Fitch forecasts preservation of high level dollarization of deposits in Azerbaijan (exclusive)

Business Materials 16 November 2015 18:58 (UTC +04:00)

Baku, Azerbaijan, Nov. 16

By Azad Hasanli - Trend:

The dollarization of deposits is extremely high in the Azerbaijani banking sector in the near future, Dmitry Vasiliev, the director of Fitch Ratings financial institutions, told Trend Nov. 16.

According to the Central Bank of Azerbaijan (CBA), as of October 2015, 75.4 percent (13.179 billion manat) of the total bank deposits accounted for the foreign currency deposits.

Vasiliev does not exclude the possibility of reducing the share of foreign currency deposits in a total volume of deposits. This is possible in case of few devaluation expectations in the economy, strengthening of confidence in the manat and returning to higher rates of economic growth.

"It is possible to restore the economic growth in the short term if oil prices increase and are high, as they were before 2014," he said. "Strengthening of confidence in the national currency will require structural improvements and further institutional development of the economy in the long term."

"In general, the main risks of the Azerbaijani banking system are related to the structural problems, namely, the currency position and dollarization," he said.

"The share of foreign currency loans in the economy is about 45 percent," he said. "Many borrowers can not get access to the proceeds in foreign currency. Therefore, the debt burden increased due to devaluation by weakening the asset quality. Moreover, the banks are forced to continue lending in foreign currency due to the limited inflow of funding in the national currency and the dollarization of liabilities by increasing the pressure on asset quality in the future."

He added that the profitability and capital of banks can be pressed because of the growth of "bad" loans.

According to the CBA, as of January-September 2015, the share of overdue loans in the total loan portfolio of Azerbaijani banks amounted to 7.1 percent (1.354 billion manat).

The volume of bad loans increased by 1.5 percent in September compared to August.

In general, the volume of bad loans increased by 39.1 percent in January-September 2015.

There are 43 banks in Azerbaijan, two of which have the state share in the capital.

The official exchange rate is 1.0506 AZN/USD Nov. 16.