Fitch Ratings has affirmed International Bank of Azerbaijan's (IBA) Long-Term Issuer Default Ratings (IDRs) at 'BB'. The Outlook is Negative, APA-Economics reports citing to Fitch’s website.
The agency has also downgraded IBA's Viability Rating (VR) to 'f' from 'b-'. The affirmation of IBA's IDRs, Support Rating and SRF reflects Fitch's view that the Azerbaijan sovereign (BB+/Negative) has a high propensity to provide support to the bank, if needed. The Negative Outlook on IBA's ratings reflects that on the sovereign.
The downgrade of IBA's VR to 'f' reflects Fitch's view that the bank has failed. This in turn reflects the agency's view that the asset purchases completed in 1H16 revealed a material capital shortfall, given the very large volume of weakly-reserved exposures being transferred. The AZN10bn of transfers reported in the 1H16 IFRS accounts was considerably more than the AZN3bn initially planned when Fitch reviewed the bank's ratings in March 2016.
Fitch understands that the following support measures are being planned to improve IBA's solvency: (i) a AZN500m equity injection, equal to 90% of end-1H16 FCC, by end-2016 (although this may be fully or largely offset by losses in 2H16); (ii) further credit risk transfers, as outlined above; and (iii) various measures to help reduce the foreign currency position, including the purchase of the latest loan exposures for US dollars and the conversion of accounts of state-related depositors into local currency.