Fitch Ratings has downgraded Azerbaijan-based AccessBank`s Viability Rating

Fitch Ratings-Moscow-01 February 2017: Fitch Ratings has downgraded Azerbaijan-based AccessBank's Viability Rating (VR) to 'f' from 'b+'. At the same time the agency has affirmed the bank's Long-Term Issuer Default Rating (IDR) at 'BB+'. The Outlook on the Long-Term IDR is Negative. The downgrade of AccessBank's VR to 'f' reflects Fitch's view that the bank has failed, as reflected by a material capital shortfall. The agency believes the bank has become dependent on regulatory forbearance as it is in significant non-compliance with regulatory capital adequacy rules and requires extraordinary external capital support to restore its solvency.

AccessBank's non-performing loans (NPLs; loans 90 days overdue) were a high 27% of gross loans at end-2016 (up from 22% at end-1H16 and 5% at end-2015). Reserve coverage of NPLs in preliminary IFRS accounts was above 80%, but additional downside asset quality risks stem from a large amount of recently restructured foreign-currency loans (around 50% of the total portfolio); these are of uncertain credit quality, particularly in light of the further devaluation of the local currency by 18% between September 2016 and January 2017.

AccessBank's funding profile has been stable. At end-2016, the bank's wholesale funding maturing within 12 months was equal to around 25% of total liabilities, but the available liquidity buffer was equal to a high 96% of this. Refinancing risks are further reduced by AccessBank's access to funding from shareholders and other IFIs.

The affirmation of AccessBank's Long-Term IDR at 'BB+' and Support Rating at '3' reflects Fitch's view that the bank's IFI shareholders continue to have a strong propensity to provide support, notwithstanding the bank's recent losses. The European Bank for Reconstruction and Development (AAA/Stable), KfW (AAA/Stable), IFC and the Black Sea Trade and Development Bank each hold a direct 20% stake in AccessBank.

Fitch's view on support is based on the IFIs' strategic commitment to microfinance lending in emerging markets and the IFIs' direct ownership of AccessBank, stemming from their participation as founding shareholders. This is additionally supported by the shareholder's intention to inject equity in 1Q17 to restore AccessBank's capital position.

However, the bank's ability to receive and utilise potential support could be restricted by transfer and convertibility risks, as reflected in Azerbaijan's Country Ceiling of 'BB+'. The Negative Outlook on AccessBank's IDR reflects that on the sovereign. -71D-