(MENAFN- AzerNews)
Ulviyya Shahin Read more
Azerbaijan, a country rich in oil and gas resources, has beensteadily diversifying its economy in recent years to reduce itsdependency on the energy sector. The banking industry plays acrucial role in this economic diversification process, facilitatinginvestments, supporting businesses, and providing financialservices to individuals.
Over the past few years, Azerbaijan's banking sector has seennotable growth and development, driven by various factors such asregulatory reforms, technological advancements, and increasedaccess to finance. The Central Bank of Azerbaijan (CBA) has beeninstrumental in implementing policies aimed at ensuring stabilityand promoting growth within the banking sector.
One of the key indicators of the performance of the bankingindustry is the income generated from loans. As businesses andindividuals borrow money from banks for various purposes, includinginvestments, consumption, and working capital needs, the interestincome earned by banks reflects the level of economic activity andcredit demand in the country.
As reported by Azernews , citing data from theCBA, the income of banks in Azerbaijan from loans during the firstquarter of 2024 has reached a significant milestone. The reportreveals that banks' interest income on loans surged to 729.1 mlnmanats ($428.88 mln) in the third month of the year, demonstratinga robust 19.4% increase compared to the same period last year.
This substantial growth in interest income reflects a buoyantlending environment, underpinned by economic expansion andincreased credit demand across various sectors of the economy. Asbusinesses seek financing for expansion projects, infrastructuredevelopment, and operational needs, and individuals access creditfor housing, education, and consumption, banks play a pivotal rolein facilitating these financial transactions.
Furthermore, comparing the figures to the corresponding periodin 2023 highlights the sustained momentum in the banking sector'sperformance. In the first quarter of 2023, banks' interest incomeon loans totaled 610.4 mln manats ($359.06 mln), indicating aremarkable year-on-year increase in 2024.
However, alongside the growth in interest income, it isessential to consider the corresponding expenses incurred by banks expenses during January-March amounted to 259.7 mln manats($152.76 mln), representing a notable increase from 200.3 mlnmanats ($117.82 mln) recorded in the same period last year. Themajority of these expenses are attributed to interest payments ondeposits, reflecting the importance of deposit funding for banks'operations.
Despite the rise in interest expenses, the significant increasein interest income outweighs the costs, resulting in a positive netinterest margin for banks. This indicates healthy profitability andfinancial performance within the banking sector, supporting itsrole as a key driver of economic growth and development inAzerbaijan.
Looking ahead, the continued growth and stability of the bankingsector will depend on various factors, including prudent riskmanagement practices, effective regulatory oversight, and ongoingefforts to enhance financial inclusion and access to finance forall segments of society. As Azerbaijan progresses on its path ofeconomic diversification and development, the banking industry willremain a vital pillar supporting sustainable growth andprosperity.
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