Fitch Ratings: Government Should Help Banks in Azerbaijan

The international agency Fitch Ratingss believes the devaluation of December 21 (48%) will have the most impact on the banking sector of Azerbaijan.

According to its experts, the reason is that the country has an extremely high level of dollarization of loans (over 55%) and deposits (80%). In addition, there is a risk of reducing the capital adequacy of financial and credit institutions. By the end of the year several banks will not comply with the minimum prudential standards, and in the medium term, the devaluation will have a negative impact on the quality of banks' assets.

Most borrowers in the country do not have income in foreign currency, so their ability to service the debt will be affected. So the Central Bank should provide the necessary support to banks as needed to ensure their liquidity.

"A small proportion of these entities in the local economy (total assets accounted for by December 1 were 50% of GDP) also allows the government to provide them with the necessary support. In addition, the government has a significant buffer in the form of assets of the State Oil Fund, which as of October 1 were $ 34.7 billion, or 65% of GDP," experts stress.

According to the agency, the devaluation has some pluses - there has been a growth in oil revenues in manats, which will contribute to the stabilization reserve. Recall Azerbaijan is still highly dependent on oil and gas. They account for 95% of exports, 75% of revenues and 40% of GDP in 2015," the message underlines. --17D-