Azerbaijan's banking system shows resilience under various scenarios in stress test results - Central Bank

BAKU. April 14 (Interfax) - The Central Bank of Azerbaijan (CBA) has conducted stress testing of banks, which showed that the capital adequacy of the banking system under various scenarios will exceed minimum requirements, the CBA said in its financial stability report for 2025.

The Central Bank of Azerbaijan, under the baseline scenario, forecasts that the capital adequacy ratio (CAR) of the country's banking system will rise to 22.5% by 2028. The indicator stood at 17.4% in 2025.

"According to stress tests, the capital buffer of the country's banking sector has the potential to absorb potential losses. Under the baseline scenario, the capital adequacy ratio of Azerbaijan's banking system will be 19.4% in 2026 and 22.5% in 2027," the report said.

The pessimistic scenario envisages a decrease in the capital adequacy ratio by 2.6 percentage points (p.p.) to 14.8% in 2026 and by another 1.2 p.p. to 13.6% in 2027.

"Overall, stress tests show that even if the banking sector is subject to some capital erosion, capital adequacy will still exceed the minimum requirements for the sector," the CBA said.

The baseline scenario includes moderate economic growth and a controlled inflation rate.

The pessimistic scenario includes a sharp fall in oil prices, a slowdown in the global economy and volatility in energy markets. The scenario of a sharp decline in Brent oil prices is the biggest risk for Azerbaijan's economy.

According to the CBA, the return on assets (ROA) of Azerbaijan's banking system stood at 2.1% in 2025 (2.1% in 2024).

"Sector profitability remains at a high level. The total profit of the banking sector amounted to 1.162 billion manat in 2025, which is 118 million manat or 11% more than in 2024," the report said.

The total equity capital of banks in Azerbaijan grew 10% (by 625 million manat) in 2025 to 6.85 billion manat.

The Tier 1 capital of the banking system grew 13.6% (by 0.7 billion manat) last year to 5.46 billion manat, while Tier 2 capital grew 2.8% (by 51 million manat) to 1.89 billion manat, the bank said.

Three banks made capital contributions to share capital totaling 102 million manat in 2025.

The official exchange rate on April 14 is 1.7 manat/$1.