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Fitch: Indicators in the Caucasian banking sector remain above historical levels

03 February 2026 18:20 (UTC +04:00)

“Banks’ core financial metrics in Azerbaijan, Armenia, and Georgia remain strong and exceed historical averages,” APA-Economics reports, citing the international rating agency Fitch Ratings.

Fitch noted that strong economic growth, improvements in sovereign credit profiles, and indirect effects stemming from the war in Ukraine have supported the performance of the banking sector.

According to Fitch, banks posted record profitability over the first nine months of 2022–2025. During this period, net interest margins increased by 1–2 percentage points amid rising interest rates. Banks in Armenia and, to a lesser extent, Georgia boosted fee and commission income through transit trade, migration, and payment inflows from Russia. In Azerbaijan, the decline in previous asset-quality risks strengthened banks’ profitability.

The report says that bank capital adequacy in Armenia and Georgia remains strong due to high profits and strict regulatory requirements. In Azerbaijan, rapid loan growth and dividend payouts have reduced capital buffers, but Fitch expects overall capitalization to remain stable in 2026. According to the agency, this will be supported by sufficiently high profitability and moderate asset growth.

Asset quality and dollarization

Fitch stated that asset quality has improved across the region, although further declines in non-performing loans are likely to be limited, as problem loan levels are already low. The most notable progress has been observed in Azerbaijani banks since 2021. This is attributed to a shift toward smaller local-currency lending and strict debt-service capacity criteria for borrowers.

Although dollarization has decreased, 42% of loans in Georgia and 34% in Armenia were still denominated in foreign currency as of the end of the first nine months of 2025. In Azerbaijan, the share of foreign-currency loans stood at only 14%, which Fitch attributes to the manat’s effective peg to the US dollar and strict foreign-currency lending rules.

Liquidity in the banking sector remains comfortable. However, in Armenia and Georgia, the loan-to-deposit ratio exceeded 105% by the end of the first nine months of 2025, compared with 82% and 101%, respectively, at the end of 2022. In Azerbaijan, the loan-to-deposit ratio was 80%.

According to Fitch’s assessment, bank ratings range from ‘B’ to ‘BB+’. Ratings of Georgia’s largest banks (BB/Stable) and Armenian banks (BB-/Positive) are aligned with their respective sovereign ratings. Azerbaijani banks are rated below the sovereign rating (BBB-/Stable), reflecting their standalone credit profiles and operating environment. Fitch noted that stronger regulation and sustained solid financial metrics could create room for rating upgrades in Azerbaijan in the future.