BAKU, Azerbaijan, October 12. The banking industry of Azerbaijan shows signs of recovery after a long correction supported by favorable commodity prices, stimulating active demand for credit along with significant improvement in asset quality, Trend reports via S&P Global Ratings.
According to the agency, the Azerbaijani banking sector has shown better resilience to macroeconomic challenges over the recent years, with credit costs and nonperforming loans (NPLs) in the system remaining significantly below earlier expectations.
“Nonperforming loans could moderately deteriorate to about 4-5 percent in 2022, versus 3.5 percent officially reported at mid-year 2022. We consider this manageable for the system. We expect [Azerbaijani] banks' lending will continue to rebound in 2022-2023, with about 15 percent annual growth,” the report said.
In the baseline scenario, S&P Global Ratings predicts that credit costs will remain elevated in 2022 and beyond, reflecting aftershocks, largely due to a decline in real disposable income of households and small and medium-sized enterprises amid higher inflation.
“At the same time, we believe that credit losses in 2022-2023 likely will remain within 0.5-1 percent of average loan books, which is still well below their historical cyclical level. Indeed, household and corporate indebtedness constituted 9 percent of GDP each at year-end 2021, which is lower than in peer countries,” the report noted.
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