BAKU, Azerbaijan, October 11. The Azerbaijani banking sector’s financial profile has strengthened considerably since 2017, Trend reports via Fitch Ratings.
The agency notes that this progress has been driven by reduced dollarization and lower pressures on capitalization resulting from legacy asset-quality risks.
The sector has also seen improvements in its loan book structure, more robust regulatory oversight, and advancements in financial market development, Fitch noted.
The agency notes that while Azerbaijan continues to have one of the lowest credit penetration rates in the CIS+ region, with a loans-to-GDP ratio of 20% as of mid-2024, this low penetration provides an opportunity for banks to expand their lending operations and enhance revenues.
Fitch projects that sector loan growth will peak at 20% in 2024 before moderating to 15% in 2025.
“The stock of loans with signs of impairment has decreased since
end-2018 to a record low. This was largely due to the decisive
clean-up of the International Bank of Azerbaijan’s balance sheet
and multiple withdrawals of licences from weaker and smaller banks
over 2016–2023. It also reflects the improved business climate and
banks’ reduced risk appetite for lumpy long-term and dollarized
corporate lending,” says Fitch Ratings.
Fitch analysts point out that local banks are increasingly focusing
on retail lending, which is less risky and has proven more
profitable. Retail loans now account for 58% of sector loans as of
mid-2024, up from 41% in 2018.
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