Weekly actual topics in Azerbaijan (Feb. 26-March 2)

ECO Bank reveals economic growth forecasts for Azerbaijan

Azerbaijan's economic growth is expected to rebound by 1.2 percent in 2018, a source in the ECO Trade and Development Bank (ETDB), headquartered in Turkey's Istanbul, told Trend.

The bank's representative noted that the economic recovery in Azerbaijan is based on the assumption that oil and gas production will pick up once the expansion of Shah Deniz gas field comes on board.

"Azerbaijani government has launched large scale reforms to develop the non-oil sector and these efforts are expected to stimulate growth in agriculture and services sector. The current account is projected to realize a huge surplus equivalent to 5.9 percent of GDP underpinned by widening of trade balance and shrinking of services deficit," said the source.

Government efforts to strengthen agriculture and agro-processing and stimulate non-oil exports would catalyze the economic growth, said the source.

The ETDB representative noted that as a result of sound economic policy and economic reforms conducted in recent years, the country is expected to register favorable development results.

"Over the last decade, Azerbaijan has been taking great steps on the level of economic development, welfare growth, and international business. In order to achieve stronger results and ensure sustainable development, Azerbaijan has been undertaking a wide range of reforms on development of non-oil sector. Programs are being implemented to develop industrial production and agriculture. The creation of industrial parks has been particularly successful," added the source.

The ECO Trade and Development Bank is a regional multilateral development bank established under the auspices of the Economic Cooperation Organization (ECO) to promote socio-economic development and intra-regional trade amongst its member states.

The ETDB was established in 2005 with its headquarters located in Istanbul, Turkey. The bank started its operations in 2008.

Azerbaijan became a member of the bank with a 2.98 percent share in 2013.

Fitch expects growth of Azerbaijani banks' loan portfolio

Fitch Ratings expects the growth of the aggregate loan portfolio of Azerbaijani banks in 2018, banking sector expert Ruslan Bulatov said in an annual meeting of Fitch Ratings in Baku on March 1.

"We believe the restructuring of the International Bank of Azerbaijan in 2018 will have significantly less impact on the loan portfolio of the banking sector, and by the end of the year it [the portfolio] will grow, albeit insignificantly," Bulatov said.

Bulatov added that the growth will be achieved by increasing the loan portfolios of three or four banks with the most stable position in Azerbaijan's banking sector.

According to Azerbaijan's Financial Market Supervisory Authority (FIMSA), the aggregate loan portfolio of Azerbaijan's banks amounted to 11.34 billion manats, having decreased by 28.5 percent compared to 2016.

The share of overdue loans in the loan portfolio of banks and non-banking credit organizations was 13.8 percent.

Thirty banks operate in Azerbaijan.

FIMSA: Capitalization of Azerbaijani banking sector to grow

Capitalization of Azerbaijani banks will continue to increase in 2018, Asim Zulfugarov, deputy executive director and director of Strategic Services Department of Azerbaijan's Financial Market Supervisory Authority (FIMSA), said at an annual meeting of Fitch Ratings in Baku March 1.

Zulfugarov noted that this is related to the capital injections by the banks of Azerbaijan.

"Since the beginning of this year, a number of Azerbaijani banks have already increased their authorized capital. Moreover, currently, we expect further growth of market capitalization, as a number of banks plan to inject capital in the total amount of 400 million manats," he added.

Zulfugarov noted that in 2017, banks in Azerbaijan allocated about 900 million manats for capitalization. He added that the total capitalization of the banks in Azerbaijan amounted to 3.71 billion manats by the end of the year.

"Last year, the aggregate profit of banks amounted to 883.6 million manats," he said. "A total of 19 banks completed the year with profit, and the remaining 11 banks completed last year with loss."

S&P expects strengthening of Azerbaijan's financial system

The international rating agency Standard & Poor's expects strengthening of the financial system of Azerbaijan on the backdrop of improving prospects for economic growth, S&P report reads.

S&P expects economic dynamics to improve over the next few years. It forecasts average growth of 3.3 percent in Azerbaijan through 2021.

The report reads that Azerbaijan has passed the bottom of the cyclical downturn induced by the 2014 plunge in oil prices.

"We expect economic dynamics will improve over the next few years. In particular, we forecast average growth of 3.3 percent through 2021, supported by gradual recovery in consumption and a cautious increase in business confidence," the report reads.

According to the agency, the trend of development of economic risk in Azerbaijan is "stable" [previously it was "negative"], which reflects the stabilization of the main macroeconomic factors.

Fitch talks reasons for improving outlook on Azerbaijan's sovereign rating

The international rating agency Fitch Ratings has explained the reasons for improving the outlook on Azerbaijan's sovereign rating.

Amelie Roux, director sovereign and supranational rating analysis at Fitch Ratings, said the agency identifies three main reasons for improving the forecast for the rating.

Fitch raised the outlook for Azerbaijan's sovereign rating from "negative" to "stable" a month ago, Roux said at an annual meeting of Fitch Ratings in Baku March 1.

The main reasons for this are the gradual decline in the level of dollarization in the country, the stabilization of manat rate since April 2017 and, as a result, the growth of confidence in it, as well as the process of restructuring the International Bank of Azerbaijan, which had a positive impact on the banking sector as a whole, she noted.

She noted that the stabilization of the manat rate had a positive impact on prices for consumer goods, and also led to increased confidence in manat.

"As a result, the dollarization of both loans and deposits began to gradually decline and amounted to 70 percent and 40 percent, respectively, at the end of the year. Another factor that affected our forecast was the return of Azerbaijan's current account to the surplus, which was affected by higher oil prices, as well as the growth of non-oil exports, particularly, the export of agricultural products, which increased by 31.3 percent in the first three quarters of 2017 compared to the same period of 2016. Fitch expects that the surplus of the balance of payments will be 3.1 percent at the end of the year," she said.

According to Roux, this, in turn, had a positive impact both on the gold and foreign currency reserves of the Central Bank of Azerbaijan, and on SOFAZ reserves, which grew by 22 and 8 percent, respectively.

Roux also noted the positive impact of the restructuring of IBA, which will be completed soon.

"Along with the restructuring of external liabilities worth $2.3 billion in July 2017, the bank issued bonds worth $1 billion. A part of the bank's toxic assets was transferred to the Aqrarkredit non-bank credit organization in 3Q17. Thus, the transferred toxic assets amounted to 14 billion manats (20 percent of GDP). The government intends to transfer a small part of toxic assets until the end of the first quarter," Roux added.

Fitch: Azerbaijani state budget may become deficit-free in 2018

Azerbaijan's state budget may become deficit-free in 2018 and the subsequent years, Amelie Roux, director sovereign and supranational rating analysis at Fitch Ratings international rating agency, said in Baku March 1.

She noted that the deficit of Azerbaijani state budget was quite low in 2017, which makes it possible to predict the deficit-free implementation of the budget in 2018 and in subsequent years.

The state budget deficit of Azerbaijan was lower than that of Kazakhstan and Russia last year, Amelie Roux said.

Fitch expects that Azerbaijan's state budget will be executed with a surplus of 0.6 percent by the end of 2018, and the rating agency's forecast regarding the surplus of Azerbaijan's state budget for 2019 is 2.5 percent, she said.

She noted that such forecasts by Fitch are mainly related to gradual decrease in budget expenditures in Azerbaijan.

If in 2016, Azerbaijan's state budget expenditures amounted to 35.7 percent of GDP, they amounted to 35.1 percent of GDP in 2017, she said.

Fitch believes that Azerbaijan's state budget expenditures will amount to 33.3 percent of GDP this year and 31.3 percent of GDP in 2019, she added.

According to Fitch forecast, Azerbaijan's GDP will be 74.1 billion manats in 2018 and 81.9 billion manats in 2019.

“Azerbaijan’s franchising market has great potential for development”

Azerbaijan's franchising market has great potential for development, Elnur Islamov, head of the Azerbaijan Franchising Center, said March 2 on the sidelines of the Caspian Franchise Forum 2018 in Baku.

"There are local brands in Azerbaijan that can become a basis for creating a broad franchise network," Islamov said. "Our center works with these brands, and we are aimed at creating conditions for them to expand their presence both on local and foreign markets. The franchise model makes it possible to expand business without additional investment injections."

He noted that despite the great development potential, the franchising market of Azerbaijan is at an early stage of formation.

"If we take into account that the global level of capitalization of this market is about $6 trillion, the absence of our brands in this niche is regrettable," Islamov said. "However, I think that this market has its own prospects in Azerbaijan as well. The economic development of the country and the promotion of exports and investments give strength and incentive to entrepreneurs to turn their companies into well-known brands."

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