BAKU, Azerbaijan, August 1. The net profit of Azerbaijani banks is anticipated to continue at the level of 2.5 percent to 3.0 percent in 2023., Trend reports via the outlook from Moody’s Investors Service.
"Bank operational income will be supported by a mix of a greater net interest margin, strong commissions and commission income, as well as cheap costs of establishing reserves to cover loan losses. In response to the economic recovery and high demand for loans from these segments, the margin will continue to be supported by a high share of current accounts and an increase in lending to the high-yield retail sector and small and medium-sized businesses, according to the international rating agency.
According to Moody's analysts, customer deposits—which increased by almost 25 percent in 2022 and made up more than 80 percent of all liabilities—are the major source of funding for Azerbaijani banks.
While banks have a limited reliance on the wholesale market and international funding, their refinancing risks are rather low. The share of foreign currency deposits in Azerbaijan remains high at 47 percent of total deposits as of year-end 2022, down from 53 percent in 2022 (70 percent in 2016). In addition, the probability of state support for the largest banks remains high.
With total reserves accumulated by the State Oil Fund of Azerbaijan Republic (SOFAZ) and Central Bank of Azerbaijan exceeding 70 percent of GDP at the end of 2022, the government is well positioned to provide support to the economy and the highly dollarized banking system, which is small with total assets equaling around 35 percent of GDP.
According to the Central Bank of Azerbaijan, 22 banks completed the period of activity from January through June with a net profit.
The net profit of Azerbaijani banks amounted to 563.3 million manat ($331.3 million) and operating profit amounted to 772.3 million manat ($454.2 million) in the first half of 2023. The net and operating profits of banks increased by 41 percent and 26 percent, respectively, compared to the same period last year.