Moody's: No major changes expected in structure of Azerbaijan's banking system

International rating agency Moody's says it does not expect significant changes in the structure of Azerbaijan"s banking sector over the next 12–18 months.

According to Report, citing the agency, the country's banking system remains highly concentrated: the four largest banks accounted for 69% of the market in the first half of 2025.

The largest bank alone holds 25% of all banking assets, the agency said, noting that major private banks collectively controlled 44% of system assets as of June 2025, benefiting from an influx of customers and increased economic activity. The rest of the sector remains fragmented, with no private bank holding more than 5% of assets.

Moody's notes that in the South Caucasus and Central Asia, banks continue shifting towards more profitable segments, particularly retail and SME lending - driven by a favourable economic environment and rising household incomes.

This trend is especially obvious in Azerbaijan, Armenia and Kazakhstan, where net interest margins (NIM) have expanded by more than 140 basis points. In Azerbaijan, Armenia and Georgia, NIM growth is also supported by a move away from dollar-denominated loans towards local-currency lending, which typically generates higher margins. Part of this shift is driven by regulatory requirements, the analysts said.

Given the high dollarisation levels in most banking systems in the region (with the exception of Kazakhstan), Moody's considers interest-rate spreads a more reliable leading indicator for overall interest rates than central bank policy rates, which apply only to local-currency instruments and the interbank market.

"Based on quarterly trends in interest-rate spreads, we expect sector-wide NIM in Azerbaijan to remain broadly stable, to decline slightly in Georgia, and to increase in Armenia over the next 12–18 months. Bank profitability is also supported by moderate loan-loss provisions in Azerbaijan, Armenia and Georgia," the report added.

Moody's says Azerbaijan and Georgia are among the countries least dependent on trading income.

Foreign-exchange operations accounted for just 0.5% of average assets in Azerbaijan and 0.6% in Georgia in 2024, making their performance more sensitive to structural factors such as NIM and loan-loss provisioning, the agency noted.