Fitch: Azerbaijan’s banking sector is well-capitalized

The banking sector of Azerbaijan is relatively weak, reflected by Fitch’s Banking System Indicator (BSI) score of ‘b’, Report informs, citing Fitch Ratings.

“However, there has been an improvement in recent years in the sector’s credit fundamentals, and in April Fitch revised the outlook on the operating environment from negative to stable. The deposit dollarisation ratio has steadily fallen, to 55% at end-1Q21 from 61% at end-2019, but is still well above the ‘BB’ median of 26%,” the agency said.

According to Fitch Ratings, Azerbaijan’s largest bank, IBA, is constrained by a large open currency position, equivalent to 77% of regulatory capital at end-1Q21 (albeit down from 114% a year earlier).

“The sector is well-capitalized with a Tier 1 ratio of 22%, and the non-performing loan ratio fell to 6.2% at end-1Q21 from 8.3% at end-2019. We expect healthy pre-impairment profit will absorb pressure on asset quality (due to the 8% of loans restructured due to the pandemic) as government support is unwound,” the agency added.