Fitch Ratings Assigned AtaBank "B-", "Stable" Outlook

Fitch Ratings has assigned AtaBank OJSC, Azerbaijan, the long-term Issuer Default Rating ("IDR") at "B-" with a "stable" outlook. A full list of rating actions is provided at the end of this message.

IDR and ratings reflect the stability AtaBank vulnerable quality of its assets due to high risks of the operating environment of Azerbaijan, the limited ability of the bank to absorb losses, moderate liquidity and concentrated customer base.

The rankings do not reflect the potential support from shareholders AtaBank, but Fitch believes the bank's close ties with the government of Azerbaijan are moderately positive for creditors. At the same time, according to Fitch, in direct support of the authorities of the country at any time, you can not rely in view of the limited significance of the bank to the banking system (it accounted for only 1.6% of sector assets at end-2011) and the weak history of providing state support in the past, even the largest bank in the country, the state IBA ("BB +" / Rating Watch "Negative").

At the end of the 1st half of 2012 the regulatory capital adequacy ratio was 13.3% AtaBank, which Fitch considers a low level, especially in light of the concentrated loan portfolio (share of the 25 largest loans were equivalent to 2,2 x capital methodology Fitch) and noticeable level of problem assets, which do not create reserves. Impaired loans accounted for 6.2% of the total portfolio at the end of H1 2012, and only 29% were created allowances for loan losses, while the share of such loans without reserve equals 19% of the share capital, calculated according to the methodology of Fitch. In addition, the agency's concerns are about raising two loans in the inter-bank market, which is still 28% of the equity capital, as estimated Fitch, not employed or potentially problematic. According to the agency, AtaBank was able to increase its reserves for loan losses only up to 4.5% of total loans (73% of problem loans) or to cover 70% of the above inter-bank loans at the end of the 1st half of 2012, before its capital adequacy ratio fell least to the regulatory minimum of 12%.

Adverse effect on the generation of capital for profits are weak operating performance, and its net interest margin was below the average of comparable issuers (though partly due to the participation in projects financed by the National Fund for Entrepreneurship Support), which could potentially indicate a much higher proportion loans to related parties than 11.6% of the portfolio according to reports at the end of 2011

In the absence of the ability to generate sufficient capital to support its growth depends on timely AtaBank capital contributions from shareholders. According to information from the bank by the end of 2012, is likely to be a new contribution of capital held in preparation for the implementation of the new minimum regulatory capital requirements in the amount of AZN 50 million, which will come into force from January 1, 2014

At the end of the 7 months in 2012 the total available liquidity of AtaBank covers only 16% of all client accounts, which Fitch believes fairly moderate rate in light of the relatively concentrated funding base of the bank (the 20 contributors accounted for 58% of customer funding). At the same time, AtaBank no refinancing needs in the capital markets and diversification of funding can be conducted through the use of the branch network, the fifth largest in Azerbaijan.

The downward pressure on AtaBank's rating may arise in the event of pressure on the capital, in particular as a result of loan impairment, or lack of contributions of capital. In the event of a significant weakening of the economy of Azerbaijan or political stability in the country, for example, at a much lower price of oil, it would also be a negative rating factor for the bank.

Potential to improve the bank's ratings in the near future is limited. However, the strengthening of capital improvements in profitability and acceptable expanding the customer base was positive for its solvency.

The support rating and the support level of the long-term IDR of AtaBank may be increased in the event of a marked increase in value of the bank to the banking system and expand its customer base, or if the Azerbaijani authorities to more clearly demonstrate their commitment to support the country's banks, which are not owned by the state. However, Fitch believes that such changes are unlikely in the near future. -15D -


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