Weekly economic review (March 13-17)

Analysis Materials 24 March 2017 11:46 (UTC +04:00)

Fitch: Restructuring of Azerbaijani banking sector may continue in 2017

Restructuring of Azerbaijan’s banking sector may also continue in 2017, says a report of the international ratings agency Fitch Ratings that has been made public at the sixth annual meeting on Azerbaijan.

Fitch analysts expect the failure of several banks and the continuation of cleansing in the sector in the light of capital insufficiency, which is related to poor asset quality and currency risks.

In early 2016, the ratings of five out of the eight banks rated by Fitch, including the country’s biggest bank - the International Bank of Azerbaijan (IBA) – declined, according to Fitch analysts.

Moreover, the regulator revoked licenses of 10 banks, which were not rated by the agency, says the report.

According to Fitch experts, the devaluation of the Azerbaijani manat continues to put pressure on the country’s banking sector, and banks are facing the continuing decline in capital.

The share of problem loans of the Azerbaijani banking sector accounted for 21 percent of total volume of the banks’ loan portfolio in late 2016, while this figure was 12 percent in late 2015.

Fitch analysts noted that the sector also faces a high impact of project finance, where the quality of loans is mainly not tested due to their long term and grace periods.

Banks won’t be able to cope with the increase in the number of new problem loans due to capital constraints, says the report, therefore, Fitch expects a decline by five percent in the volume of crediting in 2017.

The report also says that the banking sector’s net losses amounted to 1.7 billion manats in 2016, and meanwhile, about 1.3 billion manats accounted for net losses of the IBA.

Currently, 32 banks operate in Azerbaijan.