Baku, August 10 – The profits of Azerbaijani banks have dropped since the start of the year. From January to May 2025, the sector posted a net profit of 430.7 million manats — down 17.1% compared to the same period last year. Operating profit fell 3.3% to 708.2 million manats.
Rising costs squeeze margins
Banking analyst Ismayil Mammadov says several factors are behind the decline, including narrowing interest margins. While interest income continues to grow, interest expenses — particularly on deposits — have risen faster, cutting into profitability. Competition for deposits has pushed banks to offer more attractive rates, even after the Central Bank lowered its policy rate to 7.75%.
At the same time, operating costs have climbed, driven by digitalization, IT infrastructure upgrades, and rising wages for skilled staff in compliance, anti–money laundering, and risk management. The sector’s digitalization level has risen 15–20% year-on-year, requiring significant investment. Average salaries in banking have grown 12–15% in the past year, adding to expenses.
Credit portfolio adjustments
Mammadov notes that while the share of overdue loans hasn’t grown significantly, the proportion of restructured loans has increased. This has led banks to boost provisions against potential defaults — up 10–12% in some cases — directly reducing net profit. Demand for consumer and micro-business loans has also cooled, with consumer loan growth slowing from about 35% a year ago to around 20% in early 2025.
He argues the profit drop reflects structural changes rather than a crisis: “These shifts are making the sector more transparent, resilient, and tech-oriented. Short-term profit pressure may lead banks to raise some fees, especially in digital services and card products, but lending rates are unlikely to change much in the near term.”
Not about problem loans, says economist
Economist Altay Ismayilov believes the fall in profits is less about non-performing loans and more about increased investment spending: “We haven’t seen major changes in lending rates. Banks may have directed part of their profits to new investment projects. We’ve also noticed banks raising deposit rates to attract more funds, which increases payout costs.”
Both experts agree that while short-term profitability has dipped, the sector is positioning itself for stronger long-term stability and competitiveness.
By Kaspi
