Azerbaijan’s banking sector: Facts & Figures

Updated December 2020 – For earlier editions of Facts & Figures click here

In 2019, Azerbaijan’s GDP increased by 2.2% to €42.9 billion. GDP per capita was €4,333 (increased by 1.8% compared to 2018). Annual inflation was 2.6% and within the framework forecast by the Central Bank (4±2%). In 2019, the state budget received € 12,713.2 million (7.5% more than in 2018), the budget spent €12,821 million (7.4% more than in 2018), the budget deficit was equal to €107.8 million.

In January-December 2019, the average exchange rate of the national currency against one US dollar was 1.70 manat and €1 was 1.90 manat.

In 2019, 30 banks were operating in Azerbaijan. Two of them were state-owned banks and the rest were private banks. The number of banks with foreign capital in the country is 14. In seven of them, the share of foreign capital is more than 50% (two banks operate as local branches of foreign banks).

The number of non-bank credit organizations was 90, of which 45 have the status of credit unions.

The policy pursued to increase the volume of non-cash payments in the country has been intensified in recent years thanks to the role of the “State Program on Expansion of Digital Payments in the Republic of Azerbaijan for 2018-2020” which has been developed for implementation of the measures envisaged, for expansion of digital payments, in the “Strategic Roadmap on Development of Telecommunication and Information Technologies in the Republic of Azerbaijan” approved by the Decree dated December 6, 2016, of the President of the Republic of Azerbaijan. The Program is strategically aiming to significantly expand the cashless payments in the economy and thereby to minimize the volume of cash payments, to strengthen the base of financial resources of the banking sector, and to reduce transactional costs associated with cash circulation.

As a result of the implementation of the measures arising from the Strategic Road Map and the Program, by the end of 2019, 43% of card transactions in terms of number and 19% in terms of amount were directed to non-cash payments, in 2010 these figures were 3% and 2%. At the same time, there was a rapid increase in the number of bank cards in the country. During 2019, the volume of plastic cards increased by 11.6% to 7.27 million. The number of POS-terminals in the country was 67.5 thousand, and the number of ATMs was 2647. Also, 29 banks provided internet banking services and 24 banks provided mobile banking services during the reporting period.

By the end of 2019, the number of bank branches was 509, and the number of branches was 133. The number of employees in the banking sector is 19,500. During that term, NBFCs had 228 branches and 2,100 employees.

In 2019, the total credit investment in the economy by banks and non-bank credit organizations increased by 20.2% over the year and reached €8036.9 million. At the same time, the volume of non-performing loans decreased by 17.9% and fell to €668.8 million. As a result, the NPL ratio decreased by 3.9 percentage points to 8.3%.

The share of banks in total lending was 97.4% (€7,828.2 million), and the share of non-bank credit organizations was 2.6% (€208.7 million). The loan portfolio of non-bank credit organizations also increased, although not in double-digits (3.6%) as in banks.

During 2019, the total deposit portfolio in the country increased by 15.7% to €13,000.3 million. €5,073.6 million of the portfolio was in national currency and €7,926.7 million in foreign currency, which increased by 30.3% and 8%, respectively. At the end of the reporting period, the dollarization ratio of the portfolio was 61%, which means a decrease of 4.3 percentage points during the year. The de-dollarization process has also been observed in household savings. The dollarization coefficient of €4,537.9 million in household deposits in banks decreased by 10.3 percentage points compared to 2018 to 52.2%. The change in the volume of this portfolio was + 5.5%.

The increase was also observed in the deposits of financial and non-financial institutions. Thus, the funds of financial institutions in the bank increased by 14.1% to €907.1 million, while deposits of non-financial organizations increased by 23.1% to €7,555.3 million.

Business loans accounted for €4,744.9 million, or 60.6% of total bank loans. During the year, the volume of business loans increased by €577.6 million or 13.9% compared to 2018. One of the steps to boost this growth has been to take steps to encourage banks to take out business loans in a variety of ways (in the next chapter), including some easing of business loans in prudential terms. This is because the growth of business loans has accelerated by the end of the year.

At the end of 2019, the assets of banks amounted to €1,7190.9 million, which is equal to 64.9% of non-oil GDP. During the year, the volume of this indicator also changed in a positive direction: an increase of 13.4%. At the same time, the share of total loans in assets reached 45.5%.

The total capital of banks increased by 15.1% in the period to €2,407.7 million and reached 9.1% of non-oil GDP. The most significant change was in the profits of banks. Thus, although the sector’s profit in 2018 was €143.5 million, the next year this figure almost doubled (96.5%) to €282.1 million.

In 2019 as other quality indicators showed a positive tendency: the ratio of net profit to assets was equal to 1.6% (in 2018: 0.9%) and the ratio of net profit to total equity was 11.7% (in 2018: 6.9%).

Positive changes are observed in both quantitative and qualitative indicators of banks. The main reasons for these positive trends were strengthening economic stability, falling inflation, declining volatility of exchange rate, and, consequently, rising business activity and household incomes.

Special decisions by the state also played an important role in accelerating economic activity, one of which is related to the Decree of the President of the Republic of Azerbaijan dated February 28, 2019: “On additional measures to address problem loans of individuals in the Republic of Azerbaijan”. At the same time, major tax reforms were implemented that year. As part of the reforms, individuals who did not work in the oil and gas sector and were employed by taxpayers belonging to the private sector were exempted from income tax for seven years (Note: income tax was 14%). The decision aimed to support the development of entrepreneurship, increase economic transparency and activity, and expand the tax base.

These steps, combined with the multiplier effect created by the increase in budget expenditures and the effects of reforms in the country in recent years, have contributed to the strengthening of the banking sector, as well as increasing business activity and income in 2019.

Contributor: Azizagha Hakhverdiyev azizaga_h@aba.az