Azerbaijan’s banks shielded from US tariff impact, Fitch reports

Banks in developing markets across the EMEA (Europe, Middle East, and Africa) region are facing various, but generally limited, impacts due to the tightening of the US government’s tariff policy and the associated uncertainties in trade and finance, according to a report by international rating agency Fitch Ratings.

The agency noted that the level of impact largely depends on how much the economies of regional countries are affected by the US tariff policy, the effect on banks within these countries, and the volatility in global markets.

Fitch Ratings stated that the direct impact through exports to the US remains insignificant.

“Oil-exporting countries will suffer from falling oil prices, a secondary consequence of the impact of tariffs due to a slowdown in global economic growth. At the same time, oil-importing countries with limited exports to the US could benefit partially from the drop in oil prices,” the agency added.

The report also pointed out that adverse economic outcomes, including slower GDP growth, typically have a negative impact on the banking sector through reduced lending volumes and potential deterioration in asset quality.

Moreover, if investor sentiment weakens regarding emerging markets under a "risk reduction" scenario, refinancing risks and borrowing costs may also rise.

Fitch analysts noted that the direct impact of tariffs on the CIS+ region is minimal, as exports to the US are limited.

“Armenia and Georgia are oil importers, while the banking sectors in oil-exporting countries such as Azerbaijan and Kazakhstan are generally less dependent on the oil and gas sector, and they have significant liquidity buffers,” the report stated.

According to Fitch, in countries with high foreign liabilities, such as Uzbekistan, the refinancing costs for state banks could rise. However, these risks are mitigated by government support and the long-term nature of foreign loans offered under favourable terms, mainly by international financial institutions.

The rating agency also highlighted that after the tariff increase, the US dollar has weakened slightly, but if this trend changes, the potential devaluation of local currencies in countries with a high level of dollarisation could affect the quality of assets in those countries' banking systems.

“However, most banks should be able to manage moderate losses, and governments in the region could support their national currencies if necessary,” Fitch experts emphasised.

ING Group, the largest banking group in the Netherlands, believes that Azerbaijan is significantly protected from the direct effects of US trade tariffs. At the same time, Moody’s, another international rating agency, suggests that US tariff policies could create new opportunities for transit transportation through Azerbaijan.