Moody's: Azerbaijani banks, companies resilient to geopolitical risks

Azerbaijani banks and companies demonstrate high resilience to geopolitical risks, thanks to limited ties with Russia, support from high oil prices, and the stability of the national currency, Report informs referring to the international rating agency Moody's.

According to the agency's assessments, operating conditions for the financial and corporate sectors in Central Asia and the Caucasus (CAC) remain favorable, driven by strong economic growth, diversification, and the redirection of trade flows that began in 2022.

"CAC banking systems have substantial capital and liquidity buffers, while most companies we rate are moderately leveraged and maintain significant liquidity reserves to absorb shocks," Moody's noted. "In addition, higher oil prices are boosting trade flows and the fiscal positions of oil-exporting countries, such as Kazakhstan (Baa1 stable) and Azerbaijan (Baa3 positive). We also expect the performance of banks to be supported by tighter regulation. In Kazakhstan and Azerbaijan, strong growth in the non-oil economy - where domestic banks are primarily active - has been further underpinned by government-led diversification initiatives, boosting banking activity. This, together with regulatory tightening, has driven strong banking sector performance, with solid profitability, improved loan quality and robust capital and liquidity buffers reducing systemic risks."

As the agency emphasizes, Azerbaijani banks are least exposed to risks associated with capital outflows and exchange rate volatility, given that the manat is pegged de facto to the US dollar. Furthermore, the country's banking system benefits from high domestic liquidity, a resilient non-oil sector, government economic diversification measures, and robust capital buffers.

At the same time, Moody's analysts note that plans by some Azerbaijani banks to raise foreign funding could be constrained by a less favorable external environment. However, Moody's analysts believe that the overall stability of the national financial system and the corporate sector's moderate debt burden provide the country with effective protection against external shocks.