Fitch Ratings: US tariff increase to have minimal impact on Azerbaijani banks
EMEA emerging market (EM) banks face varied but generally limited effects from US tariffs and policy uncertainty on trade and financial markets, largely depending on how the economies in which they operate are affected, and broader market volatility, Report informs via Fitch Ratings.
"There is limited direct exposure through exports to the US. Oil-exporting economies will be negatively affected by lower oil prices, which are an indirect consequence of the tariffs via the resulting hit to global growth. Oil-importing economies, which generally also have few exports to the US, could have some economic risks mitigated due to lower oil prices.
Adverse economic effects, including weaker GDP growth, will typically be negative for local banking sectors via slower lending growth and potentially weaker asset quality. Refinancing risks and borrowing costs could also increase if investor sentiment towards EMs weakens in a ‘risk-off’ scenario," Fitch noted.
"In the CIS+ region, the direct impact of tariffs will be low as exports to the US are limited. Armenia and Georgia are oil importers, while banks in oil-exporting CIS+ countries such as Azerbaijan and Kazakhstan generally have low direct exposure to the oil and gas sector, and strong liquidity buffers. In countries with high external liabilities, particularly Uzbekistan, refinancing for state-owned banks may become more costly, but risks are mitigated by state support and the long-term nature of most external borrowings, mainly from international financial institutions on concessional terms.
The US dollar has weakened since the major tariff increases, but if this trend reversed, local-currency depreciation would be likely to weaken asset quality in countries with high dollarisation. However, most banks have capacity to absorb moderate losses, and the authorities could support domestic currencies if needed."
The largest banking group in the Netherlands, ING Group, believes that Azerbaijan is largely protected from the direct impact of US trade tariffs. At the same time, according to Moody's, the US tariff policy may open up new opportunities for transit transportation through the territory of Azerbaijan.
