S&P Upgrades Industry Risk Assessment for Azerbaijan's Banking Sector
International rating agency S&P Global Ratings expects that key initiatives to modernize regulation and supervision of financial institutions in Azerbaijan will bring the national regulatory framework closer to global best practices.
As reported by S&P Global Ratings, the agency has upgraded the industry risk assessment within the Banking Industry Country Risk Assessment (BICRA) for Azerbaijan from 8 to 7.
"We have improved our assessment of industry risk, reflecting strengthened regulation and supervision in the banking sector. The positive trend in economic risk (assessment of 8) reflects our expectations that stricter regulatory oversight will limit banks' propensity to take excessive risks and reduce credit risks in the system," the statement said.
S&P notes that the improved industry risk assessment reflects steps taken over the past three years to modernize regulation and supervision.
Under the "Financial Sector Development Strategy for 2024-2026," regulators have introduced a corporate governance standard for banks, limiting transactions with related parties, as well as a liquidity risk management policy in line with Basel III requirements.
S&P recalled that the Central Bank of Azerbaijan plans to transition to risk-based supervision and implement the IFRS 9 standard by 2026, revise the capital adequacy structure to align with Basel III requirements, tighten stress-testing requirements, and develop a resolution framework.
"We believe that the implementation of these initiatives will further strengthen regulation and supervision, although the country's regulatory framework still remains weaker compared to international standards," the statement emphasized.
Additionally, the agency affirmed the ratings of several banks, changing the outlook for the ratings of PASHA Bank OJSC from "stable" to "positive."
The long-term and short-term credit ratings of PASHA Bank were affirmed at "BB-/B" with a positive outlook.
The agency also believes that the anticipated IPO of a 5% stake in PASHA Bank could increase its capital buffers in the short term, raising the risk-adjusted capital (RAC) ratio to 7-7.5% in 2026-2027.
S&P maintained the ratings of Kapital Bank OJSC at "BB-/B" with a positive outlook and Azer-Turk Bank OJSC at "B+/B" with a stable outlook.
"Kapital Bank continues to strengthen its position by developing an ecosystem of financial and non-financial services under the Birbank brand. Slower-than-expected growth in 2025 (gross loan portfolio growth of about 4% compared to 22% in 2024) is likely to lead to an increase in capitalization levels. The bank will maintain its RAC ratio in the range of 5.75-6.25%," agency analysts believe.
Source: Report
