Fitch identifies financial stability factors of Azerbaijan mortgage fund

Fitch Ratings has affirmed the long-term issuer default ratings (IDRs) of the Azerbaijan Mortgage and Credit Guarantee Fund (MCGF) in foreign and local currencies at 'BBB-', Report informs.

According to Fitch, the outlook on the ratings is Stable.

The agency considers the MCGF a government-related entity (GRE) that performs a key government function: providing affordable housing and supporting the development of small and medium-sized businesses by facilitating access to finance.

Therefore, Fitch equalizes the MCGF's rating to the sovereign rating of Azerbaijan (BBB-/Stable) in accordance with the GRE criteria.

The agency assesses the likelihood of extraordinary government support for the fund as "virtually guaranteed," reflecting a support score of 50 out of a maximum of 60.

"The financial stability of the mortgage fund is ensured by ongoing and significant government support, reflected in stable, albeit moderate, profitability and a viable business model. The Fund receives annual capital injections from the government-a total of 172.7 million manats in 2024-2025, allocated to funding social mortgages," Fitch notes.

One form of support is also a bond buyback guarantee from the Central Bank, which obligates the bank to repurchase bonds from holders upon request. The Central Bank currently owns approximately 80% of the Fund's outstanding bonds.

The Fund is one of four organizations in the country exempt from corporate income tax. The government also provides indirect support by assigning a special risk category to the fund's bonds and products, making them more attractive to banks than commercial bonds.

Fitch expects the government's regulatory and political influence over the MCGF to remain high at least in the medium term. In 2026, the government plans to allocate 100 million manats to finance the social mortgage program and subsidize loans for SMEs.

Fitch estimates that the MCGF's share of the household mortgage lending market is approximately 80%.

The MCGF remains a non-profit but profitable state-owned entity, supported by low-cost financing. In 2024, the fund earned a profit of 23.2 million manats, consistent with the previous year. A slight increase in net interest income, driven by an expansion of the loan portfolio, was offset by an increase in personnel costs.

The fund's asset quality remains high: the share of problem loans is less than 0.1% of the total mortgage and rental portfolio.

($1=1.7 manats)