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Akbar Novruz

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International rating agency S&P Global Ratings has upgraded the long-term credit rating of the Azerbaijan Business Development Fund (ABDF) from “BB-” to “BB”, while affirming its short-term rating at “B”.

The outlook on the long-term rating is stable.

According to S&P Global Ratings, the upgrade reflects an improvement in ABDF’s risk profile following the write-off of a significant portion of problem loans inherited from the former Entrepreneurship Development Fund (EDF).

ABDF was established on January 1, 2025, through the legal merger of the EDF and the Azerbaijan Investment Company (AIC), both of which are subordinate to Azerbaijan’s Ministry of Economy. The two institutions are currently undergoing operational integration.

As of mid-2025, EDF had assets of 1.05 billion manats (approximately $615 million), while AIC's assets amounted to 374 million manats (approximately $220 million).

S&P noted that at the end of 2024, EDF wrote off 192 million manats (approximately $113 million) in Stage 3 loans issued to financial institutions whose licenses had been revoked between 2016 and 2020. The loans had already been fully provisioned.

Following the write-off, EDF's Stage 3 loans declined to 9.7 million manats (approximately $5.7 million) by mid-2025, equivalent to 1.4% of its total loan portfolio, compared with 24% at the end of 2023.

The agency said this ratio is significantly below its current estimate of 5-6% for the Azerbaijani banking sector.

S&P nevertheless highlighted differences in the risk profiles of the two institutions that formed ABDF. While EDF primarily provides financing to local banks for subsequent lending to small and medium-sized businesses, AIC invests directly by acquiring stakes in Azerbaijani companies. The latter activity carries a comparatively higher level of risk, according to the agency.

Despite this, S&P expects ABDF's capitalization to remain at a very high level, which supports the upgraded rating.

The stable outlook reflects S&P's expectation that the operational integration of EDF and AIC will progress over the next 12 months, while ABDF will maintain strong capitalization and a conservative risk appetite.

S&P also expects ABDF to publish its consolidated audited financial statements for 2025 in accordance with International Financial Reporting Standards (IFRS) in June 2026.

The agency warned that difficulties in the integration process, an increase in ABDF's risk appetite or the accumulation of significant debt obligations could put downward pressure on the rating.

At the same time, S&P considers an upgrade over the next 12 months unlikely. In the longer term, however, further improvement could depend on ABDF demonstrating a stable and significant role in implementing government policy, as well as an upgrade of Azerbaijan's sovereign credit rating.