Significant progress has been recorded in Azerbaijan’s banking sector in recent years, and the sector is not considered a source of concern from a sovereign rating perspective, Erich Arispe Morales, Senior Director and Head of Sovereign Ratings for Eastern Europe at Fitch Ratings, said at the “Fitch in Azerbaijan” event held in Baku, APA-Economics reports.
According to him, the banking sector has seen increased digitalization, reduced dependence on external financing, the formation of adequate capital buffers and improved asset quality.
Morales said there is still potential to expand the banking sector’s role in financing economic growth. In particular, there are opportunities for further growth in retail lending.
He noted that Azerbaijan’s relatively limited external financing channels restrict the direct transmission of changes in global financial conditions to the country. For example, higher interest rates in Europe and the United States are not automatically and directly transmitted to financing conditions in Azerbaijan.
According to the Fitch official, one of the key monetary policy issues is ensuring a more effective transmission of the Central Bank’s interest rate decisions to deposit and lending rates. This is also related to the structure of the market and excess liquidity in the banking system.
Morales noted that banks are in a sound financial position and have sufficient liquidity, adding that further expansion of lending requires bankable projects and stronger credit demand from the private sector.
He added that Fitch currently sees no serious concerns regarding the resilience of the banking system and positively assesses the progress the sector has made in recent years, including compared with similarly rated and regional peers.
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