Fitch revises outlook on Azerbaijan Mortgage and Credit Guarantee Fund to positive

Fitch Rating has revised the Outlook on the Mortgage and Credit Guarantee Fund of the Republic of Azerbaijan's (MCGF) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to Positive from Stable and affirmed the IDRs at 'BB+', Report informs.

The affirmation reflects Fitch's unchanged view on the fund's strong link with Azerbaijan and its strategic importance in the provision of affordable housing and development of the business environment through facilitating financing to small and medium enterprises (SMEs).

The fund is a special status non-commercial organisation, which is fully owned by the state. The fund can only be liquidated or reorganised by the decision of the President of Azerbaijan. The state is not legally obligated to pay for the fund's liabilities in case of insolvency. However, in Fitch's view, liability transfer to the state or state-designated entity may be among supportive measures, if needed.

The fund's operations are tightly controlled by the central government through a trustee board, whose members are appointed by the President. The board currently consists of representatives of the presidential administration, several ministries, and the Central Bank. The trustee board approves the fund's annual borrowings.

MCGF continues to benefit from solid support from the state. For social mortgage funding, it receives capital injections annually from the state, which totaled AZN166 million ($97.65 million) in 2021-2022. The Central Bank's buy-back guarantee on the fund's bonds is another form of support. It implies the Central Bank's obligation to buy back the fund's bonds from bondholders on request.

The Central Bank holds more than 30% of MCGF's outstanding bonds. The fund is among four organisations in the country that are exempt from the payment of income tax. The state provides indirect support through special risk group classification of the fund's bonds and its products, making them more attractive for banks.

Fitch expects regulatory and political influence to remain strongly supportive of the entity, at least over the medium term. The state plans to provide AZN100 million ($59 million) of financing in 2023. Most of these funds are for the provision of social mortgages but also include funding for subsidising loans to SMEs.