IMF assesses Azerbaijan’s banking sector

Azerbaijan’s banking sectors’ capital adequacy ratio fell to a still relatively high 19.1 percent at end-2021, as risk-weights were reset to their pre-pandemic levels and risk-weighted assets expanded rapidly, Report informs, citing the Concluding Statement of the International Monetary Fund (IMF) on the 2022 Article IV consultation from May 25 to June 7, 2022, in Baku.

“The NPL ratio declined further, reflecting both improved credit quality and effective financial support measures. Credit flows have picked up, particularly in the consumer loans segment, as banks search for higher yields and seek to meet the demand deferred during the pandemic,” the statement says.

“De-dollarization trends have broadly continued, with loan dollarization falling to 25.4 percent by March 2022, the lowest level in seven years. Net open FX positions have been generally declining, though there was some increase in Q1 2022 as banks’ FX liabilities increased while FX loans continued to decline,” the IMF staff team says.

IMF stresses that uncollateralized business loans and restructured loans remain major credit risks: “Restructured loans—mainly in the corporate sector—have increased and may not be adequately provisioned, as current regulations are not based on expected credit loss. Consumer lending is also increasing rapidly in a few banks. Recent stress tests indicate that the NPL ratio would increase by the same magnitude as during the 2015–16 crisis in an adverse scenario. The CBA is mindful of these risks and is closely monitoring risky exposures, in particular consumer loans with high DTI ratios.”