(MENAFN- AzerNews)
Ulviyya Shahin
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Azerbaijan's banking sector is demonstrating significant signs
of recovery, according to the latest report by S&P Global
Ratings. After a prolonged period of correction and adjustment, the
sector is rebounding, bolstered by favorable economic conditions
and strategic improvements.
The S&P Global Ratings report highlights that the recovery
of Azerbaijan's banking system has been primarily driven by rising
commodity prices. This upward trend has stimulated increased credit
demand, which in turn has improved asset quality within the banking
sector. The positive impact of commodity prices underscores the
sector's responsiveness to global economic trends, which has
enhanced its financial stability.
Looking ahead, the banking sector is projected to continue its
recovery with strong lending activities anticipated through the
period from 2021 to 2023. This ongoing recovery is supported by new
credit growth, particularly in the retail sector, alongside a
normalization of risk costs and effective cost management
practices.
S&P Global Ratings forecasts a stable profitability outlook
for Azerbaijan's banking sector. The expected return on equity
(RoAA) for 2024-2025 is projected to be 2.1%, maintaining levels
consistent with those observed in 2023. This stability in
profitability is attributed to the continued expansion of credit,
especially in retail lending, alongside prudent cost management and
risk control measures.
This forecast indicates a solid foundation for the sector,
suggesting that financial institutions are well-positioned to
navigate the evolving economic landscape. The focus on retail
credit is particularly noteworthy, as it reflects a strategic shift
towards more stable and diversified sources of revenue.
Despite the positive outlook, S&P Global Ratings also
anticipates some challenges on the horizon. The report predicts a
slight deterioration in asset quality, with the proportion of
problem loans expected to rise from 2.7% at the end of April 2024
to 3.5% over the next 24 months. This anticipated increase in
problem loans is linked to slower loan portfolio growth compared to
previous years and the need for additional reserve provisions.
The slower growth in the loan portfolio, projected at 13% for
2024-2025 compared to 18% in 2023, reflects a more cautious lending
environment. This moderation in growth, coupled with the need for
additional reserves, underscores the importance of careful risk
management and regulatory oversight to mitigate potential
challenges.
Loan losses are expected to remain stable at 1.0%-1.2% of the
portfolio, indicating that while asset quality may face some
pressures, the sector is expected to manage these challenges
without significant volatility.
Azerbaijan's banking sector is on a recovery path, supported by
favorable economic conditions and strategic improvements. While
profitability is projected to remain stable and lending activities
robust, there are anticipated challenges related to asset quality
and slower loan growth. The sector's ability to navigate these
challenges will be crucial in maintaining its positive trajectory
and ensuring continued financial stability.
As the sector continues to recover, it will be important for
banks and regulators to focus on effective risk management and
adaptive strategies to sustain growth and stability in the coming
years.
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