Moody’s Investors Service has maintained its negative outlook on Azerbaijan`s banking system for a year and a half

Moody's Investors Service has maintained its negative outlook on Azerbaijan's banking system for the next 12-18 months. "A challenging operating environment combined with a significant devaluation of the local currency over the past year, will weigh further on Azerbaijani banks' asset quality, profitability, capitalization and funding. "We expect an increase in system-wide problem loans in Azerbaijan to around 20% of gross loans by the end of 2016, from 16% in December 2015," explains Ms. Malyukova. "This comes as the weaker manat pushes up the debt servicing burden for borrowers amid deteriorating market conditions." Funding conditions have also weakened, mostly as a result of a loss of confidence in the manat. Foreign-currency denominated deposits increased to 82% of total deposits as of the end of 2015, up from 50% a year earlier. This widens the mismatch between foreign-currency assets and liabilities and increases banks' vulnerability to further exchange rate volatility. -02D-