Fitch upgrades Azerbaijan's Kapital Bank and Pasha Bank

The upgrades of KB and PB have been driven by upgrades of the banks' Support Ratings and upward revisions of their Support Rating Floors, and reflect a reassessment of the potential support available to the banks from the Azerbaijan authorities, in case of need. 

This reassessment has been driven by: (i) Fitch's focus on the banks' combined market shares, rather than their standalone positions, in considering systemic importance, given that they are part of a single group; 

(ii) the somewhat improved track record of sovereign support for the banking sector in light of the announced financial rehabilitation of International Bank of Azerbaijan (IBAR; BB/Rating Watch Positive). 

KB and PB, which are both owned by Pasha Holding, at end-1H15 had combined market shares of 14.1% in deposits (6% KB; 8.1% PB) and 8.8% of loans (5.6% KB, 3.2% PB), making them comfortably the second-largest banking group in Azerbaijan after IBAR. 

In Fitch's view, any sovereign support would likely be available to both of the banks, in case of need, rather than one of the institutions in isolation. In assessing potential support, Fitch also views positively (i) KB's social role in distributing pensions and other budget payments (including an exclusive mandate for social payments) through the largest branch network in the country; and (ii) KB's participation in state-related agency lending.