Share of problem loans in Azerbaijan to decrease by 2020 - S&P

Baku, Azerbaijan, July 5

By Eldar Janashvili - Trend:

It is forecast that the share of problem loans in the total portfolio in Azerbaijan in 2019 and 2020 will decrease to 18 and 16 percent respectively, Trend reports with reference to the Standard & Poors (S&P) agency.

As of the beginning of the year, the specific weight of such assets makes 19 percent of the total weight of loans.

Today, in four CIS states - Russia, Azerbaijan, Kazakhstan and Belarus - the share of problem loans continues to exceed 10 percent of the total loan portfolio of the banking system of these countries. The situation is most complicated in Kazakhstan, where the share of problem loans exceeds 25 percent of the portfolio.

In Ukraine it exceeds 50 percent, while in Georgia the volume of problem loans is around 5 percent.

As is known, in 2015, Azerbaijan had the highest rate among the CIS countries with a 65 percent share of problem loans in the total portfolio. One of the main reasons was the bad risk management practice and the high level of foreign currency lending by the country’s biggest bank, the International Bank of Azerbaijan (IBA), the report says.

Thanks to the Azerbaijani government’s intervention, the IBA was cleared of “toxic” assets, and the bank’s recovery process continues. As a result, the share of problem loans in Azerbaijan decreased by 46 percent.

S&P defines troubled assets for Azerbaijan as loans, payments on which are overdue by more than 90 days, and loans with signs of impairment, according to the International Financial Reporting Standards (IFRS), taking into account adjustments.

Due to the lack of progress in the banking control system, bankruptcy procedures and corporate governance, the improvement of the situation may be temporary and won’t affect the asset quality indicators of banks in the region, the S&P report said.

Therefore, a decrease in the share of problem assets of banks in 2019-2020 won’t lead to an increase in credit ratings, according to the report.

The total amount of problem assets in banks of eight countries - Ukraine, Russia, Belarus, Kazakhstan, Georgia, Azerbaijan, Armenia and Uzbekistan - is estimated at about $150 billion.

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