Moody’s acts on six Azerbaijani banks

Moody's Investors Service said it took actions on six Azerbaijani banks. It downgraded the baseline credit assessments and long-term deposit ratings of VTB Bank (Azerbaijan), OJSC Bank of Baku and Unibank Commercial Bank with a negative outlook.

The agency changed the outlook to negative from stable on the long-term deposit ratings of OJSC XALQ Bank, JSC Bank Respublika and Kapital Bank OJSC, while the banks' ratings were affirmed.

The long-term deposit and senior unsecured debt rating of International Bank of Azerbaijan was affirmed at Ba3 with a stable outlook and BCA at b3 were unaffected.

Moody’s said the actions reflect the negative impact of the depreciation of the Azerbaijani manat on the banks' asset quality, profitability and funding after the introduction in December 2015 of a free-floating exchange rate regime, as well as heightened dollarization of the banks' funding profiles.

This action has led the agency to lower the macro profile of Azerbaijan (Baa3 stable) to "weak-" from "weak," reflecting a very high degree of dollarization relative to other countries in the CIS region and the resulting increased fragility in funding.

Moody’s expects these events to have a sustained impact on the Azerbaijani banks given: (a) Their high exposure to foreign currency-denominated lending; (b) Moody's expectation of further asset quality deterioration amid sharply fallen oil prices, resulting in worsening operating environment; and (c) declining capital buffers to absorb mounting credit losses.

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