Baku, Azerbaijan, Dec. 6
By Sara Israfilbayova - Trend:
Fitch Ratings’ outlook on Azerbaijan’s banking sector remains negative, reflecting downside asset-quality pressures in banks’ highly dollarized balance sheets, modest core financial performance and capital pressures at some banks, the agency told Trend.
According to the company, the key risk for the banking system stems from the still high level of loan and deposit dollarization, although both moderately decreased.
Speaking of the restructuring process of the International Bank of Azerbaijan (IBA), the agency noted that the bank’s debt restructuring was completed in 2017, as a result of which the short open currency position reduced from $3.4 billion at the end of 2016 to $1.9 billion at the end of 2017 and further narrowed to $1.5 billion in the first half of 2018 mainly due to FX (foreign exchange) purchases.
“Currently, IBA’s management discusses with the state different options on open currency position closure, however there is uncertainty about whether these transactions will take place or not,” Fitch noted.
The IBA, founded in 1992, has been at the stage of recovery since July 2015, which is associated with the preparation for the privatization of state-owned shares of the bank. To restore the bank's financial position, its distressed assets were transferred to the Aqrarkredit non-bank credit institution.
In exchange for distressed assets, the Aqrarkredit provides the IBA with liquid funds. At the same time, the restructuring of IBA's foreign obligations has recently been completed. Over 95 percent of the Bank's shares are owned by the government.
According to the Central Bank of Azerbaijan (CBA), as of November 1, 2018, credit organizations of Azerbaijan increased lending by 4.5 percent compared to the figure at the beginning of the year, to 12.3 billion manats. The volume of non-performing loans from the beginning of the year increased by 4.4 percent to 1.7 billion manats.
The share of foreign currency loans in the total loan portfolio amounted to 4.64 billion manats (37.8 percent).
As for the capitalization of the banking sector, during January-September of this year it increased from 3.7 billion manats to 4.11 billion manats.
(1.7 manats = $1 on Dec. 6)