BAKU

Fitch Ratings has upgraded the International Bank of Azerbaijan’s (IBA) long-term Issuer Default Rating (IDR) to ‘B’ from ‘B-‘ and Viability Rating (VR) to ‘b’ from ‘b-‘. The outlook is positive.

“The upgrades reflect a moderation of risks stemming from the bank’s unhedged short open currency position (OCP), which nevertheless still weighs on IBA’s performance and capitalisation,” Fitch said in a statement.

The OCP was reduced to $0.5 billion (77 percent of regulatory capital) at end-1Q21, from $0.8 billion (114 percent) at end-1Q20.

“We believe that IBA’s capital buffer is sufficient to withstand a severe currency shock, given the significant cushion of IBA’s regulatory Tier 1 capital ratio over the statutory minimum,” the agency said.

Fitch said the upgrades reflected the agency’s revision of the outlook on Azerbaijan’s ‘b+’ operating environment score to stable from negative, given modest pressure from the economic downturn on local banks’ asset quality and performance.

“The Positive outlook on IBA’s rating reflects Fitch’s expectation that IBA will be able to further materially reduce its OCP to 25-30 percent of regulatory capital in the next 12-18 months,” Fitch said.

State-owned IBA reported a net profit of 32.4 million manats ($19.1 million) in the first quarter of 2021, 36.5 percent less than in the same period last year.

The bank said that its assets increased by 2.2 percent year-on-year to 9.2 billion manats, while its liabilities rose by 2 percent to 7.8 billion manats.

IBA’s loan portfolio rose by 2.1 percent in the first quarter to 2.7 billion manats. Consumer loans increased by 4.5 percent to 626.652 million manats, business loans – by 1.9 percent to 1.4 billion manats, loans for real estate – by 0.4 percent to 688.806 million manats.

The bank’s deposits rose from the beginning of this year by 2.8 percent to 5.7 billion manats, while its capital rose by 3 percent to 1.4 billion manats.

Established in 1992, IBA, the largest bank in Azerbaijan by assets, said in 2019 that it had completed its recovery, paving the way for its planned privatisation.

In 2015, the country’s President Ilham Aliyev ordered IBA’s privatisation following a clean-up operation to get rid of distressed assets resulting from poor management. The bank’s former head, Jakhangir Hajiyev, was arrested on suspicion of fraud and misappropriation of public funds.

Aliyev has been very vocal about the need to end large-scale corruption in Azerbaijan, a promise he has enacted through a systematic wide-scale crackdown on graft, with continuing arrests of high-level or former officials suspected of financial wrongdoing.

The finance ministry said that about $3 billion could have been misappropriated by Hajiyev, who denied the charges. He was convicted of fraud and embezzlement in 2016 and sentenced to 15 years in jail.

In 2017, IBA proposed a plan to restructure $3.3 billion of its debt and later received approval from creditors holding 93.9 percent of the affected debt.

The restructuring process has been completed with the support of the government, which holds more than 99 percent.

The European Bank for Reconstruction and Development (EBRD) said in 2019 it might be interested in buying a stake in IBA, but privatisation plans have been postponed several times and it’s not yet clear when the bank will be ready for sale.