OREANDA-NEWS. April 11, 2011. The International rating agency - Moody's Investors Service, has recently changed the forecast on a long-term rating of "Ba2" for foreign currency deposits of the International Bank of Azerbaijan (IBA) from "stable" to "positive", reported the rating agency, reported the press-centre of IBA.

Other ratings of the bank – a short-term rating on foreign currency deposits "Not Prime", a long-term rating on deposits in national currency "Baa3/Prime-3", a long-term senior unsecured foreign currency rating to "Baa3/Ba1", subordinated debt rating of "Baa3 / Ba1 "and the bank financial strength rating of" E + "- have been confirmed by the agency at the same level.

Moody's noted that the IBA’s long-term rating of foreign currency deposits is limited by the country ceiling. Moody's also indicated that 50.2% of IBA belongs to the state, and it is the largest and the only state-owned bank in the country. The Bank holds a dominant position in the banking sector, as evidenced by its market share in the total banking system assets, credit investments and deposit base (42%, 435 and 36%, respectively, at the end of 2010). Moody's notes that the IBA is of strategic importance, since it historically played an important role in the implementation of public investment and economic policy, acting as an agent for the government in financing large-scale projects of national importance for Azerbaijan.

The last change of the IBA’s rating by Moody's was carried out on August 10, 2010, when the rating agency upgraded its forecast from “Negative” to “Stable” for a long-term deposit ratings in national currency of Baa3 and a long-term foreign currency subordinated debt rating of Ba1.

Last year, the IBA’s total assets amounted to 6.9 billion dollars, the shareholders' equity - 834 million dollars and the net profit - 61 million dollars.

The improved rating forecast from the international rating agency - Moody's Investors Service, today means a great confidence in the leading Azerbaijani bank. We should note that now the international rating agencies are very cautious in providing higher ratings subject to the uncertainty of debt problems in several European countries in the Euro zone. But the international rating agencies are especially cautious in relation to the companies and banks operating in emerging markets.

In a special comment, published on March 30, Moody's Investors Service explains why many banks in the emerging markets around the world have a low financial strength rating (LFSR) at a level of E +. Approximately 170 banks that constitute one third of all banks rated by Moody's in the emerging markets have LFSR E +, which correspond to ratings from B1 to B3 on a Moody's scale for long-term commitments. In accordance with 1news.az with reference to Moody's, the report "Banks in emerging markets: the basic problems of banks with low ratings" (Emerging Market Banks: Key Challenges for Low-Rated Banks) is devoted to the analysis of the major problems faced by banks in the emerging markets with low ratings E +.

It noted that the creditworthiness of these banks, usually affects one or several factors: the difficult operating environment, the absence or underdevelopment of the risk management system, weak and limited market positions, weak corporate governance structure and a large volume of transactions with the related parties; extremely high concentrations in assets and liabilities, a high appetite for the market risk.

CIS countries account for 70% of all banks with ratings of E +. Other banks are located in Latin America, Africa and Asia. Given the fact that most of the banks of the CIS countries faced the described in the report problems, the distribution of ratings of banks in emerging markets on the rating scale is largely shifted to its lowest level since all of these problems are taken into account by the agency when assigning ratings. "High economic volatility in the CIS countries coincides with the deterioration of asset quality and profitability of banks, which makes the banking business in these countries more risky," - says the vice president, Moody's senior loan officer - Yaroslav Sovgira.

In addition, banks with low ratings tend to have weak risk management. In some cases, the decision-making process suffers from the lack of availability of risk management at the managerial level, but also because of political interference. "When analyzing the risk management in the banks of the CIS countries we are looking not so much on its organizational structure, but rather on the effectiveness of the decisions made", - said Y. Sovgira. Another negative factor is the heavy concentration on individual clients in assets and liabilities. This is especially true for the ratings of banks in the CIS, since higher concentrations lead to a low creditworthiness of banks. This is partly due to the low level of development of banking systems in the region, a high risk appetite of banks, weak risk management and inadequate banking supervision.

So, to summarize the criteria for assigning ratings by the international rating agency Moody's Investors Service, one can appreciate the work done by the IBA’s management, which allowed the world's leading international rating agency to improve the rating of the Azeri bank.