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Banks (Finance)

Moody's Affirms Kapital Bank's Ba2 Long-term Deposit Ratings

Strategic Insights

— 2 min read

Moody's Investors Service has affirmed the Ba2 long-term local and foreign currency bank deposit ratings of Kapital Bank OJSC, along with its ba3 Baseline Credit Assessment (BCA) and Adjusted BCA, Ba1 long-term Counterparty Risk Ratings (CRRs), and Ba1(cr) long-term Counterparty Risk Assessment (CR Assessment). The Not Prime (NP) short-term local and foreign currency bank deposit ratings, NP short-term local and foreign currency CRRs, and NP(cr) short-term CR Assessment were also affirmed. The outlook on the long-term deposit ratings remains positive.

Moody's affirmation of Kapital Bank's ratings reflects the bank's good asset quality and profitability, as well as its stable funding base and ample liquidity. The bank's problem loans stood at 2.5% of total loans at year-end 2024, compared to 2.0% at year-end 2023, with reserve coverage of around 150% at the same date. Historically, Kapital Bank's asset quality has been better than that of its peers due to its lending focus on existing clients, including payroll customers, budget recipients, and pensioners.

Key Takeaways:

  • Kapital Bank's ba3 BCA and Ba2 long-term bank deposit ratings reflect the bank's good asset quality, profitability, and stable funding base.
  • The bank's problem loans stood at 2.5% of total loans at year-end 2024, with reserve coverage of around 150% at the same date.
  • Kapital Bank's lending focus on existing clients has helped maintain better asset quality compared to its peers.
  • The bank's profitability declined in 2024 due to increased funding costs and rising operating expenses, but is expected to remain stable over the next 12-18 months.
  • Kapital Bank's tangible common equity (TCE) to risk-weighted assets (RWA) ratio was 11% at end-2024, and is expected to improve over the next 12-18 months supported by a moderated dividend payout and asset growth.
  • Customer deposits increased by 42% in 2024, accounting for 85% of the bank's non-equity funding.
  • Kapital Bank benefits from ample liquidity, representing 37% of total assets, primarily comprising cash and balances with the Central Bank of Azerbaijan and liquid government securities.
  • The bank's Ba2 long-term deposit ratings are based on its ba3 BCA and the high probability of government support from the Government of Azerbaijan.
  • The positive outlook on Kapital Bank's long-term deposit ratings reflects the positive outlook on Azerbaijan, indicating a strengthening in the government's capacity to support the bank during periods of stress.

Statistics:

  • Problem loans: 2.5% of total loans at year-end 2024 (compared to 2.0% at year-end 2023)
  • Reserve coverage of problem loans: around 150% at year-end 2024
  • Net income: AZN239 million in 2024 (down from AZN282 million in 2023)
  • Return on tangible assets: 2.0% in 2024 (compared to 3.1% in 2023)
  • Tangible common equity (TCE) to risk-weighted assets (RWA) ratio: 11% at end-2024
  • Customer deposits: increased by 42% in 2024
  • Liquidity: 37% of total assets, primarily comprising cash and balances with the Central Bank of Azerbaijan and liquid government securities

Sources:

  • Moody's Ratings (Moody's)
  • Kapital Bank OJSC
  • Central Bank of Azerbaijan
  • Government of Azerbaijan
  • IFRS 9 standards
  • Banks (Rating Methodology, November 2024, available at https://ratings.moodys.com/rmc-documents/432741)

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