Moody's unveils factors capable of supporting quality of Azerbaijani banks’ assets

Azerbaijani banks will benefit from an improved operating environment, which is supported by stronger economic activity and a stable currency thanks to high oil prices ensuring sufficient foreign exchange inflows.

The operating environment for Azerbaijani banks will improve in the next 12-18 months, the upgrade of Azerbaijan's sovereign rating testifies to this, Report informs referring to Moody's Investors Service.

“Having demonstrated resilience during the COVID-19 pandemic, leading to a smaller recession than in comparable countries and maintaining a stable currency, Azerbaijan is facing a Russian-Ukrainian crisis with a strong economic recovery which is supported by high hydrocarbon prices,” the message said.

Despite Azerbaijan's strong trade ties with Russia, the conflict has had a limited impact on the economy, and Moody's expects Azerbaijan's real GDP to grow by four per cent this year.

The stable outlook for the long-term ratings reflects Moody's expectation that the financial performance of the affected banks will remain robust.

"The non-performing loan (NPL) ratio of Azerbaijani banks improved from 9.4 per cent as of late 2019 to 4.7 per cent as of late 2021," the message said.

Moody's expects current high oil prices and stronger economic growth to support banks' asset quality over the next 12-18 months.

Consequently, Moody's expects banks' NPL ratio to remain stable with limited downside risk.

“Higher oil prices tend to have an overall positive impact on the Azerbaijani economy, while the increased foreign exchange liquidity will keep the Azerbaijani manat stable by supporting the solvency of foreign currency borrowers,” the agency said.

Today Moody's raised the basic credit ratings and deposit ratings of four Azerbaijani banks, namely the International Bank of Azerbaijan, Kapital Bank, Xalq Bank and Bank of Baku.

The outlook on long-term deposit ratings of these banks has been changed from positive to stable. The rating agency confirmed the credit rating of Bank Respublika and the deposit rating with a “positive” outlook.