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Moody's downgrades Azerbaijan's Bank Respublika

Moody's on Dec. 19 downgraded OJSC Bank Respublika's long-term foreign- and local-currency bank deposit ratings to Caa1 from B3, 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 "caa1" from "b3" and its long-term counterparty risk assessment to B3(cr) from B2(cr). 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 was driven by the bank's weak solvency, owing to the material erosion of its capital and ongoing net losses, as well as its need for an equity injection to meet capital requirements, Moody's said. The agency noted that the bank's regulatory capital stood at 39.8 million Azeri manat as of Dec. 1, below the 50 million manat minimum threshold, and that its shareholders are discussing capital replenishment plans.

Moody's noted that it expects the bank's internal capital generation capacity to remain weak in the next several quarters because of loan book deleveraging. In addition, the rating agency said it believes that the recovery of the bank's profitability will be restrained in the next 12 to 18 months by volatile noninterest income.

As of Dec. 18, US$1 was equivalent to 1.70 Azerbaijani manat.