Feb 01 - Fitch Ratings has affirmed AccessBank's (AB)
Long-term foreign currency Issuer Default Rating (IDR) at 'BB+'. The Outlook is
Stable. A full list of rating actions is at the end of this comment.
RATING ACTION RATIONALE AND DRIVERS: IDR AND SUPPORT RATING
The affirmation of AB's IDRs and Support Rating reflects Fitch's view of the
moderate probability of support available from its international financial
institution (IFI) shareholders, in particular KfW ('AAA'/Stable; 20% stake), the
European Bank for Reconstruction and Development (EBRD; 'AAA'/Stable; 20%) and
the International Finance Corporation (IFC; 20%). At the same time, Fitch notes
some uncertainty in respect to timely support always being provided if needed,
given the fragmented nature of the shareholder structure; the limited strategic
importance of the bank for its IFI owners and their intention to gradually
decrease their stakes in the bank in the medium-term. For these reasons, AB's
Support Rating was affirmed at '3', and the Long-term IDR at 'BB+'.
RATING SENSITIVITIES: IDR AND SUPPORT RATING
A marked weakening of support propensity, as assessed by Fitch, would result in
AB's IDR being downgraded, as would a multi-notch downgrade of Azerbaijan
('BBB-'/Stable). However, neither scenario is currently anticipated by the
agency. Upside potential for AB's ratings is limited in the foreseeable future.
RATING ACTION RATIONALE: VIABILITY RATING
AB's Viability Rating (VR) of 'b+' is constrained by the potential cyclicality
of AB's performance and asset quality stemming from the highly volatile,
structurally weak and oil-dependent Azerbaijan economy. Fitch believes that a
marked and prolonged downturn in the economy could be particularly challenging
for AB's SME borrowers. AB's significant reliance on wholesale funding is also
On the positive side, AB's VR reflects its solid bottom line results, a healthy
liquidity profile underpinned by the fast amortizing and relatively liquid loan
book, solid asset quality and performance to date, and significant loss
RATING DRIVERS: VR
AB's asset quality indicators remain favourable: loans 90 days overdue equalled
only 0.7% of the end-2012 loan book, while restructured loans and write offs
added a further 0.6% and 0.5%, respectively. Fitch notes that the average
non-performing loan (NPL) ratio for the SME segment in Azerbaijan is closer to
10% and questions the longer-term sustainability of AB's solid asset quality
metrics. The poor quality of financial information on AB's SME borrowers
requires tight control of asset quality, which is more challenging with
portfolio growth, while the ability to cherry-pick the best borrowers is
narrowing as competition in the segment intensifies.
As a mitigating factor, a significant margin of safety exists in the form of the
bank's capital cushion (at end-2012, AB's capital buffer was sufficient to
withstand a maximum 14% of credit losses), pre-impairment profitability (equal
to a further 6% of loans), existing comfortable reserve coverage (4%) and
reasonable de-leveraging capacity. However, Fitch expresses concerns that the
bank has never been tested through a deep and lengthy recession, notwithstanding
the positive track record during the Q408-Q109 crisis.
Fitch expresses concerns over AB's significant reliance on wholesale funding
(above 55% of end-2012 liabilities, including 17% attracted directly from the
shareholders), but is satisfied that it is well diversified by lender and by
maturity with moderate USD60m refinancing needs for 2013. The latter was 1.1x
covered by the liquidity buffer at end-2012.
AB's internal capital generation capacity remains solid (ROAE and ROAA for 2012
were a high 3.5% and 17%, respectively) but is likely to reduce somewhat in the
near term, as competition increases and AB intends to pay dividends equal to
roughly 40% of its annual profits starting from 2012. However, retained earnings
should still be sufficient to maintain the regulatory capital ratio (24.8% at
end-2012) considerably above the regulatory minimum (12%), given the targeted
20% loan growth.
RATING SENSITIVITIES: VR
Downside pressure on AB's ratings could arise if capital is substantially
eroded, for example as a result of sharp asset quality deterioration driven by a
marked weakening of the Azerbaijan economy, for example in case of a much lower
Near-term upside potential for AB's ratings is limited and would probably
require notable improvements in the operating environment. However, an extended
track record of sound performance and gradual reduction of dependence on
wholesale funding would be credit positive.
The rating actions are as follows:
Long-term IDR: affirmed at 'BB+'; Outlook Stable
Short-term IDR: affirmed at 'B'
Viability Rating: affirmed at 'b+'
Support Rating: affirmed at '3'