S&P Forecasts Stable Banking Sector in Azerbaijan by 2025
S&P Global Expects Resilience in Banking Sectors of Several Countries in 2025
International rating agency S&P Global has projected that the banking sectors of Azerbaijan, Armenia, Georgia, Kazakhstan, and Uzbekistan will maintain their resilience in 2025, similar to the previous year. The agency anticipates double-digit lending growth of 15% and stable asset quality to continue supporting the profitability and capital levels of banks in the region.
While banking regulation, supervision, and corporate governance in these countries have shown significant development, they still lag behind developed markets in terms of transparency and predictability. Kazakhstan and Azerbaijan have notably strengthened regulatory control in recent years, while Georgia boasts the most advanced banking supervision in the region. However, the decline in democratic standards in Georgia may negatively impact the independence of the regulator.
Economic growth in Armenia, Georgia, and Uzbekistan has been largely driven by the influx of people and capital from Russia and Ukraine, as well as increased trade flows. S&P predicts a slowdown in these rates for 2025. Azerbaijan and Kazakhstan have been less affected by migration from Russia and Ukraine, with oil price dynamics playing a crucial role in their economic growth.
Balancing relations with both the West and Russia remains a significant challenge for all five countries. Armenia faces uncertainty surrounding a peace treaty with Azerbaijan, while Georgia experiences growing domestic political instability. Despite exceeding expectations in 2024, economic growth in the region is expected to remain stable but less pronounced in 2025.
While Azerbaijan and Kazakhstan benefit from favorable oil price dynamics, they face reduced production volumes. The faster growth of non-oil sectors compared to the oil and gas industry is a positive trend. However, high dynamics of housing prices pose a risk for the banking sector in Armenia, Georgia, and Azerbaijan.
S&P also highlights the growing risks associated with the rapid increase in unsecured consumer loans. Uzbekistan has introduced stricter regulatory measures to slow retail lending growth, while Azerbaijan, Armenia, and Georgia continue to see high levels of lending. In Azerbaijan, recent reforms to modernize financial institution regulation and supervision have been launched as part of the Financial Sector Development Strategy for 2024-2026. Despite initially low industry risks, S&P notes positive dynamics in assessing the country’s banking sector.
