No expectation of further manat devaluation from Fitch
By Aynur Karimova
Fitch Ratings does not expect a further devaluation of Azerbaijan’s national currency, the manat, Dmitry Vasiliev, director of the agency’s Financial Institutions told Trend on September 9.
He said that contrary to Azerbaijan, other CIS countries have faced a deeper devaluation, however in the case of Azerbaijan, Fitch does not consider this as a baseline scenario.
“It is difficult to estimate the probability [of the repeated devaluation], but we can say that today, it is below 50 percent,” said Vasiliev.
With the decision of the Central Bank of Azerbaijan on February 21, the official exchange rate of the U.S. dollar was set at 1.05 manats, which means a devaluation of the manat by almost 34 percent.
Banks can withstand manat's additional depreciation
In its latest report, Fitch Ratings said that Azerbaijani banks appear to have sufficient capital to withstand the direct impact of even an extreme additional 40 percent manat depreciation.
"Loss absorption capacity at most Azerbaijan banks is limited, considering the significant risks they face," the agency reported.
Experts at the agency forecast the growth of Azerbaijan's economy to fall to only 1.5 percent in 2015, resulting in weaker asset quality.
"Further pressure on the currency, the manat, which suffered a 34 percent devaluation against the U.S. dollar in February 2015, although not our central scenario, is a risk," the agency said. "However, on the positive side, aggregate deposit levels have been stable to date and refinancing risks on wholesale funding are low."
According to the agency, the International Bank of Azerbaijan, which represents 35 percent of sector assets, reported a 12-percent capital ratio at the end of June 2015, hitting the regulatory minimum.
"This should improve once a capital injection, planned for the fourth quarter of 2015, is received and the sale of impaired loans is completed. We expect zero loan growth for the banking sector in 2015 (net of exchange-rate effects and IBA's loan sales) and credit demand is also likely to be weak in 2016," Fitch noted.
Currently, there are 42 banks in Azerbaijan. Earlier, Azerbaijan had 44 commercial banks. The Central Bank of Azerbaijan closed two of them in July. Many experts point out that the number of banks in Azerbaijan does not correspond to the size of the economy, claiming the optimum number to be 20-25 banks.
The CBA set higher capital requirements for banks bringing the capital floor up to 50 million manats ($47.69 million) in 2014 to force bank consolidation and reduce risks. Larger banks meant larger loans to support the development of the economy.
Azerbaijani banks had limited risks from foreign currency lending before 2015. This was due to the CBA maintaining a fixed exchange rate for the manat against the U.S. dollar.
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Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova
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