S&P: Azerbaijan's banking system is stable

Azerbaijan's banking system is stable with overdue loans continuing on a downward trend and reaching 3.6% in May 2022, Report informs, citing S&P.

Nevetherless, the large shadow economy makes it difficult to assess true underlying asset quality, the agency says.

"The financial sector remains small with total assets of under 50% of GDP, which limits possible contingent liability risks for the government. Nevertheless, Azerbaijan's banking system is characterized by several persisting structural vulnerabilities, including the still high levels of dollarization, weak governance and transparency in an international context, and relaxed lending and underwriting standards," S&P notes.

According to the information, the government owns a majority stake in the International Bank of Azerbaijan (IBA) and in 2017 restructured the bank and directly assumed some of its debt.

"The government has also transferred IBA's nonperforming loans, at a book value of about Azerbaijani manat (AZN) 10 billion, to AqrarKredit, a state-owned nonbanking credit organization funded by the Central Bank of Azerbaijan, with a sovereign guarantee. We include AqrarKredit's sovereign guaranteed loans of AZN9.5 billion in general government debt," the agency says.

There are 26 banks operating in Azerbaijan. As of June 1 this year, the assets of the banking sector of Azerbaijan amounted to 41.371 billion manats, which is 22.4% more than in the same period last year.