Fitch assesses Azerbaijan's banking sector

The overdue debt ratio in Azerbaijan's banking sector fell to a record low of 1.8% (2.9% at end-2022) of the total loan portfolio at end-2023, helped by strong loan growth, loan repayments and write-offs, Azernews reports.

This is stated in the rating action of Fitch Ratings in connection with the affirmation of Azerbaijan's long-term foreign currency Issuer Default Rating (IDR) at "BB+" with a positive outlook.

"Capitalization of Azerbaijani banks has declined but remains adequate, with the sector's Tier 1 capital adequacy ratio at 13.5% at end-2023 (15.2% at end-2022). Profitability remained strong, supported by high return on assets and moderate funding costs due to the predominance of current accounts in the deposit base.

Deposit dollarization fell below 40% in 2023, approaching the historical average of 35%, with foreign currency loans falling to 19% of sector loans at end-2023 (20% at end-2022)," Fitch highlights.

The agency believes that the country's banking sector has improved, but is still quite weak, as evidenced by the 'b' rating on Fitch's Banking System Indicator.

There are 23 commercial banks operating in Azerbaijan, two of which are state-owned.

Total assets of the banking system of Azerbaijan as of December 31, 2023 are estimated at AZN 49 bln 178.19 mln (growth for the year by 4.5%). Credit portfolio of banks and non-bank credit organizations of Azerbaijan in 2023 amounted to AZN 23 bln 979.12 mln (growth by 18.8%), deposit portfolio in banks - AZN 34 bln 550.08 mln (growth by 2.3%), including deposits of the population - AZN 12 bln 582.16 mln (growth by 9.6%).

Total capitalization of banks is AZN 6 bln 63.35 mln (growth by 7.8%).