TEXT-Fitch:IBA recapitalisation delays continue to weigh on ratings

(The following statement was released by the rating agency)

Jan 30 - Fitch Ratings says that further delays with the recapitalisation of International Bank of Azerbaijan (IBA) continue to weigh on the bank's ratings and increase the risk of a further downgrade. IBA's Long-term Issuer Default Rating (IDR) of 'BB+' is currently on Rating Watch Negative, reflecting this downside potential (see "Fitch Downgrades International Bank of Azerbaijan to 'BB+', Maintains RWN" from 14 December 2011 available on www.fitchratings.com).

In November 2011, IBA's creditors under a funding agreement granted the bank a waiver, valid until 15 January 2012, in respect to its breach of a regulatory capital ratio covenant. As the waiver has now expired and recapitalisation of the bank has not taken place, Fitch understands that IBA is once more in technical default under this agreement, and creditors are again entitled to accelerate the funding facility, equal to about 8% of the bank's liabilities. To date, there has been no public information about the intention of the creditors to seek acceleration or otherwise.

IBA's management has informed Fitch that the bank's recapitalisation plan will be approved and implemented during the next few weeks. However, no specific timeframe has been announced, and previously indicated deadlines for the bank's recapitalisation have repeatedly been missed. Fitch understands that as before, the plan foresees that new capital will be contributed primarily in the form of subordinated debt, although an equity injection also remains a possibility and may result in a temporary increase in the government's stake in the bank.

Fitch's base case expectation remains that IBA will ultimately receive sufficient support from the Azerbaijan authorities to meet its payment obligations, and the bank's IDRs continue to reflect this expectation. If the authorities complete the planned recapitalisation of the bank, then IBA's ratings could be affirmed. However, continued delays with implementation of these plans, in particular if they result in debt acceleration, could result in further rating downgrades.

IBA's current ratings are as follows:

Long-term foreign currency IDR: 'BB+' RWN

Short-term foreign currency IDR: 'B' RWN

Viability Rating: 'cc' RWN

Support Rating: '3' RWN

Support Rating Floor: 'BB+' RWN