On November 19, Fitch Ratings affirmed the Mortgage and Credit Guarantee Fund of the Republic of Azerbaijan's (MCGF) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-' with a Stable Outlook. The rating highlights the fund's strong integration with the government and its critical role in advancing Azerbaijan's housing and SME financing policies.

Fitch considers MCGF a government-related entity (GRE) with "Virtually Certain" extraordinary support from Azerbaijan. This is reflected in a support score of 50 out of 60 under the GRE Criteria, demonstrating a combination of responsibility-to-support and incentive-to-support factors.

MCGF operates as a non-commercial organization with decision-making and oversight tightly controlled by the government. The fund is governed by a board of trustees appointed by the president, including representatives from the presidential administration, ministries, and the central bank. This board approves strategic goals, budgets, and operational frameworks, ensuring alignment with state policy.

The fund benefits from robust state support, receiving annual capital injections from the state budget totaling AZN 175.4 million for 2023-2024. Additionally, the central bank guarantees the buy-back of the fund's bonds, holding 80% of its outstanding bonds. MCGF also enjoys indirect support, such as income tax exemptions and preferential classification of its bonds, which enhances their market appeal.

The provision of affordable housing is a strategic government priority, and MCGF plays a central role as the sole provider of subsidized mortgages in Azerbaijan. Its operations account for approximately 80% of the country's mortgage loans to households, underscoring its importance in implementing national housing policy. Any default by MCGF would jeopardize this policy, directly affecting vulnerable populations and undermining confidence in the domestic financial market.

Despite its non-commercial nature, MCGF remains profitable, reporting a profit of AZN 23.2 million in 2023 due to the gradual expansion of its loan portfolio, with impaired loans constituting less than 0.1% of the total.

Fitch's assessment underscores MCGF's strategic importance and integration with the state, resulting in the equalization of its ratings with Azerbaijan's sovereign ratings.

The fund's liquidity is supported by cash reserves of AZN 12.9 million as of the end of 2023, primarily held in central bank accounts, along with deposits in commercial banks and government bonds. MCGF serves as a critical policy arm of the state, advancing affordable housing through long-term mortgage lending and rent-to-own mechanisms while also supporting non-oil sector entrepreneurs through business guarantees and interest subsidies.