Fitch Ratings – Azerbaijani banks tenacious on the back of high oil prices and significant public expenditure
In a report published by Fitch Ratings, the creditworthiness of private banks of Azerbaijan was found stable on the back of high oil prices and substantial government spending.
The cyclical local economy dependent on oil and gas sector makes potentially volatile asset quality and profitability of operations. “Asset quality is a major risk for the growing risks for retail lending (as the banks cope well with them due to the moderate debt burden of the population). Particularly alarming is long-term corporate lending, a significant proportion of which relates to project financing and construction, often with a bullet repayment at the end of the loan term. As a consequence, the quality of these loans has not yet been tested by time,” the report says.
According to experts of Fitch, the slow turnover of loans increases the risk of liquidity at banks, especially in the case of stress. As a mitigating factor customer funding is sufficiently stable. Banks lack the capital due to insufficient scale of business, rapid credit growth, limited new capital contributions from private banks’ shareholders and only moderate profitability. Profitability is slightly higher in banks that specialize in retail lending, microcredit and lending to small and medium-sized businesses, because of the higher margins and lower impairment charges.
Recall, 44 local banks in the first half of 2014 brought the level of lending to the economy to 16 billion 754,800,000 manat (+ 21.64% as of 1 July of the previous year). Consumer lending during this period increased even more – by 31%. The share of consumer loans in the total loan portfolio of local banks amounted to 40.7%, or 6 billion 819,900,000 manat (+3% yoy).
The volume of non-performing loans amounted to 5.24%, or 877 600 000 manat. During the year, non-performing loans increased by 12.2%.
Fitch Ratings – Azerbaijani banks tenacious on the back of high oil prices and significant public expenditure
28 August 2014
In a report published by Fitch Ratings, the creditworthiness of private banks of Azerbaijan was found stable on the back of high oil prices and substantial government spending.
The cyclical local economy dependent on oil and gas sector makes potentially volatile asset quality and profitability of operations. “Asset quality is a major risk for the growing risks for retail lending (as the banks cope well with them due to the moderate debt burden of the population). Particularly alarming is long-term corporate lending, a significant proportion of which relates to project financing and construction, often with a bullet repayment at the end of the loan term. As a consequence, the quality of these loans has not yet been tested by time,” the report says.
According to experts of Fitch, the slow turnover of loans increases the risk of liquidity at banks, especially in the case of stress. As a mitigating factor customer funding is sufficiently stable. Banks lack the capital due to insufficient scale of business, rapid credit growth, limited new capital contributions from private banks’ shareholders and only moderate profitability. Profitability is slightly higher in banks that specialize in retail lending, microcredit and lending to small and medium-sized businesses, because of the higher margins and lower impairment charges.
Recall, 44 local banks in the first half of 2014 brought the level of lending to the economy to 16 billion 754,800,000 manat (+ 21.64% as of 1 July of the previous year). Consumer lending during this period increased even more – by 31%. The share of consumer loans in the total loan portfolio of local banks amounted to 40.7%, or 6 billion 819,900,000 manat (+3% yoy).
The volume of non-performing loans amounted to 5.24%, or 877 600 000 manat. During the year, non-performing loans increased by 12.2%.
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