ratings of Azerbaijani PASHA Bank OJSC from B+ to BB- and confirmed the short-term issuer credit ratings (ICR) at the level of B.

Report informs citing the agency that the outlook on ratings is 'stable.'

"This reflects our view of its strengthened stand-alone credit profile (SACP), benefiting from an increase in funding stability due to a constant share of GRE funding and retail deposits over the past few years. We also note that the partial disposal of ownership in its Turkish subsidiary (from 51% to 28%) --expected in late 2023 or early 2024--and moderate loan growth and increased profitability in 2023, are supportive of its risk-adjusted capital ratio," the agency said.

In addition, according to the S&P analysts, the bank's asset quality has improved with stage 3 loans at 5.4% of total loans versus our estimate for system average stage 3 loans of 6%-7% as of Sept. 30, 2023.

"Under our base-case scenario, we expect some incremental asset quality deterioration over the next 24 months as loans season in a low growth macroeconomic environment. However, we think it should be manageable for the bank," the agency said.

The stable outlook on PASHA Bank is based on the agency's expectation that its solid corporate business franchise in Azerbaijan, large liquidity buffers, and stable customer deposits will support its credit profile over the next 12 months.

"A positive rating action is highly unlikely in the next 12 months because it would require the bank to demonstrate profitability, capitalization, and asset quality metrics stronger than its domestic and international peers, which is not our base-case expectation," the analysts said.

OJSC PASHA Bank was created in June 2007 and is one of the TOP-3 banks in the country in terms of assets. The bank's shareholders are two legal entities - PASHA Holding (56.82%) and Bless LLC (28.18%), as well as two individuals - Arif Pashayev (9.99%) and Mirjamal Pashayev (5.01%). The bank is part of PASHA Holding.