S&P ups Azerbaijani bank’s long-term credit rating

Standard & Poor's Ratings Services said today that it had raised its long-term counterparty credit rating on Azerbaijan-based Muganbank OJSC to 'B-' from 'CCC+'. At the same time, we affirmed the 'C' short-term rating. The outlook is stable.

The upgrade follows the revision of our Banking Industry Country Risk Assessment (BICRA) on Azerbaijan to group '8' from group '9', and the revision of our subcomponents of the BICRA on Azerbaijan--economic risk score to '7' from '8' and the industry risk score to '8' from '9'.

"We have consequently revised our assessment of Muganbank's stand-alone credit profile (SACP) to 'b-' from 'ccc+' owing to the revision of the anchor for banks operating in Azerbaijan to 'bb-' from 'b+' as a result of our revised BICRA," the agency said.

Standard & Poor's bases its ratings on Muganbank on the bank's "weak" business position, "moderate" capital and earnings, "moderate" risk position, "average" funding, and "adequate" liquidity, as our criteria define these terms.

The ratings on Muganbank are at the same level as its SACP, because we assess the bank's systemic importance in Azerbaijan as "low". We do not give the ratings any uplift for extraordinary shareholder support.

The stable outlook reflects our view that Muganbank's business and financial profile will remain relatively unchanged over the next 12 months. We expect lending growth to moderate to the same level as the system average, supported by continued macroeconomic growth in Azerbaijan.

"We expect that the RAC ratio before adjustments will stay at about 7%, while funding and liquidity should be supported by an inflow of deposits into Azerbaijan's banking sector," the agency said.

The possibility for a positive rating action is currently remote; however, it could happen if Muganbank significantly improves its business position, for example through a larger franchise and decreased loan concentration.

The ratings incorporate the probability of a moderate weakening of the bank's financial profile, although we could lower the ratings if asset quality deteriorates sharply and drives capitalization downward to the point where our RAC ratio before adjustments would be lower than 5%. We would also consider a negative rating action if the funding profile deteriorates significantly, leading to depressed liquidity and loss of confidence among depositors.


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