In its "Banking Industry Country Risk Assessment: Azerbaijan," published today, S&P Global Ratings said it classifies the banking sector of Azerbaijan (BB+/Stable/B) in group '9' under its Banking Industry Country Risk Assessment (BICRA). Among other countries in group '9' are Kazakhstan, Turkey, Kenya, Vietnam, Mongolia, Egypt, and Argentina. A wider range of peers ranked in groups '8' to '10', such as Uzbekistan, Tunisia, Russia, and Georgia, also provide a good comparison to Azerbaijan, APA-Economics reports citing S&P.
We use our BICRA economic risk and industry risk scores to determine a bank's anchor, the starting point in assigning an issuer credit rating. The anchor for banks operating only in Azerbaijan is 'b+'. In our view, this already incorporates inherent risks, such as elevated credit risk, the cyclical economy, and banks' past relatively aggressive lending practices.
In our view, system strengths include:
Sizable government external assets and relatively low debt partly mitigates the risks linked to an economic downturn.
Modest private-sector debt in an international comparison and no net reliance on external funding for the domestic financial system.
In our view, system weaknesses include: Still heightened economic risks stemming from COVID-19 pandemic.
High dollarization of customer deposits exacerbates currency and credit risks in the banking sector.
Weak governance and transparency in an international context.