BAKU

Moody’s Investors Service (“Moody’s”) took rating actions on five banks in Azerbaijan, namely, International Bank of Azerbaijan (IBA), Kapital Bank OJSC (Kapital Bank), OJSC XALQ BANK (Xalq Bank), Joint Stock Commercial Bank Respublika (Bank Respublika), and OJSC Bank of Baku (Bank of Baku).

Specifically, Moody’s has:

1. Upgraded to b2 from b3 the Baseline Credit Assessment (BCA) and adjusted BCA of IBA, affirmed the BCA and adjusted BCA of Kapital Bank at b1, affirmed the BCA and adjusted BCA of Xalq Bank, Bank Respublika and Bank of Baku at b3.
2. Affirmed the long-term local and foreign currency deposit ratings of IBA at B1, Kapital Bank at Ba3, Xalq Bank at B2, Bank Respublika and Bank of Baku at B3.
3. Changed the outlooks on the long-term local and foreign currency deposit ratings of IBA and Bank of Baku to positive from stable; the outlooks on the long-term local and foreign currency deposit ratings of Kapital Bank, Xalq Bank and Bank Respublika were changed to positive from negative.
4. Affirmed the long-term local and foreign currency Counterparty Risk Ratings (CRRs) and the long-term Counterparty Risk Assessments (CR Assessments) of all five banks.
5. Affirmed the short-term ratings and assessments of all five banks.

Moody’s said that the rating actions took into account Moody’s decision to change Azerbaijan’s banking system’s macro profile to “Weak-” from “Very Weak+” to reflect the improvements in the operating environment for banks, which would gradually translate into the improvement of the banks’ standalone credit profiles, in particular, asset quality and profitability assessments.

“The gradual lifting of pandemic restrictions and recovering global oil prices will underpin GDP growth and ease operating conditions for banks and their borrowers in the next 12-18 months,” the agency said in a statement.

“The positive outlooks of the aforementioned long-term ratings of all Azeri banks (except for IBA) reflect the resulting upward pressure on these banks’ intrinsic financial strength (or BCAs),” it said.

Moody’s said the government support measures for borrowers, which equalled 4.6 percent of GDP in 2020, along with loan restructuring provided by banks have mitigated the adverse impact of the pandemic and lockdowns on borrowers.

The government was able to support the economy through cash handouts to low income families, unemployment benefits, the temporary creation of public jobs, wage and tuition subsidies, and discounts on utility bills in 2020.

The stability of the manat despite highly volatile oil prices in 2020 has supported the quality of foreign-currency-denominated loans, which accounted for 30 percent of total loans at the end of 2020.

Moody’s expects real GDP growth at 3.5 percent in 2021 underpinned by the relaxation of coronavirus-related restrictions on activity and movement as well as higher oil and gas production. Over the next 2-3 years, Moody’s estimates economic growth to average around 3 percent.