Azerbaijan, Baku, Aug.1 /Trend, A.Badalova/
The outlook on Azerbaijan's banking system remains stable, Moody's Investors Service says in a new Banking System Outlook published on its website on Wednesday.
"The key drivers of the outlook are a favourable operating environment; modest improvements in asset quality, albeit from a weak level, and stable capitalisation; sufficient liquidity buffers; and marginal improvements in profitability," the report says.
Moody's says that over the 12-18 month outlook period, the supportive macroeconomic conditions will underpin the stable outlook for the banking sector. Moody's estimates that Azerbaijan's oil-based economy will produce solid growth in 2012-13 (5.7% in 2012 and 5.1% in 2013), following 0.1% in 2011, driven by oil exports and government spending, which will support the non-oil economy and credit conditions in the country.
"In addition, banking penetration remains low, which provides the banks with long-term growth opportunities," the report says.
According to the report, the banks' asset quality will improve moderately over the outlook period, and capital levels will likely remain stable for most banks in Azerbaijan. The level of problem loans -- non-performing (90+ days overdue) and restructured -- will decrease to around 13% of gross loans by year-end 2012, from around 16% at year-end 2011, supported by the favourable economic environment.
Most banks in Azerbaijan maintain sufficient cushions of liquid assets. Banks have relatively stable funding bases (predominantly deposit-funded), with a low reliance on market funding. However, Moody's notes that retail-depositor confidence is weak and the banks' access to long-term funding is limited, which increases banks' liquidity risk in case of market shocks or bank-specific adverse events.
"Most banks improved their profitability metrics in 2011," the report says.
Moody's expects higher lending volumes, healthy interest margins and stable asset quality to lead to marginal improvements in profitability over the outlook period.