Fitch forecasts positive growth for Azerbaijan’s banks as liquidity remains robust
Azerbaijan demonstrates one of the highest liquidity levels in the CIS+ region, at 73 per cent, which emphasises a significant reserve of financial stability, a report by international rating agency Fitch Ratings says.
“Banks’ liquidity positions are comfortable across the region. Deposit growth has moderated in Armenia and Georgia after significant non-resident inflows in 2022, and sector loans/deposits ratios rose to about 100 per cent at end-2024. Georgian banks’ liquidity remained stable throughout 2024 despite political risks, with uninterrupted access to external investors, due to the sector’s robust performance, Caliber.Az reports per the agency.
In Georgia, despite political risks, bank liquidity remained stable in 2024 due to the resilience of the sector and continued access to external investors,’ the report says.
Fitch Ratings forecasts that key indicators of banks in Armenia, Azerbaijan and Georgia will remain above historical levels, but the trajectory of ratings in these countries may differ.
According to the report, bank credit metrics in the region continue to benefit from rapid economic growth and increased business volumes over the past two years.
“These developments are supported by spill-over effects from the military conflict in Ukraine, namely increased trade with Russia, immigration and related payment flows, and high commodity prices,” the agency emphasises.
Fitch notes that Azerbaijan's banking sector is supported by a favourable external economic environment, in particular high oil prices and reduced risks associated with substandard assets.
“Rating Outlooks are largely Stable for banks in Azerbaijan and Armenia, following a number of upgrades in 2023 and 2024. In Georgia, however, ratings are under pressure due to political risks, notwithstanding domestic banks’ largely resilient and solid performances.”
Banks in the region showed record profitability in 2022-2024. Rising interest rates have boosted margins by 1-2 percentage points, while the availability of substantial liquid reserves has helped contain funding costs.
According to the report, capitalisation of Azerbaijani banks remains at reasonable levels despite rapid loan growth and significant dividend payments, which has put some pressure on capital. Fitch expects the sector's strong profitability to maintain this balance.
“The strong economic growth and healthy lending growth are supporting steady improvements in loan-quality metrics 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 dollarised corporate exposures towards more granular, local-currency retail, micro and SME lending, and better regulatory supervision.”
“Bank de-dollarisation across the region has been supported by growth in retail lending and local-currency resilience in recent years. That said, dollarisation is still high in Georgia (43 per cent of loans at end-2024) and Armenia (33 per cent), and remains a key weakness for banks in both countries,” Fitch says.
Georgian banks could be particularly vulnerable in a stress scenario if the political crisis becomes protracted and undermines investor confidence, exerting pressure on the country’s external liquidity and the exchange rate. These risks are reflected in the Negative Outlooks on the higher-rated Georgian banks, in line with that on the sovereign rating.
By Vafa Guliyeva