BAKU, Azerbaijan, February 21. The risks associated with problematic assets in Azerbaijan have significantly decreased, Trend reports via an analysis by Fitch Ratings.
"Banks’ credit metrics in the Caucasus region (Armenia, Azerbaijan, and Georgia) are continuing to benefit from the rapid economic growth and increased business volumes of the past two years, Fitch Ratings says. These developments are supported by spillover effects from the military conflict in Ukraine, namely increased trade with Russia, immigration and related payment flows, and high commodity prices. We expect banks’ key ratios to remain above historical norms, but the rating trajectory may vary across countries," the report said.
Fitch analysts highlight that many banks in the region reported record profitability between 2022-2024.
"Many banks in the region reported record-high profitability in
2022–2024. Interest margins increased by 1pp–2pp, driven by higher
interest rates on assets coupled with good liquidity buffers, which
helped to contain funding costs.
Azerbaijani banks’ performance has been supported by higher oil
prices and the easing of legacy asset-quality risks. In Azerbaijan,
rapid loan growth and material dividend pay-outs weigh on capital
ratios, but we still expect capitalization to remain reasonable in
light of strong profitability," Fitch said.
The rating agency further emphasized that strong economic growth and healthy lending are driving the stable improvement of credit quality indicators across the region.
"However, further declines in impaired loans are likely to be limited given their already low levels. The positive dynamics have been particularly pronounced in Azerbaijan, where legacy risks have moderated considerably, helped by a shift from concentrated and dollarized corporate exposures towards more granular, local-currency retail, micro and SME lending, and better regulatory supervision," the report added.
Fitch analysts also noted that banking liquidity in the region remains comfortable.
"Banks’ liquidity positions are comfortable across the region. Azerbaijan’s ratio is one of the strongest in the CIS+ region, at 73 percent, highlighting ample liquidity. Bank ratings in the region are below investment grade, ranging from ‘B’ to ‘BB+’. Azerbaijani banks were upgraded in October 2024 due to the reduction in legacy asset quality risks, and there is further potential for positive rating action, given a significant three-notch gap between Azerbaijan’s sovereign rating (BBB-/Stable) and the ‘bb-’ operating environment score for local banks," the paper reads.