Moody's named factors to support quality of Azerbaijani banks’ assets

Azeri banks will benefit from an improving operating environment which is underpinned by stronger economic activity and a stable currency, thanks to high oil prices that are providing sufficient volumes of foreign currency inflows, banks.az reports with reference to Moody's Investors Service.

The agency expects that the operating environment for Azerbaijani banks will improve in the next 12-18 months, as evidenced by the increase in the sovereign rating of Azerbaijan.

“After having demonstrated resilience throughout the coronavirus pandemic – resulting in a smaller recession than peers and maintaining a stable currency – Azerbaijan is weathering the Russia/Ukraine crisis with a strong economic recovery bolstered by high hydrocarbon prices,” the agency emphasized.

Despite Azerbaijan's strong trade links to Russia, the conflict has had limited impact on the economy, and Moody's expects Azerbaijan's real GDP to expand 4% this year.

The stable outlooks of the long-term ratings reflect Moody's expectations that the financial performance of the affected banks will remain resilient.

“Azeri banks' nonperforming loans ratio improved to 4.7% at year-end 2021 from 9.4% as of end of 2019,” the agency says.

Moody's expects the current high oil prices and stronger economic output to support banks' asset quality in the next 12-18 months. Consequently, the rating agency expects the banks' nonperforming loans ratio to remain stable, with limited downside risk.

“Higher oil prices tend to have a generalised positive impact on Azerbaijan's economy while improved foreign currency liquidity will support the stability of the manat, the local currency, supporting repayment capacity of foreign currency denominated borrowers,” the agency emphasizes.

Today, Moody's Investors Service (Moody's) has upgraded the Baseline Credit Assessments (BCAs) and deposit ratings of four Azerbaijan banks, namely, International Bank of Azerbaijan (IBA), Kapital Bank OJSC (Kapital Bank), OJSC XALQ BANK (Xalq Bank), and OJSC Bank of Baku (Bank of Baku). The outlooks on the long term deposit ratings of these banks has been changed to stable from positive. Concurrently, the rating agency affirmed Joint Stock Commercial Bank Respublika's (Bank Respublika) BCA and deposit ratings with positive outlook.