Includes special features of this country’s banking system and rules/laws that might impact U.S. business.
Last Published: 7/2/2019

When oil revenues sharply declined in 2014, Azerbaijan’s banking sector faced significant increases in non-performing loans.  The prevalence of cash transactions – estimated at 70% by Central Bank authorities – hinders the development of the financial system.  It is estimated that significant amounts of cash are held outside the banking sector.  Furthermore, high levels of dollarization hinder the effectiveness of monetary policy, though Azerbaijan has reduced the dollarization of deposits from its peak at 70% in December 2017 to approximately 63%.

Although long-term lending is increasing and the quality of the banks’ loan books is improving, the sector plays a small role in financing the real economy.  Lack of credit, stringent collateral requirements, high interest rates, dollarization, an absence of correspondent banking relationships, and an inability to assess credit risk are key constraints to the development of private business. 

Azerbaijani banks offer costly lending terms, usually 10-35% interest rates or higher in dollar-denominated loans with a maximum two-year term.  Many Azerbaijani firms turn to private sources for finance.  Some Azerbaijani banks have begun lending to the private sector, including construction, telecoms, food processing, and packaging.  Western businesses use a handful of local banks for their local business dealings.  Since the beginning of 2016, the Central Bank of Azerbaijan has terminated the licenses of 11 banks.  The banking sector has consolidated significantly following the devaluations in 2015.
 

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