(MENAFN- Trend News Agency) Baku, Azerbaijan, May 28
By Kheyraddin Nasirzade - Trend:
Fitch Ratings has affirmed Azerbaijan-based Expressbank Open Joint Stock Company's Long-Term Issuer Default Rating (IDR) at 'B' with a Stable Outlook,Trendreports referring to the rating agency.
The bank's short-term IDR was affirmed at 'B', the viability rating was at 'b', and the support rating was at '5'.
The affirmation of Expressbank's ratings reflects its reasonable asset quality, weak profitability, solid capital buffers, limited exposure to foreign-exchange risks and comfortable liquidity. The ratings also take into account the bank's very high level of related-party lending and a limited franchise in Azerbaijan's challenging operating environment.
IFRS 9 Stage 3 loans stood at a moderate 4.5% of gross loans at end-2018 and at 63 percent were adequately provisioned by specific reserves, based on management disclosures.
The bulk of these loans were concentrated in the SME (small and medium enterprises) portfolio. Although SME loans amounted to only 8 percent of total loans, almost half were impaired.
Fitch Ratings noted that Expressbank is hampered by weak revenue generation, high operational costs and high loan impairment charges. Pre-impairment profit weakened to 0.3 percent of average assets in 2018.
However, the agency notes that Expressbank is well capitalised.
The bank's FCC ratio decreased to 41% at end-2018 from 59% at end-2017 due to negative net income and loan-driven growth of risk-weighted assets. The regulatory Tier 1 ratio was a lower 21% at end-1Q19 due to a partial deduction of the related-party exposures, while the total capital ratio was 23%, both comfortably above the respective minimums of 5 percent and 10 percent," the agency said.
Fitch noted that Expressbank is funded by customer accounts (83% of liabilities at end-1Q19) with the majority of funds raised from individuals (63% of liabilities). Corporate accounts decreased by 67% in 1Q19 due to repayment of funds to a large depositor. The buffer of highly liquid assets (cash and equivalents, net short-term interbank placements and placements with the Central Bank of Azerbaijan, including short-term bonds) decreased significantly but remained comfortable, equal to 26% of customer funding at end-1Q19.
"Rating upside for Expressbank would require substantial franchise and financial profile strengthening, and a material reduction of related-party transactions," Fitch Ratings noted.
Expressbank, which was established in 1989, is among 20 leading banks in Azerbaijan.
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