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Ulviyya Shahin

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Azerbaijan, a country rich in oil and gas resources, has been steadily diversifying its economy in recent years to reduce its dependency on the energy sector. The banking industry plays a crucial role in this economic diversification process, facilitating investments, supporting businesses, and providing financial services to individuals.

Over the past few years, Azerbaijan's banking sector has seen notable growth and development, driven by various factors such as regulatory reforms, technological advancements, and increased access to finance. The Central Bank of Azerbaijan (CBA) has been instrumental in implementing policies aimed at ensuring stability and promoting growth within the banking sector.

One of the key indicators of the performance of the banking industry is the income generated from loans. As businesses and individuals borrow money from banks for various purposes, including investments, consumption, and working capital needs, the interest income earned by banks reflects the level of economic activity and credit demand in the country.

As reported by Azernews, citing data from the CBA, the income of banks in Azerbaijan from loans during the first quarter of 2024 has reached a significant milestone. The report reveals that banks' interest income on loans surged to 729.1 mln manats ($428.88 mln) in the third month of the year, demonstrating a robust 19.4% increase compared to the same period last year.

This substantial growth in interest income reflects a buoyant lending environment, underpinned by economic expansion and increased credit demand across various sectors of the economy. As businesses seek financing for expansion projects, infrastructure development, and operational needs, and individuals access credit for housing, education, and consumption, banks play a pivotal role in facilitating these financial transactions.

Furthermore, comparing the figures to the corresponding period in 2023 highlights the sustained momentum in the banking sector's performance. In the first quarter of 2023, banks' interest income on loans totaled 610.4 mln manats ($359.06 mln), indicating a remarkable year-on-year increase in 2024.

However, alongside the growth in interest income, it is essential to consider the corresponding expenses incurred by banks. Interest expenses during January-March amounted to 259.7 mln manats ($152.76 mln), representing a notable increase from 200.3 mln manats ($117.82 mln) recorded in the same period last year. The majority of these expenses are attributed to interest payments on deposits, reflecting the importance of deposit funding for banks' operations.

Despite the rise in interest expenses, the significant increase in interest income outweighs the costs, resulting in a positive net interest margin for banks. This indicates healthy profitability and financial performance within the banking sector, supporting its role as a key driver of economic growth and development in Azerbaijan.

Looking ahead, the continued growth and stability of the banking sector will depend on various factors, including prudent risk management practices, effective regulatory oversight, and ongoing efforts to enhance financial inclusion and access to finance for all segments of society. As Azerbaijan progresses on its path of economic diversification and development, the banking industry will remain a vital pillar supporting sustainable growth and prosperity.

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