Azerbaijani banks to reduce lending growth rates in 2015 - S&P
Baku, Azerbaijan, Feb. 3
By Azad Hasanli - Trend:
The systemwide average lending growth for 2015 will be within 10%-13%, S&P's report on Azerbaijan's sovereign ratings says.
"Domestic credit growth, especially unsecured retail lending, which had been expanding rapidly in the previous couple of years, also slowed after a number of regulatory measures were introduced," the report says. "S&P also expects the share of nonperforming loans to increase, based on the high correlation with oil prices that it had observed in previous years."
According to the Central Bank of Azerbaijan, the loan portfolio of banks increased by 18 percent in 2014. The long-term loans increased by 19 percent. The share of business loans in the loan portfolio of banks was 73 percent. Their growth was 18 percent during the year.
The Central Bank regulated the consumer lending growth in 2014 to prevent high financial risks.
This figure decreased by 1.9 times, reaching 19 percent (13 percent without mortgage loans) compared to 2013.
S&P analysts believe that the Azerbaijani private sector's obligations to the banks in 2015 will amount to 37.3 percent of GDP, 36.1 percent in 2016, 34.5 percent in 2017 and 34.6 percent in 2018.
S&P anticipates that the largest bank, International Bank of Azerbaijan, which accounts for about 35% of total banking assets, will continue to receive capital injections from the state in the next three years.
"Azerbaijan's underdeveloped monetary and banking systems, with weak governance and underwriting standards, are a rating constraint," the report says. "The Central Bank of the Republic of Azerbaijan lacks institutional independence and efficient instruments to implement monetary policy effectively. In 2015-2016, Azerbaijan's monetary flexibility might become constrained by the pressure on the Azerbaijan manat coming from adverse terms of trade."
In late 2014 the central bank had already used about 7% of its foreign currency reserves to support the manat, which was hit by the volatility in the Russia ruble and Kazakhstan's tenge, and S&P expects intermittent interventions in the foreign exchange market will continue.
The local capital market is shallow and underdeveloped. These factors contribute to S&P's assessment that the monetary transmission mechanism is weak.
At the same time, S&P stressed the inflation rate decline in 2014, despite the Central Bank reduced the 3.5 percent refinancing rate twice.
follow the author on Twitter: @AzadHasanli