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Azerbaijan’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

Azerbaijan’s economy increased by 1.4% and the non-oil sector by 1.8% in 2018, after a challenging period, as a result of the positive impact of the economic reforms, the stabilisation of oil prices and foreign exchange rates and the return on balance of payments to surplus.  The inflation rate dropped by more than 10 percentage points to 2.3% in 2018.

With a gradual increase in oil prices, the surplus in the current account balance in 2018 was $6.1 billion. The large financial accounts deficit observed in 2017 ($0.1 billion) jumped to $3.2 billion. The main reason for the improvement of the balance of payments, along with increased oil prices, was the increase in the surplus on tourism. As a result, the country’s foreign exchange reserves increased by $3 billion.

As a result of the increase in transfers from the State Oil Fund of the Republic of Azerbaijan to the state budget in 2018, there were increases to the state budget revenues (36%) and expenditure (29.1%).  Transfers from the State Oil Fund to the budget amounted to $3.6 billion in 2017 and $6.4 billion in 2018. The amount of assets of the State Oil Fund was close to $38.5 billion at the end of 2018.

During this period, the central bank CBAR increased the monetary base by 11.7% in 2018 to meet the monetary demand and maintain the monetisation level. The offficial exchange rates at the end of  2018 were 1.7 AZN/US$ and 1.95 AZN/€. The reserves of CBAR exceeded $5.6 billion in 2018.

The process of abolishing banks’ licences ended in 2017 and the number of the banks operating in the  Azerbaijan economy remains stable. In 2018, 30 banks operated in the market, of which two were state owned and 28 were private banks. The share of foreign capital in eight out of 15 foreign capital banks was over 50%. Two of these banks are local branches of foreign banks.

The volume of bank assets increased by 5.6% amounting to €15.2 billion in 2018, the loan portfolio increased by 11% amounting to €6.7 billion, and the non-performing loan (NPL) ratio decreased from 13.8% to 12.2%. A decree accepted at state level in February 2019 is an important step towards reducing NPLs and removing the preponderance of debt burden generated by the devaluation carried out by government and banks. It is expected to reduce the volume of NPLs significantly. Banks continued  to increase capital, with the total capital of the sector increasing by 9.8% in 2018 amounting to €2.1 billion.

In 2018, about 6% increase was observed in the banking sector’s deposit base, but household savings and non-financial organisations’ deposits rose by 10.7% and 7.6% respectively.

There have not been sharp fluctuations in the local currency rate in recent times. As a result , the level of dollarisation in deposit and savings has dropped. In 2018, the dollarisation level in deposits and household savings dropped by 7.1 percentage points and 4 percentage points, respectively.

Generation of revenues in the banking sector was restored. Net interest income of the sector in 2018 amounted to €601.6 million euros, non-interest losses totalled €244.8 million and net profit (after tax) amounted to €143.5 million.

Contributor: Azizagha Hakhverdiyev azizaga_h@aba.az

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