S&P talks on situation with NPLs in Azerbaijan

Business Materials 1 March 2018 14:19 (UTC +04:00)

Baku, Azerbaijan, March 1

By Ilkin Shafiyev - Trend:

This year, NPLs (non-performing loans), including restructured loans, will likely peak to 23-25 percent of Azerbaijan’s systemwide loans, with restructured loans accounting for about one-third of that amount, Standard & Poor’s Global Ratings agency (S&P) said in a report.

“Although the banking system has a relatively high level of core customer deposits and no net reliance on external funding, steep manat devaluation over the last few years has led to protracted currency mismatches between banks' assets and liabilities,” the report said.

This is due to a rapidly increased share of foreign currency funding, to more than 70 percent of customer deposits at the end of 2016, due to the conversion of deposits into foreign currency as a result of manat depreciation, according to the report.

Although this share subsequently reduced to about 65 percent in 2017, the ratings agency still views persisting currency mismatches as high risk.

S&P views the trend for industry risk in the Azerbaijani banking sector as stable.

“We expect the industry structure will remain broadly the same, dominated by a few large players,” the report said.

According to the Central Bank of Azerbaijan, the country’s credit organizations reduced the volume of issued loans by 28.5 percent compared to 2016, to 11.75 billion manats in 2017.

The volume of overdue loans grew 10.5 percent to 1.62 billion manats for the year. Their share in the loan portfolio of banks and non-bank credit organizations was 13.8 percent.

(1.7001 manats = 1 USD on March 1)