Standard & Poor's classifies Azerbaijani gov’t as supportive toward domestic banking system
Azerbaijan, Baku, Nov. 10 / Trend N. Ismayilova /
Standard & Poor's Ratings Services said that it is maintaining its Banking Industry Country Risk Assessment (BICRA) on Azerbaijan at group '9', Standard & Poor's said on Thursday.
Thus, Azerbaijan is ahead of Belarus, Greece and Vietnam.
The banking sectors of Switzerland and Canada are the leaders in this list.
It is also maintaining the economic risk score at '8' and assigning an industry risk score of '9'.
We have reviewed the banking sector of the Republic of Azerbaijan (BB+/Positive/B) under our updated BICRA methodology. Our criteria define the BICRA framework as one "designed to evaluate and compare global banking systems". A BICRA analysis for a country covers rated and unrated financial institutions that take deposits, extend credit, or engage in both activities.
A BICRA is scored on a scale from '1' to '10', ranging from the lowest-risk banking systems (group '1') to the highest-risk (group '10'). Other countries in BICRA group '9' include Ukraine, Paraguay, Jamaica, Cambodia, and
We classify the Azerbaijan government as "supportive" toward the domestic banking system. We recognize the government's moderately successful track record of providing support to the banking system in times of stress. An example of this is its support during the recent financial crisis, the message said.
We consider Azerbaijan's economy to be highly concentrated, and dominated by the oil production sector. Compared with its peers, Azerbaijan's economy is less diversified; in 2010, the oil and gas sector accounted for about 95% of total exports and 50% of GDP.
Helping to balance this concentration is Azerbaijan's continuing economic growth, increasing but still low public wealth, and current account and consolidated budget position surpluses. Moreover, inflation levels are stable.
Azerbaijani banks have relaxed lending and underwriting practices, as evidenced by relatively weak reported asset quality, and concentrated loan portfolios. Furthermore, the country has a very weak payment culture; an ineffective judicial system, in particular regarding collateral foreclosure; and significant foreign currency lending.
On the other hand, the industry's risk appetite has recently moderated, but this is on the back of the economic recession that occurred in recent years and the system is in recovery mode. We see this particularly in the reduced credit growth in 2010-2011 and a more balanced approach to financing the badly performing small and midsize enterprise sector. Banks are limiting their use of complex products and the banking sector is profitable compared with other sectors in Azerbaijan, the message said.