Middle Corridor To Indirectly Benefit Azerbaijan, Kazakhstan And Georgia's Commercial Banks Moody's

(MENAFN- Trend News Agency) BAKU, Azerbaijan, September 12. Middle Corridor will indirectly benefit Azerbaijan, Kazakhstan and Georgia's commercial banks, Trend reports referring to the latest outlook released by Moody's.

The rating agency notes that the region's commercial banks are not expected to play a significant direct role because the primary funding sources for the project are government, government-owned entities, international development banks and private investors.

“Commercial banks can help finance supplementary infrastructure. However, almost 80% of Kazakhstan banks' and almost 90% of Azerbaijan bank's funding is short term, which alongside high financing costs prevents banks from engaging in long-term lending and from expanding their long-term loan portfolios. Georgian banks also face high financing costs, but, beyond deposits they have moderate reliance on market funding mostly driven by good access to long-term funding from developmental international financial institutions, which made up 60% of their market funding,” the report reads.

Moody's experts point out that in Kazakhstan and Azerbaijan, banks' credit to the private sector remains limited, accounting for 25% of GDP in Kazakhstan and less than 20% in Azerbaijan. This compares to equivalent bank lending of 66% of GDP in Georgia.

“Kazakhstan's private sector, with government backing, is expected to become more actively involved in the long-term financing of the real economy. Through Baiterek National Management Holding, JSC (Baiterek, Baa1 stable), the government is offering guarantees, direct financing of private sector banks, and a mutual guarantee fund to encourage more private sector financing. Additionally, private banks, particularly the largest ones, are using their resources to become more involved in infrastructure projects. Their participation in the Middle Corridor is likely to be indirect, for example by financing supplementary logistics and hubs and through other investment projects. Appetite for providing financing is growing, including through participation in syndicates,” the report says.

Moody's notes that while their direct involvement in financing the Middle Corridor will be limited, banks will still benefit significantly from the resulting uptick in economic activity.

“For private banks in Kazakhstan, Georgia and Azerbaijan, this is an opportunity to expand and diversify their lending in a highly competitive environment, particularly within the corporate sector. They can offer loans to subcontractors, finance supplementary activities around construction sites, and support road construction servicing the main route. Over time, they can also finance more transportation services through the Middle Corridor,” said the report.

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