The loan quality of the bank sector of Azerbaijan will continue to improve in the next 12-18 months, Moody's international rating agency released information in this regard, APA-Economics reports.
It was noted that nonperforming loans decreased to 2.6%% of gross loans in 2023 from 3.8% in 2022, reaching new historical lows. Asset quality will continue to improve, while problem loan coverage by reserves will remain above 100%.
"Asset quality will be supported by favorable economic conditions on the back of robust performance of the non-oil economic sectors and the rising total income of the population, which strengthens many borrowers' debt repayment capacity. The tightening of the regulatory framework on consumer lending and the stability of the manat will also support the quality of foreign currency loans, which decreased to less than 20% of total loans as of year-end 2023 from around 30% in 2020," the rating agency stated.
Moody's also announced that the forecast regarding the total capital of Azerbaijani banks is positive: "Capital will remain solid. The system has a robust capital buffer, with tangible common equity (TCE) amounting to a weighted average of 19% of risk-weighted assets (RWA) as of year-end 2022 across the banks we rate. We expect banks' TCE/RWA to marginally increase in the next 12-18 months because RWA growth will slow down, whereas capital formation will accelerate because of strengthening profitability."
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