Fitch Ratings announces factors benefitting activity of banking sector of Azerbaijan

"Many banks in the Caucasus region reported record-high performance in 2022-2023, and we expect it to remain strong," the international ratings agency Fitch Ratings noted, SİA reports.

Banks in the Caucasus region are benefitting from positive credit trends driven by favourable operating environments given strengthening sovereign credit profiles and rapid economic growth, Fitch Ratings says. The profitability was underpinned by wider interest margins, which increased by 1pp-2pp across these markets, driven by higher interest rates on assets coupled with low funding costs due to abundant liquidity. 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 capitalisation to remain reasonable in light of strong profitability," the agency emphasized.

Favourable macroeconomic conditions and healthy lending growth are supporting steady improvements in loan-quality metrics across the region. The positive dynamics are particularly pronounced in Azerbaijan, where banks have seen a considerable moderation of legacy risks.

The agency also noted that banks’ liquidity positions are comfortable across the region. In Armenia and Georgia, deposits were stable in 2023 after significant non-resident inflows in 2022, and sector loans/deposits ratios were 90%-100% at end-2023. In Azerbaijan, the ratio is one of the strongest in the CIS+ region at 60%.

There has been positive rating momentum on banks across the region in recent years. We upgraded Armenian banks, reflecting significantly improved credit metrics, and expect metrics to outperform historical norms in 2024-2025. In Azerbaijan and Georgia, a few banks are on Positive Outlooks, signalling upside potential," Fitch added.

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