Fitch Ratings: "Support Rating Floor at Bank Technique absent"

Fitch Ratings has affirmed the long-term Issuer Default Rating ("IDR") Bank Technique (formerly TexnikaBank) at the "CC". Also upgraded was the bank's stability rating at level "f" to "cc". A full list of rating actions is at the end of this message.

As reported by the agency (http://www.fitchratings.ru/financial/banks/news/newsrelease/news.wbp?article-id=27B4AE4F-3B3C-4701-B985-B033CF5F8E56), confirmation of the IDR of the bank reflects a significant amount of uncovered reserves impaired assets on the balance sheet of the bank and its weak capitalization, although slightly improved. The agency believes that the Bank Technique achieved only modest progress with financial recovery after the recognition of significant problems with the quality of the assets and a sharp outflow of deposits from April to July of last year (Fitch downgraded Tekhnikabank to the CC level on May 21, 2012 at www.fitchratings.com and www.fitchratings.ru).

The rating upgrade reflects the stability of Bank Technique certain limited improvements in the bank's credit for the year, including several more comfortable liquidity position and expected performance of regulatory capital requirements after the recent contributions to the capital of the bank. At the same time, the low stability rating continues to reflect the poor quality of the assets and positions of Bank Technique, weak profitability before provision for impairment losses and low transparency of shareholders.

Private shareholders of the bank recently conducted a new installment of its capital in the amount of AZN 9 million and plan to make another 5 million manat to the end of May 2013 According to Fitch, if the redundancy will remain unchanged, these capital contributions will enable the bank to fulfill the regulatory requirement capital adequacy ratio at the end of May 2013 (at the end of Q1. 2013 total capital adequacy ratio according to national standards was 8.7%, compared with the minimum regulatory requirement of 12%). However, the bank's capital will still be insufficient to fully absorb the problems of impaired loans, while generating internal capital remains limited as income before provision for impairment in accordance with reports Bank Technique was only slightly above zero in 2012

At the end of 2012 the bad loans (overdue by 90 days) in Bank Technique constituted 69% of the portfolio according to IFRS (45% of the portfolio were classified as problem or impaired, and another 24% were identified as problematic, but were not classified as impaired ). Less allowance for these bad loans were equal to AZN 140 million (increase relative to AZN 80 million at the end of 2011), or 6,3 x equity under IFRS. Although the bank's management reports that he was able to get a refund in the amount of about 57 million manat for problem loans in Q1. 2013 and expects to return another 25 bn by the end of 2013, the net non-performing loans are likely to remain significant in relation to shareholders' equity in the short term.

At the same time, Fitch takes into account the improved liquidity position at the Bank Technique compared with 2012 Bank Technique support cushion of cash in the amount of AZN 79 million (equal to 19% of liabilities) at the end of 2012 is comparable to the potential settlement of funds raised to financial markets in 2013 in the amount of AZN 5 million due to foreign organizations and funding of Azerbaijani banks and institutions associated with the state of 30 million manat. The latter are likely to carry out the prolongation of their loans, according to Fitch, which will reduce the potential pressure in terms of liquidity / refinancing.

IDR and Viability Rating Bank Technique can be increased in the event of a substantial further progress of the bank with a resolution of the situation with impaired credit, or in the case of significant additional capital contributions by private shareholders. Bank Technique ratings may be downgraded in case of a renewed outflow of deposits, which make it impossible for the bank service its obligations, or if the control measures for the purpose of external management at the bank. At the same time, none of these scenarios is likely in the short term.

The level of long-term IDR at 'No Floor' and support rating of "5" reflects the relatively limited scope of Bank Technique, as a result, according to Fitch, you can not rely on the extraordinary support from the government of Azerbaijan. Potential support from private shareholders can not be estimated reliably. Fitch does not expect any revision of the level of support for the long-term IDRs and Support rating of Bank Technique for the foreseeable future.

The rating actions are: long-term IDR affirmed at "CC", Short-term IDR affirmed at "C", stability rating was upgraded from "f" to "cc", Support Rating: affirmed at '5' Support Rating Floor: affirmed at "No Floor" - said the agency. - 17D-