Page 19 - bne IntelliNews 26th May

Eurasia
May 26, 2017 www.intellinews.com I Page 19
saying that “earlier this year they [the Azerbaijani government] said that the losses would be covered by the government through soft facilities and additional capital injections. But the scope
of the problems at IBA was higher than they initially realised, which is why they decided to restructure,” she believes.
Moody’s has placed Azerbaijan’s sovereign rating of ‘Ba1’ with a negative outlook on review for downgrade and will make a decision in the next three months, she adds.
At just 53% of GDP, Azerbaijan’s banking sector is manageable enough for the Azerbaijani government, which holds some $33bn or 92% of GDP in savings in sovereign wealth fund Sofaz. That said, the liquidity of the fund, which has invested primarily in MSCI-approved developed and emerging market equity and some real estate, is questionable. In case of an emergency, there may be delays in cashing out these assets, Malyukova says.
The Azerbaijani government has announced its intention to privatise IBA after it restructures its debt, a process that will begin no earlier than 2018. However, foreign investors’ interest in
IBA has declined significantly after the lender’s default on its foreign obligations, she believes, meaning that it would only attract some domestic investors. “The process [of privatisation] may
take longer than they anticipate,” Malyukova says. Furthermore, the operating environment for banks in Azerbaijan remains weak, as reflected by the closure of 11 of the country’s 44 lenders last year.
The economic recession affecting the oil-rich country – Azerbaijan’s GDP contracted by 3.8% y/y in 2016 and is set for another 1% contraction in 2017 – has had repercussions on the number of publicly financed construction and infrastructure projects. Coupled with several rounds of currency depreciation that saw the manat lose half of its value against the dollar since 2015, the crisis has resulted in high rates of problem loans for banks (Moody’s estimates that 30% of the AZN18bn in banking sector loans are problem loans at the moment) and poor prospects for loan generation.
As such, even after its debt restructuring is completed, the prospects for IBA are dim and the lender is expected to remain a deadweight for Azerbaijan’s budget for some time to come.
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