March 17, 2017 / 11:36 AM / 3 years ago

Rescued Azeri bank IBA not seen ready for privatisation yet

BAKU, March 17 (Reuters) - State-owned International Bank of Azerbaijan (IBA) will need more government aid to clean up its balance sheet and is unlikely to be privatised as envisaged under a 2015 rescue plan for at least two years, an official and experts said.

After an order from Azeri President Ilham Aliyev, the finance ministry and central bank decided in 2015 to transfer bad and risky loans made by IBA, Azerbaijan’s largest bank, to Aqrarkredit, a state-owned non-banking credit organisation.

The International Monetary Fund wants the government to gradually sell off its stake following the reorganisation, but a senior Azeri official said there are no firm plans in place yet.

“It’s too early to talk about privatisation,” Rustam Tahirov, strategic services department head at Financial Market Supervision Agency, told Reuters.

“The initial plan right now is to finalise reorganisation by the end of this year.”

Several Azeri banks have lost their licences after bad loans soared and capital dwindled as a collapse in the price of oil, the Soviet republic’s main export, caused a sharp economic downturn and currency slump.

Some 10 billion manats ($5.8 billion) of bad loans have been shifted to Aqrarkredit so far and IBA chairman Khalid Ahadov said in February he expected the government to take on another $3 billion this quarter.

The government increased its stake in IBA to 76.73 percent after injecting additional capital in December via a share issue. IBA holds around a third of Azerbaijan’s banking assets.

Dmitri Vasiliev, director of financial institutions at credit rating agency Fitch, said the government “will need to inject additional capital for a while, until and unless IBA builds up a new loan book”.

“We view IBA as failed institution right now and it will take time to build a new loan book in an environment like this, because loan growth is not here.”

Vasiliev said the support package for IBA may also include reducing its foreign-currency liabilities by converting them into local currency or through hedging.

Fitch has estimated that some 1.1 billion of the bank’s 1.4 billion manat net loss in 2016 resulted from currency, translation losses.

The manat has lost 55 percent of its value against the dollar since 2014, when oil prices began to collapse. After first abandoning a currency peg for an exchange rate corridor, the central bank opted in January to let the currency float freely to save state reserves from depleting.

Nariman Mannapbekov, the Asian Development Bank’s country manager for Azerbaijan, said that “according to my information, there is no plan to privatise IBA this year” and that the chance IBA will be privatised within two years “is very small”.

“I’m sceptical that it might happen in 2018 as after a clean-up they need to pass an international audit, do a due diligence,” Narimanov added.

$1-1.72 manats Editing by Catherine Evans

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