Moody's Investors Service has lowered the outlook on the B2 long-term foreign and local currency deposit ratings of Azerbaijan’s Respublika bank to ‘stable’ from ‘positive’ and the same ratings of Unibank to ‘negative’ from ‘positive’.
"Moody's decision to change the outlook to stable from positive reflects Respublika's increasing appetite for credit and refinancing risk," said Lev Dorf, a Moscow-based Moody's Associate Analyst.
The rapid growth of Respublika's assets in recent years has been mainly funded by international borrowings which increased from US$ 28 mln in 2006 to US$ 161 mln in 2008 — exceeding 50% of the bank's total liabilities.
"Currently high reliance on market funding renders Respublika's liquidity position potentially vulnerable, exposing the bank to higher refinancing risk especially amid tight liquidity conditions on the international markets with limited access to wholesale funding from abroad," added Dorf.
Moody's notes that any material deterioration in the bank's liquidity position — including increasing reliance on liquidity support from National Bank of Azerbaijan — will indicate weakening of the bank's standalone credit strengths and could negatively affect its deposit ratings.
Headquartered in Baku, Respublika reported total assets and shareholders' equity of US$ 306.0 mln and US$ 21.4 mln, respectively, as at year-end 2007.
Outlook on Unibank cut to ‘negative’
Moody's decision to change Unibank’s outlook to ‘negative’ reflects weakening liquidity position and increased refinancing risk faced by the bank. The negative outlook also reflects concerns about Unibank's ability to refinance its debt obligations without having significant reduction in its business activity.
"Moody's notes that the rapid growth of Unibank's assets in recent years has been mainly funded by international borrowings which increased from US$ 33 mln in 2006 to US$ 223 mln in 2008 exceeding 50% of the bank's total liabilities," said Lev Dorf, a Moody's Associate Analyst.
"In Moody's view, this high reliance on market funding renders Unibank's liquidity position vulnerable, exposing the bank to higher refinancing risk especially amid tight liquidity conditions on the international markets with limited access to wholesale funding from abroad," added Dorf.
Moody's expects Unibank to repay its forthcoming debt obligations partly through the liquidity support to be obtained from the National Bank of Azerbaijan which has already agreed to provide a loan for US$ 62 mln to Unibank.
The outlook on Unibank's ratings could return to stable if the bank successfully refinances a substantial portion of foreign borrowings that are due for repayment. At the same time, any further deterioration in the bank's liquidity position, including increasing reliance on support from National Bank of Azerbaijan, will indicate weakening of the bank's standalone credit strengths and could negatively affect its deposit ratings.
Headquartered in Baku, Unibank reported total assets and shareholders' equity of US$ 457.5 mln and US$ 43.4 mln, respectively, as at year-end 2007.
