Moody's upgrades outlook on Azerbaijani banking system to 'positive'

The international rating agency Moody’s has raised the outlook on the banking system of Azerbaijan from “stable” to “positive”.

Report reports referring to the review of the banking system of Azerbaijan that the forecast reflects Moody’s expectations regarding how banks' solvency in this banking system will change during the forecast period of 12-18 months.

"Continuing economic growth and unprecedented state support for households are the main factors that influenced the assignment of a 'positive' forecast to the banking sector in Azerbaijan,” the report says. “We expect acceleration of economic growth in Azerbaijan to 3% in 2019-2020. Taking into account favorable world prices for energy resources, export growth and increasing the share of non-oil sectors in the structure of the economy. Reforms undertaken by the government should have a positive impact on the country's economic growth. Nevertherless, the economy remains vulnerable to changes in oil prices."

Moody’s expects further improvement of the quality of banking assets due to clearing the balance sheets of banks and household support from the state.

By the end of 2020, the share of problem loans is expected to fall below 10%, the report's authors believe.

"According to our baseline scenario, capital adequacy ratios of the banking system as a whole will be stable due to the increase in banks' profits and the growth of risk-weighted assets," the report says.

According to Moody’s, the dollarization of deposits is consistently declining, but still remains the highest among the CIS countries. "Liquidity in manats is improved due to dedollarization of liabilities across the entire banking system and government support," the authors of the report say.

The report stresses that with improved monetary and fiscal policies, the government is now supporting not the individual banks, but the entire banking sector.