Fitch predicts depressing future for Azerbaijan banks (exclusive)

Fitch predicts depressing future for Azerbaijan banks (exclusive)
18:17 21 Dekabr 2015
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Baku, Azerbaijan, Dec. 21

By Azad Hasanli – Trend:

Today’s currency devaluation in Azerbaijan will negatively affect the quality of assets and capital of banks, believes Dmitry Vasilyev, director for financial institutions at Fitch, a global ratings agency.

Azerbaijani Central Bank switched on Dec. 21 to a floating rate of the country’s national currency – the manat. As a result, the rate of the US dollar and euro to manat rose by 47.6 percent and 47.9 percent, and stood at 1.55 manats and 1.685 manats, respectively.

“Azerbaijan’s banking system is distinguishable for high level dollarization of assets, but there is limited number of borrowers that have access to currency earnings,” Vasilyev told Trend Dec. 21.

“Therefore, due to the devaluation, the loan debt servicing quality will deteriorate, negatively affecting the quality of assets overall,” he explained.

Meanwhile, as he said, Azerbaijan’s banking sector is facing two risks.

“Firstly, the assets in manats will rise in price, and respectively the capital adequacy ratio of all the banks will fall [a corresponding demand on this from Azerbaijan’s Central Bank stands at 50 million manats],” said Vasilyev.

“Secondly, some banks have straight open foreign currency position, and they will have to accept large non-recurring losses from the currency revaluation due to manat’s devaluation, which will also affect the capital adequacy ratio,” Vasilyev said.

He added that the devaluation will inflict the greatest damage to banks having a maximum difference between assets and liabilities in foreign currency.

Fitch official also said that the dollarization of deposits will continue in the country.

Azerbaijan’s Central Bank has said that as of Nov. 1, 2015, the deposits in foreign currency account for 74.84 percent (12,835.8 million manats) of the total bank deposits (17,150.5 million manats).

Edited by SI

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