Moody's: Stability of manat has improved quality of foreign-currency loans in Azerbaijan

The stability of the Azerbaijani manat has improved the quality of foreign-currency loans, with their share decreasing to 14% of total loans by September 2025, from roughly 16% in 2024 and a peak of 30% at the end of 2020, according to Moody's, Report informs.

"After a significant decrease over 2020-2023, problem loans remained broadly stable at a historical low of around 3% of total loans as of year-end 2024, while the problem loan coverage by reserves was around 112%. Asset quality will be supported by favourable economic conditions because of the robust performance of the non-oil economic sectors, which strengthened many borrowers' debt repayment capacity," says Moody's.

The agency notes that the funding conditions for Azerbaijani banks are constrained by a very high deposit dollarisation. "This leads to a volatile and vulnerable customer deposit base, and relatively costly access to the wholesale capital markets."

While deposit dollarisation in Azerbaijan's banking system has consistently decreased every year, Moody's says, it still remains among the highest in the Commonwealth of Independent States (CIS):

"The share of foreign-currency deposits is among the highest in the CIS region (38% of total deposits as of September 2025, down from 56% in 2020). By contrast, liquidity in manat terms has improved as a result of the steady dedollarisation of deposits and state support."

According to Moody's, customer deposits are the main source of funding for Azerbaijani banks:

"As of September 2025, these comprised around 75% of total systemwide liabilities, followed by loans from financial institutions. Banks' reliance on the wholesale market and cross-border funding is limited, and their refinancing risks are relatively low. In addition, around 39% of banking system assets were in liquid form, comprising cash and cash equivalents, dues from banks, and investments in sovereign and quasi-sovereign debt securities, which provide a strong buffer against external shocks."