Moody's reveals what that can lead to Azerbaijani banks’ asset quality deterioration

Baku, Azerbaijan, Nov.17
By Azad Hasanli - Trend:

Moody's international rating agency welcomes the measures taken by the Central Bank of Azerbaijan (CBA) in retail lending, as it led to the reduction of risks in the sector, said Moody's Investors Service analyst Maria Malyukova.

She made the remarks during the VII Baku International Banking Conference of the states - participants of the CIS held in Baku.

"The recent rapid growth of retail lending has slowed down due to the timely intervention of the Central Bank, which made it possible to reduce the risks in this particular sector, and we welcome this," she said.

There are 44 banks in Azerbaijan. Three of the seven banks rated by Moody's in Azerbaijan have positive forecasts at the moment.
Malyukova said that Moody's considers the situation in the banking sector of the country as stable.

Azerbaijan has been receiving a "stable" outlook for its banking system since August 2010, and it was confirmed in May 2014.

"All indicators on the main factors are stable," she said. "Operating environment in Azerbaijan is supported by the growth of non-oil GDP, which also supports credit growth, but in spite of this the risks associated with the oil sector remain, as the oil sector accounts for 40 percent of GDP of the country, or 70 percent of the state revenues," she said.
"A prolonged decline in oil prices may adversely affect the economy of the country," Malyukova said.

The analyst said that at the moment the assets quality of the banking sector of Azerbaijan is stable.

"We forecast that the proportion of bad loans, which include loans in arrears, as well as restructured loans by the end of 2014 will be approximately the same as in early 2014 and amount to about 11-12 percent," said Malyukova.

She said that the oil price and capital investments of the state are the main leading indicators of assets quality in Azerbaijan.

"A long-term decline of oil prices, as well as a substantial reduction of capital expenditures can possibly have further negative impact on the assets quality of the bank, which was observed in 2009," she said.

Moody's also considers capitalization of the banking system in Azerbaijan as stable.
"Capitalization of Azerbaijani banks is maintained by the stable generation of profitability," Malyukova said.

"Moreover, profitability for the current period of 2014 increased due to improved high-yield growth of the retail segment. The capital will also be maintained at the expense of shareholders, despite the projected growth and dividend payments of the banks. We do not expect deterioration and decrease of this level below the minimum one required by regulatory standards."