Azerbaijan’s banking sector: Facts & Figures
Updated September 2018 – For earlier editions of Facts & Figures click here
Azerbaijan’s economy declined by 3.8% and the non-oil sector by 5.4% in 2016 as a result of the impact of oil price shock. The weak recovery of oil prices, the emergence of new growth opportunities for the tradable sectors through the impact of the declining national currency as well as the launch of economic reforms (liberalisation of the business environment, stimulation of exports, etc.) supporting the supply in the country have led to economic growth in 2017. In general the economic growth rate in 2017 was 0.1% and the non-oil economy increased by 2.7%.
Inflation was 12.4% in 2016, and 12.9% in 2017, as a result of increased import prices with devaluation shocks.
With a gradual increase in oil prices, proficite recovered in the current account balance in 2017 (USD 1.7 billion). The large volume financial accounts’ deficit observed in previous years ($9.1 billion in 2015 and $2.8 billion in 2016) declined to $0.1 billion. The main reasons for the improvement of the balance of payments, along with increased oil prices, were the increase in the surplus on tourism and portfolio investments. As a result, the country’s foreign-exchange reserves increased by $2 billion.
Owing to the decrease in transfers from the State Oil Fund of the Republic of Azerbaijan to the state budget in 2017, declines were observed in the state budget revenues (-6%) and expenditure (-1%). Transfers from the State Oil Fund to the budget amounted to AZN 7.6 billion in 2016 and AZN 6.1 billion in 2017. However, in parallel, the Fund allocated AZN 4 billion to the Central Bank of Azerbaijan to ensure macroeconomic stability. With the gradual recovery of oil prices, the amount of assets of the State Oil Fund was close to $36 billion at the end of 2017.
Taking into account the gradual stabilisation of the exchange rate of manat, growth of the non-oil economy and double-digit inflation, the Central Bank of Azerbaijan (CBA) increased the monetary base by 8.7% in 2017 to meet the monetary demand and maintain the monetisation level.
The official exchange rate of the U.S. dollar as of 1 January 2018 amounted to 1.7001 AZN / USD and EUR 2.0431 / USD. Since the beginning of the year the reserves of the CBA have increased by $1.4 billion and amounted to $5.3 billion.
Owing to the abolition of the licenses of 11 banks in 2016 and two banks in 2017, 30 banks operate in the market in 2018, of which two are state-owned and 28 are private banks. The share of foreign capital in eight out of 15 foreign capital banks is over 50 percent. Two of these banks are local branches of foreign banks.
Following the annulment of the licence of two banks in 2017 and the suspension of activity of several branches of banks or continuation of their activity as departments within the framework of optimisation of expenses, the number of branches of banks dropped from 569 to 509 during the year and the number of departments increased from 131 to 142. The number of ATMs and POS terminals also declined in 2017: the number of ATMs dropped from 2,461 to 2,431, and the number of POS terminals dropped from 71,806 to 65,471.
With the impact of double devaluation in 2015, the value of bank assets decreased by 11.2% amounting to €13.8 billion, loan portfolio declined by 29% amounting to €5.6 billion, and non-performing loans rose from 6.9% to 14% in 2017.
Despite complex economic conditions, the banking sector continued to capitalise: the total capital of the sector increased by 52% in 2017 amounting to €1.8 billion (16% of banking sector liabilities).
Due to the decrease in bank deposits placed by the financial sector in 2017, about a 7% decrease was observed in the banking sector’s deposit base, but household savings and non-financial organisations deposits rose by 1.5% and 22% respectively.
With the gradual stabilisation of manat and relatively high deposit interest rates in AZN, the level of dollarization in deposit and savings dropped. In 2017 the dollarization level in deposits and household savings dropped by 3 percentage points and 13.1 percentage points respectively.
The generation of revenues in the banking sector was restored: interest income of the sector in 2017 amounted to €465.1 million, non-interest losses amounted to €20.6 million, net profit (after tax) amounted to €432.5 million.
Contributor: Bahruz Ahmadov email@example.com