Moody's Investors Service today upgraded the long-term local and foreign currency deposit ratings of three Azerbaijani banks, namely International Bank of Azerbaijan (IBA), Joint Stock Commercial Bank Respublika (Respublika) and OJSC XALQ BANK (Xalq), ONA reports citing Moody's.
The outlooks on the long-term deposit ratings of Respublika and Xalq were changed to stable from positive, and the outlook on the long-term deposit ratings of IBA remains positive. Moody's also upgraded these three banks' long-term Counterparty Risk Ratings (CRRs) and Counterparty Risk Assessments (CR Assessments). Concurrently, Moody's upgraded these three banks' baseline credit assessments (BCAs) and Adjusted BCAs. The three banks' short-term local and foreign currency deposit ratings and short-term CRRs of Not Prime and short-term CR Assessments of Not Prime(cr) were affirmed.
The upgrade of IBA's BCA to b3 from caa2 reflects the positive impact on the bank's solvency metrics stemming from (1) improved asset quality, restored capital buffers and robust net income; as well as (2) a material reduction in the bank's short foreign currency position reducing the susceptibility of its profits and capital to exchange rate volatility.
IBA's profitability improved following its restructuring, thanks to decreased funding and operational costs, as well as the replacement of problem loans with yielding liquid assets. As a result, in 2018, under local GAAP, the bank posted net income of AZN426 million (or AZN295 million, if adjusted for release of provisions), a strong return on average assets (ROAA) of 3.5%. Based on the current balance sheet structure, Moody's expects IBA to generate robust pre-provision income in the next 12 to 18 months.