Moody's maintains stable outlook on Azerbaijan's banking system

The outlook on Azerbaijan's banking system remains stable, says Moody's Investors Service in a new report published today. The outlook, which has been stable since August 2010, reflects Moody's expectation that, over the next 12-18 months, banks will continue to benefit from a favourable operating environment, stable asset quality and sufficient capital buffers.

Moody's also expects that demand for credit will be maintained by Azerbaijan's robust economic growth, which will, in turn, help banks maintain lending margins and profitability. However, these supportive factors are counterbalanced by the system's structural weaknesses, including the economy's persistent lack of diversification resulting from its still strong reliance on oil production, banks' limited access to long-term funding, and high single-name concentrations.

The new report: "Banking System Outlook: Azerbaijan", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

In Moody's view, relatively stable oil prices in the coming 12-18 months will continue to support the government's efforts to grow the economy's non-oil sectors. In Moody's "central" scenario, Azerbaijan's GDP will increase by 5.0% in real terms in 2014, compared with 5.8% in 2013, driven by continued strong performance in the non-oil economy which benefits from generous public spending. Overall, Azerbaijan's supportive macroeconomic conditions remain a key factor that underpins the stable outlook.

Moody's expects Azerbaijan's operating environment to broadly support credit demand and borrowers' financial profile. The rating agency highlights the recent policy to tighten consumer lending, which should help curb growth in this booming segment: Moody's forecasts annualised nominal loan growth of around 20% in 2014 (against expected inflation of 3.4%), compared to loan growth of 25% in 2013. While the current trend of strong loan growth may represent a latent risk to asset quality, potential credit costs are, in Moody's view, well-contained by current provisioning and capitalisation.

Bakudaily.az