The asset quality of the Entrepreneurship Development Fund of Azerbaijan is materially weaker than our estimate for the Azerbaijani banking system (about 8%-10%), reflecting about AZN217 million problem loans to 14 domestic commercial banks under liquidation, the international rating agency S&P Global Ratings said in a statement, according to Report.
"Provisions were 27.5% of total loans at mid-2022 and covered Stage 3 loans by 113%, indicating that legacy Stage 3 loans from banks under liquidation are fully provisioned," the statement reads.
Loans to the top-three banks accounted for about 40% of EDF's total loan portfolio, all other banks and credit institutions accounted for 5% or less of total lending. Ultimately lending to entrepreneurs is concentrated on agricultural production and processing (about two-thirds of total loans outstanding at mid-2022) and manufacturing and processing (about 20%), the statement reads.
EDF provides loans in Azerbaijan manat, with a 1% interest rate to about 40 domestic operating commercial banks and credit unions to further lend to entrepreneurs at 5%, which is significantly below the market rates and enables entrepreneurs to borrow at affordable rates.
"We expect EDF's capitalization to remain very strong over the next 24 months. The risk-adjusted capital (RAC) ratio at year-end 2021 was 51.5%, and we forecast that it will remain over 30% in 2022-2024 following the merger with AIC and supported by a 2%-3% annual decrease in net loans through repayments, recoveries, the write-off of problem loans, and a small net profit," the statement reads.