Financial profile Azerbaijan’s banking sector has strengthened significantly since 2017 due to a decrease in the level of dollarization and reduced pressure on capitalization, Day.Az reported on Friday with reference to Fitch Ratings.
As noted, the improvement was also accompanied by a more efficient structure of the loan portfolio, tightening regulatory supervision and the development of the financial market.
“Azerbaijan remains one of the countries with the lowest level of credit penetration in the CIS+ region, with a loan-to-GDP ratio of 20% in the first half of 2024. This, however, creates opportunities to expand banking business and increase income in the coming years. Lending growth is forecast to peak at 20% in 2024 before slowing to 15% in 2025,” the agency said.
As Fitch analysts note, the volume of loans with signs of impairment has dropped to a record low since the end of 2018.
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“This was made possible thanks to decisive measures to clean up the balance sheet of the International Bank of Azerbaijan and revoke licenses of weak and small banks from 2016 to 2023. This trend also reflects an improving business climate and a decrease in banks’ risk appetite for large long-term and dollarized corporate loans,” – said the rating agency.
Local banks are increasingly focusing on retail lending, which is less risky and more profitable, according to Fitch’s analysis.
“The share of retail loans rose to 58% of total loans at the end of the first half of 2024 (compared to 41% at the end of 2018). However, Azerbaijan’s cyclical economy and its structural weaknesses continue to pose risks to the quality of corporate loans,” – the agency said.