16:48 - 21.02.2025

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February 21, Fineko/abc.az. The risks associated with distressed assets have significantly decreased in Azerbaijan, ABC.AZ informs, referring to Fitch Ratings’ analysis.

"The credit indicators of the banks of the Caucasus region (Azerbaijan, Georgia and Armenia) have continued to improve over the past 2 years amid high economic growth and business volume growth. These trends are influenced by the side effects of the military conflict in Ukraine, in particular, trade with Russia, migration and related cash flows, as well as high commodity prices. Although we expect that the basic ratios of banks will remain above the historical norm, the trajectory of ratings in different countries may be different," Fitch says.

Most of the banks in the Caucasus region reported record profits in 2022-2024.

The interest margin increased by 1-2%, that was linked with an increase in the discount rate on assets, including the availability of good liquid buffers, which helped control financing costs. The performance of Azerbaijani banks is driven by higher oil prices and lower asset quality risks.

"Azerbaijan is showing high growth rates in lending and a significant increase in dividend payments, which affects capital ratios, but we still expect capitalization to remain at an effective level due to high profitability," Fitch stated.

Rating agency Fitch notes that strong economic growth and healthy lending support a steady improvement in credit quality indicators throughout the Caucasus region.

Further reductions in problem loans may be limited, given that they are already at a low level.

"This positive trend is especially noticeable in Azerbaijan, where the risks associated with distressed assets have significantly decreased. This is mainly linked with transition to more diversified loans in national currency and for retail clients, microbusiness and small and medium-sized businesses, as opposed to concentrated and dollarized corporate loans, as well as improved regulation," Fitch says.

Fitch analysts stress that liquidity of banks in Caucasus region is at favorable level.

Azerbaijan's liquidity ratio is one of the highest in the CIS region at + 73%, which indicates that there is sufficient liquidity.

"The ratings of the region's banks are below investment grade and range from B to BB+. The rating of Azerbaijani banks increased in October 2024 due to a reduction in asset quality risks, and given the significant 3-level difference between Azerbaijan's sovereign rating (BBB-/Stable) and the operating environment price (bb-) for local banks, there is potential for further rating upgrades," Fitch says.