Recently, Moody’s predicted an increase in lending in Azerbaijan for 2025, citing favorable economic conditions, robust capital buffers in the banking sector, and government support.

Moody’s maintained a positive outlook for the Azerbaijani banking system, noting a favorable operating environment and government backing, which would support asset quality, profitability, and credit growth over the next 12–18 months.

In its update, Moody’s highlighted that rising income levels and the growth of the non-oil economy, where banks conduct most of their business, would drive credit growth. Asset quality was expected to remain strong, benefiting from robust non-oil sector performance and improving borrower debt-repayment capacity. Non-performing loans (NPLs) remained low at 2.4% as of December 2024, with NPL reserve coverage exceeding 200%. The regulatory framework for consumer lending and the stable manat were also factors supporting foreign-currency loans, which have decreased significantly in recent years.

The report also forecasts 2.5% GDP growth for Azerbaijan in 2025, driven by the non-oil sector, which contributed around 60% to the country's GDP in 2024. Public investment, especially in Karabakh, along with increased natural gas production and exports, was expected to further boost growth. Additionally, geopolitical tensions with Armenia were anticipated to ease, contributing to regional stability.

Azerbaijan’s banking sector maintained strong capital reserves, with tangible common equity (TCE) equal to 18% of risk-weighted assets at the end of 2023. The Central Bank of Azerbaijan (CBA) introduced a 0.5% countercyclical buffer on banks starting March 1, 2025, which Moody’s noted would be manageable due to banks' robust internal capital generation.

Profitability in Azerbaijan’s banking sector improved marginally in 2024, and Moody’s expects it to stabilize at a solid 2%–3% in 2025. Stable net interest margins, fee income, and reduced provisioning charges were identified as key contributors. However, margin pressure might arise due to potential reductions in CBA policy rates.

The banking sector's reliance on customer deposits, which grew by 9% in 2024 and constituted more than 80% of total liabilities, provided a stable funding base. The share of foreign currency deposits fell to 38% at the end of 2024, down from 47% in 2022, reflecting improved domestic currency stability. Additionally, over 30% of the banking sector's assets were liquid by the end of 2024, providing a strong buffer against external shocks.

Moody’s emphasized that the Azerbaijani government’s improving creditworthiness, supported by substantial reserves exceeding 90% of GDP, would ensure continued support for the banking sector. The agency’s positive outlook on the banking system reflected the government’s willingness to support the economy and the resilience of the banking sector.

In its inflation forecast, Moody’s estimated average annual inflation in Azerbaijan at 4% for 2025, a slight increase from 2.2% in 2024. Inflation was expected to slow to 3% in 2026. The Ministry of Economy forecasted inflation at 4.6% in 2025 and 4% in 2026, while the Central Bank anticipated 5.5% inflation in 2025, decreasing to 3.8% in 2026.