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Fitch: Azerbaijani Atabank's Ratings Unaffected by Merger
July 4, 2017 / 3:09 PM / 5 months ago

Fitch: Azerbaijani Atabank's Ratings Unaffected by Merger

(The following statement was released by the rating agency) MOSCOW, July 04 (Fitch) Fitch Ratings says that the recently completed merger of Azerbaijan's Atabank OJSC (AB; B-/Negative/b-) with Caspian Development Bank (CDB) has no immediate impact on AB's ratings. This reflects Fitch's base case view, based on public disclosure, that the positive impact from the higher capital ratios of the merged bank is counterbalanced by recent loan deterioration, meaning the post-merger credit profile is likely to be still commensurate with the 'B-' rating level. Fitch will conduct a further detailed analysis (including with reference to non-public disclosure) in the course of an upcoming rating review to take a more definitive view on the bank's post-merger credit profile and consider potential rating implications. The transaction was completed in May 2017, as a result of which CDB was merged into AB and ceased to exist as a separate legal entity. Before the merger, AB was owned by OJSC "Ata Holding" (AH), and CDB by Synergy Group OJSC (SG), with AH and SG both owned by the same group of people close to the Azerbaijani authorities. After the merger, control over the merged bank was transferred to SG, which subsequently injected AZN20 million of equity into AB. We take a positive view of the increased capitalisation of the merged bank. AB's regulatory tier 1 and total capital ratios increased to 21.4% and 22.9%, respectively (regulatory minimums are 5% and 10%) at end-5M17 from 12.8% and 14.2% at end-4M17. The improvement was mainly due to the merger with CDB, whose assets were a quarter of AB's while capital ratios were much higher (above 40%), as well as the additional capital contribution from SG. Negatively we view the significant weakening of asset quality, mainly attributable to the pre-merger AB, whose non-performing loans (NPLs, 90+ days overdue) increased to around 30% of gross loans at end-2016 (based on IFRS accounts) from 13% at end-2015, while CDB reported negligible NPLs at end-2016. Fitch estimates that the combined NPL ratio for the merged bank should be around 23%, while reserve coverage (based on end-2016 IFRS accounts) would have been about 55%. However, asset quality may be somewhat worse than reported, as based on a combined income statement for 2016 over 30% of accrued income was not received in cash. The unreserved NPLs equaled around 51% of combined equity at end-2016, although the combined equity/asset ratio would still have been a reasonable (for the B- rating level) 10.9% if NPLs had been fully reserved. Contact: Ruslan Bulatov Associate Director +7 495 956 9982 Fitch Ratings CIS Limited 26 Valovaya Street, Moscow 115054 Maria Kuraeva Associate Director +7 495 956 9901 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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