Fitch: Azerbaijan's banking sector became more resilient than pre-COVID levels

Azerbaijan's banking sector is significantly more resilient than it was pre-COVID, Maksim Maliutin, associate director, EMEA Bank Ratings at Fitch Ratings, said during the webinar "Fitch on the Caucasus: Sovereign and Banking Sector Perspectives for 2026," Report informs.

According to him, the sector has become more profitable, adequately capitalized, has improved risk management systems, and a more diversified resource base: "These factors support the financial stability of banks even in the face of slowing economic growth."

He noted that strengthened asset quality oversight has ensured a steady improvement in key indicators in recent years.

"Microprudential instruments are becoming increasingly effective in cooling the retail segment. Key asset quality indicators are at historic lows for the third year in a row and are expected to remain moderate, despite minor pressure this year. We believe the share of Stage 3 loans in the sector may grow to approximately 4.5% by the end of the year from around 3.5% last year, while the share of Stage 2 loans will remain generally stable," Maliutin said.

According to him, although retail lending penetration in Azerbaijan remains low, the ratio of retail debt to disposable income approached 20% last year, compared to 12% six years earlier.

"We believe this level remains manageable. However, the share of loans to borrowers with a debt-to-income ratio (DTI) above 45% remains stably high, accounting for approximately 40% of the retail portfolio. Meanwhile, local banks continue to generate high profits before provisions are created. Interest margins remain broad, at approximately 7%, although they are expected to narrow amid slowing lending and rising funding costs," he added.