Two Agencies on Bank Technique

Bank Technique refused of cooperation with the international rating agency Fitch Ratings. According to experts, this is due to the fact that on 10 March this year, the agency placed the ratings of the bank on the list Rating Watch «negative» that reflected the breach of regulatory capital requirements as a result of the devaluation of the manat.

The agency was forced to withdraw the ratings, as the bank decided to stop participating in the rating process. Thus, the agency will no longer have sufficient information to maintain its ratings.

Meanwhile, the international rating agency Moody's has downgraded the long-term deposit ratings of the bank in national and foreign currency from Caa1 to Caa2. A Issuer Default Rating (IDR) of Bank Technique «B-» reflects weak capitalization and asset quality. The agency as well as Fitch Ratings downgraded the bank's baseline credit assessment from Caa2 to Caa3, reflecting the lack of support of capital due to the weakening of the capital stock due to the February devaluation of the manat with negative implications on the long-term deposit rating. This means a lack of capital support to offset a sharp decline due to the loss of 25 million manat, which, according to analysts of the agency, led to a decline in capital adequacy ratio of the first and overall level to 5.2% and 7.1%, respectively, to 1 April (the end of the first quarter) this year. In addition, the bank has a short unhedged currency position of 14% of assets, or 124% of the capital at the time of the devaluation of the manat.

Experts tie the cons to common problems in the financial market. As of today, the bank has not received capital support, and so far it is not clear if it had received it from the Central Bank of Azerbaijan Republic or shareholders. According to the plan for the recapitalization of the bank submitted to the Central Bank, it is planned to attract 8 million AZN of subordinated debt from shareholders. However, the timing of this infusion is not yet known and this amount is not enough to strengthen the capital, according to Moody's. They believe that Bank Technique needs a capital investment of at least 28 million manat, of which 5 million capital will go to the first level.

Moody's considers Bank Technique, as a bank of systemic importance because of its size. Moody's also says that the deposits from the Central Bank and other government agencies accounted for 19% of the bank's liabilities as of 1 January this year.

"A large amount of major long-term funds provided by the regulator, along with the recently obtained temporary exemption from the obligation, indicates that the regulator will not allow the collapse of the structure. For this reason, Moody's raises the rating of self-reliability by one level, believing that the bank is likely to receive support from the state," the report says.

The forecast can be stable if the bank receives support from the CBA or the shareholders, which will lead to stabilization of the credit profile and improve the capital, the expert believes.

JSC Bank Technique has operated under license since 1994. --17D-