Baku, Azerbaijan, Feb. 7
By Emin Aliyev - Trend:
The growth rate of retail lending in Azerbaijan will be reduced by almost a third in 2014, according to the Moody's Credit Outlook, posted on Feb. 6 on the ratings agency's website.
"To date, the quality of consumer loans appears to have been reasonably robust; we estimate that the ratio of nonperforming loans, or loans overdue more than 90 days, was around four percent of Azerbaijani banks' consumer loan books as of year-end 2013. However, rapid loan growth of around 40 percent in 2013 and 30 percent in 2012 implies there is risk of worsening asset quality, particularly considering the increase in household indebtedness. Following tighter regulatory measures aimed at reducing potential credit risks of overheating in the consumer finance sector, we forecast the pace of retail loan growth will decline to around 30 percent this year," Moody's said.
Central Bank of Azerbaijan tightened its regulations on consumer lending by increasing provision requirements and instructing banks not to originate retail loans without an officially certified statement of a borrower's income.
The central bank also increased provision requirements to five percent from two percent for consumer loans that have any missed payment in the past six months and loans without an officially certified statement of the borrower's income.
Moody's experts believe that the tighter regulatory measures are credit positive for Azerbaijan bank creditors because they will require lenders to create additional loan-loss reserves, tighten underwriting standards and slow the sector's recent rapid growth of consumer loans.
"The banks that would be affected by the new regulations are mostly specialized consumer lenders such as OJSC Bank of Baku (B1 stable, E+/b1 stable) and Unibank Commercial Bank (B2 stable, E+/b2 stable). Both have recorded rapid loan growth within the past year. Joint Stock Company Bank Respublika (B2 positive, E+/b2 stable), which has less exposure to consumer loans, would be affected to a lesser extent," according to the Moody's Credit Outlook.
The Moody's experts also said that the increased reserves will improve banks' loss-absorption capacity, thereby reducing the risk of any deterioration in unseasoned consumer loans, which grew by around 40 percent in 2013.
There are 43 banks in Azerbaijan.