Moody's on Dec. 19 downgraded OJSC Bank of Baku's long-term foreign- and local-currency bank deposit ratings to Caa3 from Caa1, with the outlook on the ratings remaining at negative.
The rating agency also downgraded the Azerbaijan-based lender's baseline and adjusted baseline credit assessments to "caa3" from "caa1" and its long-term counterparty risk assessment to Caa2(cr) from B3(cr).
At the same time, Moody's affirmed the bank's short-term foreign- and local-currency bank deposit ratings at Not Prime and its short-term counterparty risk assessment at Not Prime(cr).
The ratings action reflects Moody's concerns regarding the depletion of the bank's equity as a result of heavy net losses, as well as its need for an equity injection to meet regulatory capital requirements, the agency said.
Moody's noted that despite the decision of the bank's shareholders to increase the bank's equity by 91 million Azeri manats at a general meeting in June, no capital has been injected by the shareholders to date.
Moody's added that the bank's business model, which is focused on high-risk, unsecured consumer lending, is not sustainable in the current environment as households' debt-servicing capacity remains weak.
As of Dec. 18, US$1 was equivalent to 1.70 Azeri manats.
