Moody's: Large banks in Azerbaijan may start issuing eurobonds

In Azerbaijan, increased competition for funding is pushing smaller banks to increase borrowings from international financial institutions, according to Moody’s ratings agency, Report informs.

At the same time, large domestic banks will also likely issue eurobonds, although their overall volume will not be significant compared with the overall volume of bilateral funding, Moody’s said.

According to the ratings agency, banks in the Commonwealth of Independent States (CIS) turn increasingly to international capital markets for funding, with investor interest also growing.

“The wholesale funding of banks in Armenia (Ba3 stable) and Azerbaijan (Ba1 positive) mostly relies on bilateral funding from international institutions and will likely remain so, though new issuance may emerge. While the risks are generally low for banks given the modest scale of their wholesale debt, they will depend on the strength of national institutions and regulatory controls,” said Moody’s.

“There are rising opportunities for local banks to provide investment loans amid economic growth. However, their short-term local funding models currently limit their involvement, leaving them looking for longer-term funding. CIS governments are supporting improvements to bank funding models because of the current pressure on national budgets amid the need to finance local economies,” said Moody’s.

The rating agency’s analysts believe that monetary and economic conditions are favourable for CIS banks’ wholesale borrowing: “CIS financial institutions have increased their appetite for wholesale borrowing amid declining global interest rates and the improving stability of local economies and currencies. CIS economic growth also reduces the risk premiums for foreign borrowings, easing funding costs. The expected loosening of global monetary policy, though with some delay given current global market volatility, will prompt foreign investors to look for pockets of higher-yield investments, including in the CIS.”