Azerbaijan's banking industry has shown a noticeable growth in resilience in recent years, significantly reducing its degree of exposure to adverse external impacts, Erich Arispe Morales, Senior Director and Head of Eastern Europe Sovereigns at Fitch Ratings, said during "Fitch on Azerbaijan 2026" in Baku, Report informs.
"If in the middle of the previous decade the country's banking system was a cause for serious concern, today the picture is fundamentally different. We record a decrease in dollarization, a reduction in external leverage, the creation of sufficient capital buffers, and an improvement in the quality of bank assets, as well as growth in the retail credit segment. From the perspective of the sovereign rating, the banking sector currently does not pose a threat," the agency analyst emphasized.
As noted by the Fitch representative, the limited nature of financial transmission mechanisms gives Azerbaijan's banking system a certain degree of independence and protects it from the direct impact of interest rate hikes in the US and European countries.
At the same time, several priority tasks remain before the regulator and financial market participants. The first is related to strengthening the effectiveness of the monetary policy transmission channel - ensuring the effective transfer of Central Bank interest rate decisions to deposit and credit rates under conditions of excess liquidity. The second priority task consists of stimulating demand for credit resources from the business sector.
"At present, banks have sufficient liquidity, and the financial institutions themselves are in a stable condition. The key question is what exactly is required to form a stable credit cycle: removing barriers in access to financial resources or the emergence of the necessary volume of quality projects and demand from the private sector," Morales indicated.
The international rating agency does not project significant shifts in the structure of the private sector over the coming year, but once again emphasizes the achievements of Azerbaijan's banking system both in comparison with sovereign peers of a similar rating level and on a regional scale.