OREANDA-NEWS. August 10, 2010. Moody’s Investors Service has today changed to stable from negative the outlook on the International Bank of Azerbaijan (IBA).

The agency informs that long-term local currency deposit rating was assessed at the level of Baa3 and long-term foreign currency subordinated debt rating at Ba1.

The rating agency has also affirmed all of the bank’s ratings.

“The rating actions reflect the Azerbaijan government’s continued ongoing support to IBA, a government-controlled bank, in terms of funding, capital and business flows. In addition, the government’s direct support to IBA’s large borrowers that were facing financial problems has, in Moody’s opinion, supported IBA’s asset quality, liquidity and helped to avoid material capital erosion,” it was reported.

Moody’s notes that the government’s capacity to provide assistance to IBA in case of need is supported by improved prospects for its fiscal position, and by adequate FX reserves, in turn strengthened by higher oil revenues.

“IBA’s global local currency (GLC) deposit rating of Baa3 and long-term foreign currency subordinated debt rating of Ba1 receive a multi-notch uplift from the bank’s Baseline Credit Assessment of B2. This is based on Moody’s assessment of a very high probability of systemic support in the event of need,” it was informed.

According to Moody’s, IBA is a 50.2% owned by the government and is the largest and the only state-controlled bank in the country.

Over the past two years IBA expanded its market shares as it has played an increasing policy role in support of economic activity during periods of economic slowdown. With total assets of USD4.7 billion, IBA holds a dominant position in the banking sector as evidenced by its large market shares in total banking system assets, loans and deposits (44%, 47 % and 43%, respectively, as at YE 2009). The bank enjoys a strategic role and government commitment, as it has historically been instrumental in implementing state investment and economic policies, acting as an agent of the government in financing large-scale projects of national importance to Azerbaijan,” it was reported.

Moody’s added that IBA demonstrated reasonable financial performance in 2009 as the bank was able to generate a stable flow of interest and commission income sufficient to cover an increased level of provisioning which is expected to stabilise in 2010. IBA’s capitalisation remained relatively low, with a Tier 1 ratio of 7% and total capital adequacy ratio (CAR) of 11.3% at 31 December 2009; however, it will be sufficient to absorb expected credit losses. Furthermore, the bank’s credit exposure to top 20 borrowers decreased to 260% of total equity at end-May 2010, from over 300% in 2009.

Moody’s previous rating action on IBA was on 23 June 2009 when the rating agency downgraded the following global scale ratings of IBA: long-term and short-term local currency deposit ratings to Baa3/Prime-3 from Baa2/Prime-2, and long-term foreign currency subordinated debt rating to Ba1 from Baa3, and assigned a negative outlook on these ratings.