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Moody's affirms E+/B2 of Bank Respublika (Azerbaijan); stable outlook

March 11, 2011 | Moody's Investors Service

Moscow, March 11, 2011 -- Moody's Investors Service has today affirmed the
E+ bank financial strength rating ("BFSR") and B2/Not Prime long-term
and short-term local and foreign currency deposit ratings of Bank Respublika
("Respublika"). The outlook on the long-term global scale ratings is stable.


According to Moody's, Respublika's E+ BFSR, which translates into a Baseline
Credit Assessment (BCA) of B2, remains constrained by (i) its relatively
small size and limited franchise, (ii) moderate single-party concentrations
in the loan portfolio; and (iii) high exposure to foreign currency lending.
The ratings also reflect Respublika's satisfactory financial indicators,
including liquidity and capitalisation.

In 2010, Respublika reported a net loss of AZN2.2 million (US$2.8
million) under Azeri GAAP (unaudited), as its profitability deteriorated due
to higher loan loss provisions, as well as lower core revenues related to
the shrinkage of the loan book. In addition, Moody's notes that the bank
also experienced an increase in funding costs.

Although Respublika's cost of risk increased in 2010, Moody's believes that
the bank has already covered most of the anticipated loan losses, and the
rating agency does not expect that loan loss provisions would materially
constrain profitability in 2011. In addition, Respublika's profitability
will be supported by an expected acceleration of credit growth, and an
increasing proportion of higher-yielding assets on the balance sheet, with a
relatively stable fee and commission income.

According to the bank, the level of non-performing loans (loans 90+ days
overdue) peaked at around 6.5% of gross loans in 2010, and is expected to
gradually decrease in 2011 due to new lending and problem loan recoveries.
Moody's also observes that Respublika's capitalisation is currently
adequate, with Tier 1 and Total capital ratios of 15 and 23%, respectively,
at 31 December 2010. The capital buffer is sufficient to absorb the bank's
expected credit losses.

Moody's also explained that Respublika's ratings have limited upward
potential in the short to medium term. Any possible upgrade of Respublika's
ratings will be contingent on the bank's ability to materially strengthen
its franchise, while also demonstrating a sustained track record of
improvement in financial fundamentals. Conversely, downward pressure could
be exerted on Respublika's ratings by any material adverse changes in the
bank's risk profile, particularly any significant impairment of the bank's
liquidity position, and failure to maintain control over its asset quality.

Moody's last rating action on Respublika was on 19 November 2008 -- when
Moody's changed the outlook on the B2 long-term foreign and local currency
deposit ratings of Respublika bank to stable from positive

The principal methodologies used in rating Respublika were "Bank Financial
Strength Ratings: Global Methodology", published in February 2007, and
"Incorporation of Joint-Default Analysis into Moody's Bank
Ratings: A Refined Methodology", published in March 2007. Other
methodologies and factors that may have been considered in the process of
rating this issuer can also be found on Moody's website.

Domiciled in Baku, Azerbaijan, Respublika reported -- as at 31 December 2010
--total assets of US$318 million, shareholders' equity of US$53 million and
net loss of US$2.8 million, according to local GAAP.

Company: Bank Respublika

Full company nameBank Respublika OJSC
Country of riskAzerbaijan
Country of registrationAzerbaijan


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