MICROCAPTIAL STORY: Fitch Ratings Confirms Long Term Rating of BB+ for AccessBank in Azerbaijan

Fitch Ratings has confirmed the long-term issuer default rating of ‘BB+’ with a Stable Outlook, short-term issuer default rating of ‘B’, and individual rating of ‘D/E’ for AccessBank of Azerbaijan, a for-profit microfinance institution.

The affirmation of AccessBank’s long-term rating reflects Fitch’s view of the high probability of support available from its shareholders and their own strong ratings. AccessBank, formerly known as the Microfinance Bank of Azerbaijan, is 100 percent foreign-owned by six shareholders. The European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC), Black Sea Trade and Development Bank, and KfW each hold 20 percent of AccessBank, while AccessHolding – a strategic investor in microfinance, holds 16.5 percent, and LFS Financial Systems GmbH – a German consulting company, holds 3.5 percent. KfW, the EBRD, and the IFC are all rated ‘AAA’.

The bank’s ‘D/E’ Individual rating is supported by its relatively strong capitalization, currently very low loan impairment and moderate refinancing risk due to the large share of relatively stable funding from dedicated microfinance funds, which is diversified by tenors and creditors. Although asset quality is likely to deteriorate as the loan book seasons in the weakening operating environment, significant loss absorption capacity and loan book “granularity” are important mitigating factors.

Azerbaijan’s sovereign rating is currently BB+ as well. Fitch currently forecasts that Azerbaijan’s GDP will contract by 2 percent in 2009. According to Fitch, reduced economic activity and tightened liquidity in the corporate and SME sectors have already resulted in an increase in loan impairment across the Azerbaijani banking sector and Fitch believes asset quality is likely to deteriorate further. There has been no sector-wide run on deposits, however, some banks have experienced an outflow of customer funding since September 2008. To mitigate liquidity risk, the banks have been accumulating liquidity cushions by reducing their loan portfolios. Despite these concerns by Fitch, AccessBank continues to grow its business and micro-loan portfolios, as described in a recent MicroCapital press release.

According to the MIX Market, the microfinance information clearinghouse, Access Bank was founded in 2002. As of December 31, 2008 Access Bank served over 69,000 active borrowers and had a gross loan portfolio of USD 208 million. As of December 31, 2007 the MFI had total assets of USD 133 million, a debt-to-equity ratio of 7.1, an ROE of 36.7 percent, and an ROA of 4.5 percent.

Access Holding is a commercial microfinance holding company. Its business purpose is to invest in microfinance institutions (MFIs) and to develop these investments through a combination of equity finance, holding services, and management services rendered by its technical partner, LFS Financial Systems GmbH. AccessHolding concentrates on start-up and early-stage MFIs. According to the MIX Market, as of February 28, 2007 AccessHolding’s total fund assets were USD 3.65 million of which USD 2.67 million were allocated to microfinance investments.

KfW, a German bank founded in 1948 with the goal of financial sector deepening and developing inclusive financial systems, had total assets dedicated to microfinance of USD 923 million as of June 30, 2007, according to the MIX. The EBRD, founded in 1991 and now dedicated to help build market economies and democracies in 29 countries from central Europe to central Asia, had USD 651 million dedicated to microfinance investments as of December 31, 2006. The IFC was founded in 1956 with the mission to promote sustainable private sector investment in developing countries. According to its June 30, 2008 annual report, the IFC’s investment portfolio totaled USD 32.4 billion.

By Laura Anderson, Research Associate

Additional Resources:

Azerbaijan Business Center: Fitch Confirms Highest Rating for Access Bank in Azerbaijan

Nasdaq.com: Fitch Affirms 5 Azeri Banks’ IDRs

AccessBank of Azerbaijan: Home

Fitch Ratings: Home

The MIX Market: Home, AccessBank Profile, AccessHolding Profile, KfW Profile

MicroCapital Press Release: AccessBank portfolio sets new records

EBRD: Home

IFC: Home, Annual Report

KfW: Home

AccessHolding: Home