Fitch Ratings assessed Azerbaijan’s banking sector as being broadly stable on March 6.
The report, though, also said that structural issues are weighing on the sector’s asset quality, profitability and capitalization.
Banks in the country are now looking to refocus loan growth to the retail segment in order to compensate for legacy impairment problems in corporate portfolios and to improve returns on capital through wider margins. Azerbaijan’s retail loan segment has been growing much faster than nominal household income growth, which is increasing personal debt burdens, according to the report.
Retail lending, according to Fitch, is growing at a reasonable rate while corporate lending is closer to saturation.
Fitch also reported that there may be a recovery in loan arrears based on reported asset quality metrics from a survey of Fitch-rated banks. The agency also said that underlying asset quality may be somewhat weaker than indicated by headline numbers due to untested newly-originated corporate lending, potentially large restructured loans, and other legacy assets and insufficient provisioning at some banks.