Fitch: Azerbaijan has one of highest liquidity levels in CIS+ region

Azerbaijan's ratio is one of the strongest in the CIS+ region, at 73%, highlighting ample liquidity, Report informs referring to Fitch Ratings.

"Banks' liquidity positions are comfortable across the region. Deposit growth has moderated in Armenia and Georgia after significant non-resident inflows in 2022, and sector loans/deposits ratios rose to about 100% at end-2024. Georgian banks' liquidity remained stable throughout 2024 despite political risks, with uninterrupted access to external investors, due to the sector's robust performance," Fitch noted.

Fitch Ratings forecasts that key metrics for banks in Azerbaijan, Armenia and Georgia will remain above historical levels, but rating trajectories may vary across these countries.

According to the agency, bank credit metrics in the region continue to benefit from rapid economic growth and increased business volumes over the past two years.

"These developments are supported by spill-over effects from the military conflict in Ukraine, namely increased trade with Russia, immigration and related payment flows, and high commodity prices."

Fitch notes that Azerbaijanchr("39")s banking sector is supported by a favorable external economic environment, in particular, high oil prices and reduced risks associated with low-quality assets.

"Deposit growth has moderated in Armenia and Georgia after significant non-resident inflows in 2022, and sector loans/deposits ratios rose to about 100% at end-2024. Georgian banks' liquidity remained stable throughout 2024 despite political risks, with uninterrupted access to external investors, due to the sector's robust performance."

The region's banks delivered record profitability in 2022-2024. Rising interest rates pushed margins up by 1-2 percentage points, while large liquid reserves helped contain funding costs.

Azerbaijani banks' capitalization remains reasonable despite rapid lending growth and significant dividend payments, which put some pressure on capital. Fitch expects the sector's strong profitability to help maintain this balance.

"The positive dynamics have been particularly pronounced in Azerbaijan, where legacy risks have moderated considerably, helped by a shift from concentrated and dollarized corporate exposures towards more granular, local-currency retail, micro and SME lending, and better regulatory supervision.

Bank de-dollarisation across the region has been supported by growth in retail lending and local-currency resilience in recent years. That said, dollarisation is still high in Georgia (43% of loans at end-2024) and Armenia (33%), and remains a key weakness for banks in both countries."

In Georgia, the banking sector could be particularly vulnerable if the political crisis worsens. This could undermine investor confidence, putting pressure on the country's external liquidity and the exchange rate.

Fitch has already factored these risks into its negative outlooks on Georgian banks.