Moody’s Expects Growth of Bad Loans in Fall of GDP in Azerbaijan

Baku hosted a forum on risk management with the participation of an analyst from Moody`s, Mary Malyukova.

According to her statement, Moody's conducted stress tests in 8 banks of Azerbaijan on baseline and alternative scenarios, and both calculated a decrease in the level of capitalization of financial institutions, in which 60% of the assets of the banking system is concentrated, to 2.8%. The first scenario plans a slight decline in GDP and the growth of bad loans in the total portfolio to 20% (by January 1, it was 9.5%). On the second scenario GDP will shrink by as much as 8%, while bad loans will reach 35%.

According to the analyst from Moody`s, the capitalization of local banks will be affected in the coming 1 - 1.5 years by increased reservation of credit losses, and revaluation of assets and foreign exchange losses in the case of the volatility of the national currency. The expert believes that the level of capitalization decreased in the past year due to the devaluation of the national currency, due to the negative impact of the revaluation of foreign currency assets, credit losses and losses due to open short currency position, which eventually led to a deterioration in banks' asset quality and to problems with debt service.

Recall from January 1, the Central Bank of Azerbaijan has reduced the minimum capital adequacy requirement from 12 to 10%, and capital of the first level - from 6 to 5%.

According to Malyukova, last year's decree of President of Azerbaijan about the support of the International Bank in the amount of 3 billion manats shows high expectations of further holding afloat a number of financial institutions. She expressed a hope that the government would prefer to support systemically important banks with a large deposit base. --17D-