According to the Agency, evolution of the monetary policy framework lags other CIS oil producers.
The FX debt restructuring at International Bank of Azerbaijan (IBA), the largest state-owned bank, potentially at the cost of reputational damage, may not be sufficient to restore IBA's financial health, in Fitch's opinion.
“The sovereign external balance sheet is strong. Assets held by the State Oil Fund of Azerbaijan (Sofaz) were USD34.8 billion at end-June (88% of end-2016 GDP) and the transparency of Sofaz's financial stocks and flows is greater than the sovereign wealth funds of most higher rated oil producers. Sovereign net foreign assets will fall due to debt issued as part of the IBA restructuring, but at a forecast 65% of GDP at end-2017 (down from 81.1% at end-2016), well in excess of the peer median of 0.6%. The IBA restructuring demonstrates a desire to preserve Sofaz assets, in Fitch's opinion. However, Sofaz assets are playing a major role in restoring macroeconomic stability”, the agency said.
Fitch Ratings also said that IBA's debt restructuring is the latest government effort to return the country's dominant bank to health: “Government support for IBA has totalled 27% of 2016 GDP since 2013. A stronger IBA that can eventually play an effective role in financial intermediation would support the economy. However, Fitch's bank analysts are uncertain whether the current restructuring will be sufficient. Much of the banking sector remains troubled, with NPLs at 24% and capital adequacy of 11.8% at end-June 2017, but Fitch is not assuming direct capital support from the government for other entities in the sector”.