S&P Global Ratings expects that key initiatives to modernize the regulation and supervision of financial institutions in Azerbaijan will bring the country's regulation closer to international best practices, Report informs referring to S&P Global Ratings.
The agency has improved their assessment of industry risk in Azerbaijan's Banking Industry Country Risk Assessment (BICRA) to 7 from 8 to reflect the strengthened banking regulation and supervision.
"A positive trend on the economic risk of 8 reflects our expectation that stronger regulatory oversight will restrain banks' risk appetite and reduce credit risk in the banking system. The improvement in our industry risk assessment captures initiatives undertaken over the past three years to modernize the regulation and supervision of financial institutions in Azerbaijan.
Under the Financial Sector Development Strategy for 2024-2026, regulators enacted a corporate governance standard for banks, limiting related-party transactions, and a regulation on liquidity risk management aligned with Basel III requirements.
In 2026, regulators are transitioning to risk-based supervision and implementing International Financial Reporting Standards (IFRS) 9, revising the capital adequacy framework to align it with Basel III requirements, strengthening banks' stress test requirements, and developing a resolution framework. We believe implementing these initiatives will further strengthen regulation and supervision for banks in Azerbaijan and bring it closer to international best practices, although we continue to view the country's regulatory framework as weaker than international standards," reads the message.
In addition, the agency affirmed the ratings of several banks, changing the outlook on PASHA Bank OJSC from stable to positive.
PASHA Bank's long-term and short-term credit ratings have been affirmed at 'BB-/B' with a positive outlook.
"The anticipated initial public offering (IPO) of a 5% stake in the bank will likely boost its capital buffers in the short-term, improving its risk-adjusted capital ratio to 7.0%-7.5% over 2026-2027 from an estimated 6.8% at year-end 2025, depending on the IPO's pricing and the evolution of the bank's capital policy," reads the message.
S&P maintained the ratings of Kapital Bank OJSC at "BB-/B" with a positive outlook, and Azer-Turk Bank OJSC at "B+/B" with a stable outlook.
"As one of the top three banks in the country, Kapital Bank is strengthening its business by building an ecosystem of financial and nonfinancial services under the Birbank brand. We believe this will further enhance retail customer loyalty, particularly given recent changes in the legislation regarding salary projects and pension receipts. Slower-than-expected growth in 2025--the bank's gross loan book expanded by about 4% compared with 22% in 2024 on a solo basis--will likely result in higher capitalization levels. Consequently, we now expect the bank to operate with a risk-adjusted capital ratio of about 5.75%-6.25% compared to our previous projection of 5.25%-5.75%," the agency noted.