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Fitch Ratings: Azerbaijan banking sector stabilising; Dollarisation still high

17 April 2019 18:45 (UTC +04:00)

Azerbaijan's banking sector appears to be stabilising, but still-high dollarisation leaves banks vulnerable to local currency (LC) depreciation, Fitch Ratings said at its eighth annual conference on Azerbaijan in Baku this month, ONA reports.

Loans and deposits are less skewed to foreign currency than in recent years with foreign currency (FC) loans standing at 38% of total loans at end-2018. That's down from 49% at end-2015 due to banks' tighter underwriting since devaluation of the manat. Over the same period, FC deposits declined to 65% of total deposits, down from 82%, a consequence of higher interest rates on manat deposits than on those in foreign currency. The regulatory net open short foreign-exchange position improved to USD0.9 billion at end-2018 from USD1.4 billion at end-2017.

However, deposit and loan dollarisation are still relatively high. Deposit dollarisation remains among the highest in the region, constraining banks' ability to extend LC loans. High loan dollarisation exposes banks to asset-quality deterioration in the event of further manat depreciation, which would put pressure on borrowers. About 16% of FC loans were overdue at end-2018, compared with about 10% of LC loans.