Moody’s says Azerbaijan’s banking sector ready for new challenges

Azerbaijan’s key banking sector indicators are expected to remain strong over the next year, Moody’s Ratings said, maintaining its positive outlook for 2025.

“Favourable economic conditions, including sustained growth in the non-oil sector, are creating a comfortable operating environment for banks, supporting credit expansion and high profitability,” Lev Dorf, associate vice president at Moody’s Ratings, told Report. He added that stronger banking regulation is helping to reduce systemic risks.

Moody’s expects asset quality, profitability, capital and liquidity to remain at good levels over the next 12 months. Dorf noted that since 2006, when Azerbaijani banks began receiving ratings from the agency, the sector has weathered both external shocks and internal problems, such as weak corporate governance and inadequate risk control.

Following the 2015 crisis, Azerbaijan tightened banking legislation, introducing stricter rules on consumer lending, banning foreign currency loans to individuals, and imposing tougher prudential norms for credit risk management. These measures, Dorf said, strengthened resilience and prepared banks for new challenges, including the COVID-19 pandemic.

He also highlighted growing corporate governance requirements and active implementation of Basel III standards, including additional capital buffers and the Liquidity Coverage Ratio (LCR). Capital adequacy requirements have been raised further for systemically important banks, enhancing stability alongside sustainable growth.

Official data shows that as of July 1, 2025, Azerbaijani banks’ assets stood at 56.73 billion manats, up 12.7% year-on-year, while liabilities rose 12.9% to 49.79 billion manats. The deposit portfolio grew 6.2% to 37.35 billion manats, and total equity increased 11.3% to 6.95 billion manats.