S&P assesses banking risks in Azerbaijan in medium term

The return on equity (ROE) of Azerbaijan's banking sector in 2024-2026 will be 16% compared to 17.7% in 2023 and 16.2% in 2022, according to the updated banking risk indicators report by S&P Global Ratings, which renewed indicators for 85 banking systems, Report informs.

According to forecasts, the return on assets (ROA) of Azerbaijani banks is expected to be 2.1% over three years, compared to 2.2% in the previous two years. The loan-to-deposit ratio is projected at 105.1% in 2024, 110.7% in 2025, and 116.5% in 2026. This indicator was 100.9% in 2023 and 88.7% in 2022. As part of the credit risk assessment for the economy, S&P also analyzed non-performing assets and credit losses of banks over three years.

The share of non-performing loans in Azerbaijani banks is expected to be 3% of the sector's loan portfolio in 2024, 3.2% in 2025, and 3.4% in 2026. In 2023, this indicator was 2.6%, and in 2022 - 3.6%. Bank credit losses in 2024-2026 are expected to be 1.2% of the sector's loan portfolio, compared to 1.1% in 2023 and 1% in 2022. Additionally, household debt to GDP is expected to be 13.5% in 2024, 15.7% in 2025, and 17.5% in 2026. This indicator was 8.4% in 2022 and 11.4% in 2023.

Corporate debt to GDP is forecast at 9.1% this year, 10.2% next year, and 11% in 2026. In 2022, this indicator was 6.6%, increasing to 8.1% in 2023. Private sector debt to GDP is expected to be 22.6% in 2024, 25.9% next year, and 28.5% in 2026. This sector's debt will increase by 3.1% this year, 3.3% in 2025, and 2.5% in 2026. In 2022, this indicator was 15.1% (with a 3.3% decrease), increasing to 19.5% in 2023 (with a 4.4% increase).

According to the report, inflation-adjusted housing prices will increase by 5.3% in 2024, 3.8% in 2025, and 3.4% in 2026. In 2022 and 2023, there were decreases of 5.3% and 0.9% respectively.