Fitch Ratings has downgraded the International Bank of Azerbaijan's (ABB) outlook from Positive to Stable, while maintaining the bank's long-term Issuer Default Rating (IDR) of “B.”

Following the announcement of their new Bank Rating Criteria on November 12, 2021, Fitch announced it has revoked IBA's Support Rating and Support Rating Floor since they were no longer applicable to the agency's coverage.

ABB's ratings, according to the agency, are based on the bank's fundamental credit strength, as determined by its 'b' Viability Rating (VR). The ratings continue to reflect the risks associated with Azerbaijan's unpredictable and cyclical operating environment, as well as ABB's high-risk appetite, which is reflected in a significant direct currency risk exposure.

ABB's strong financial measures, such as considerable capital buffers, excellent asset quality anchored by a high 59% share of low-risk assets, decent profitability over the last three years, and appropriate liquidity, are also reflected in the ratings. Due to its risk profile, the VR of 'b' is one notch below the suggested VR of 'b+,' according to Fitch.

At the end of the first quarter of this year, ABB's open-currency position (OCP) was 59% of regulatory capital ($471 million), down from 77% ($521 million) a year ago.

ABB had consistently reduced OCP in the previous four years to 38% of the capital at the end of 2021, before the bank widened the position both in absolute and relative terms as a result of several large transactions in early 2022.

“Although ABB has returned to its trajectory of reducing OCP, this has been delayed by the decision to temporarily reverse OCP, which Fitch views as an indication of higher risk appetite and a more aggressive stance towards currency risk. This drives the revision of the Outlook on the IDR to Stable from Positive,” the agency said in a report.

“Nevertheless, we believe that ABB’s capital buffer is currently sufficient to withstand a significant currency shock, given the comfortable cushion of ABB’s regulatory Tier 1 capital ratio over the statutory minimum.”