Fitch Ratings has upgraded the ratings of stability IBA

Fitch Ratings has downgraded the long-term issuer rating ("IDR") of the International Bank of Azerbaijan ("IBA") with the level of "BB +" to "BB" rating and removed it from the list Rating Watch "Negative". IDR forecast is "stable". The agency raised the rating from the level of sustainability of the bank "f" to "b-". A full list of rating actions is as follows.

Long-term foreign currency IDR: downgraded to "BB +" to "BB", outlook "Stable"

Short-term foreign currency IDR: affirmed at "B" and removed from Rating Watch "Negative"

Stability rating upgraded to "f" to "b-"

Support Rating: affirmed at "3", removed from Rating Watch "Negative"

Support Rating Floor: revised to "BB +" to "BB", removed from Rating Watch "Negative".

Lowering IDR MBA and changing the Support Rating Floor reflects the still rather limited capital support from the authorities of Azerbaijan. According to Fitch, support in 2012, continued to act slowly, to a limited extent, and included mainly capital instruments of the second level with a weak ability to absorb losses.

Recently provided by the Central Bank of Azerbaijan subordinated loan ILL of 100 million manat followed other individual contributions of capital to the bank, held earlier in 2012 is estimated Fitch, this series of capital contributions, together with the planned completion of the public offering of 50 million manat of minority private shareholders will enable the bank to maintain capital adequacy ratio of the national standards to a minimum of about 12% at the end of 2012, but this figure MBA at best remain only slightly above the regulatory limit due to the limited ability to reduce leverage and potential need to recognize additional impairment loans.

IDR is still due to Fitch's view of the moderate probability of support from the Bank of the Azerbaijani authorities in case of need. This opinion addresses the fact that the majority share in the IBA (50.2%) is owned by the state, but also takes into account the large market share (35% of sector assets), significant funding from corporations by the state (30% of deposits at the end 3 square. 2012), relatively small size relative to the available resources of the sovereign issuer and potentially significant reputation damage to the authorities in case of default of the bank.

Fitch believes that the authorities are likely to continue to provide capital support to small scale and will provide liquidity as needed. Affordable bank overdraft from the central bank has recently been increased from 100 million to 150 million manat. In addition, the preliminary medium-term financial plan for the bank provides for additional capital contributions in the amount of AZN 200 million before the end of 2015

IBA ratings could be lowered again, (i) if the Azerbaijani authorities do not provide timely support to the capital and / or liquidity of the bank in the event of renewed pressure on the stand-alone credit MBA or (ii) in the case of lowering long-term IDR of Azerbaijan "BBB-". In addition, the decline may follow if the state's share will fall to less than 50%, however, Fitch believes that the privatization of the bank is unlikely until at least 2014 Upside ratings IBA is very limited.

Increased stability rating to a level "b-" reflects the expected return to compliance with the IBA regulatory capital requirements in 2013, an increase in reserves for problem loans (provision for impairment of loans to national standards are now more in line with this indicator, according to IFRS), as well as slight improvement of capital methodology Fitch ("core capital methodology Fitch / assets, risk-weighted" increased to 5.8% at the end of H1 2012 compared to 4.4% at end-2010). Completion of placement in the amount of AZN 50 million of private shareholders (after the capital contribution in the amount of AZN 50 million by the Ministry of Finance in the 1Q., 2012) will also support the rating, and it has also been Fitch information AZN 40 million already was paid during the 2nd half 2012 At the same time, the agency expects that this capital is largely gone on loan growth, subject to further funding needs some troubled assets borrowers.

Stability rating of IBA continues to reflect weak asset quality, capital and profitability, and low liquidity. At the same time, the rating takes into account the stable funding to date from the bank and has favorable operating environment, which is reflected in the good growth of non-oil sector of the economy.

Problem loans at the end of Q3. 2012 accounted for 17% of the loan portfolio of IBA, and a further 24% of the loans were restructured. At the same time, the allowances for loan losses in IBA national standards (both specific and general) were equal to only 12% of the portfolio, which indicates the potential for further recognition of credit losses. In addition, the IBA has funded quite speculative investments of $ 0.9 bn (mainly related to the construction and real estate) in Russia, the impairment which was only 26% at the end of H1 2012, which gives the net value equal to about 2x capital, calculated according to the methodology of Fitch. The Bank expects that further funding in the amount of at least 0.3 billion manat will be necessary to complete the construction of these projects, and ultimately the sale of these assets.

According to Fitch, the process of return of distressed assets (loans and investments) will be quite long (more than one year) and may require substantial additional absorb credit losses. Weak profitability of the bank (despite some improvement in H1 2012 profit before provisions, net of accrued interest not received in the form of money, had a low positive value) means that it will be difficult to absorb the losses from profits leading to potential further pressure on capital.

In the absence of any significant depreciation of portfolio MBA is increasingly dependent on the timely renewal / refinancing of existing debt, borrowed on the financial markets, which amounted to 27% of the funding base of the end of Q3. 2012 total liquidity cushion in IBA end of Q3. 2012 was equal to 305 million manat (11% of customer deposits), while the repayment of the financing raised on the financial markets, the amount of AZN 630 million in H1 2013, and AZN 200 million in the 2nd half of 2013 . IBA expects big bank deposit of 380 million manat, the period for which begins in the 1st half of 2013, will be extended (as it has been in the past), and also has plans to refinance the remaining funding, raised on the financial markets. In assessing the liquidity position of IBA Fitch considers as a definite positive the stability of customer deposits as of today, the availability of liquidity support from the central bank, and continued access to international funding in 2012.

Stability rating may be downgraded in case of (i) the further significant deterioration in asset quality, in particular, reducing the creditworthiness of borrowers or NPLs; (ii) increase the pressure on the capitalization of the deterioration in asset quality and / or higher leverage, or (iii) sharp decline in liquidity, such as the inability to refinance / roll over debt contracted on financial markets. Increased stability rating is unlikely in the foreseeable future and would require resolution of problems with the quality of the assets and the recapitalization of the bank. -15D -