Double-digit lending growth (15%) and stable asset quality will continue to support the profitability and capital levels of banks in the region.
The agency estimates that banking regulation, supervision, and corporate governance in these countries have developed significantly but remain less transparent and predictable compared to developed markets. In Kazakhstan and Azerbaijan, regulatory control has notably strengthened in recent years. Meanwhile, although banking supervision in Georgia is considered the most advanced in the region, the decline in democratic standards in the country may negatively affect the regulator’s independence.
In Armenia, Georgia, and Uzbekistan, economic growth in recent years has largely been driven by the influx of people and capital from Russia and Ukraine, as well as increased trade flows. In 2025, S&P forecasts some slowdown in these rates. In Azerbaijan and Kazakhstan, the impact of migration from Russia and Ukraine was less pronounced and did not significantly affect economic growth.
The agency notes that balancing relations with both the West and Russia, which remains a key trading partner in the region, will remain a challenge for all five countries.
An additional factor of uncertainty for Armenia remains the prospect of a peace treaty with Azerbaijan, requiring the resolution of several complex issues. In Georgia, domestic political instability is growing, reducing the predictability of economic policy. According to S&P, economic growth in the region in 2024 exceeded expectations. In 2025, it will remain stable but less pronounced. Azerbaijan and Kazakhstan benefit from favorable oil price dynamics but face reduced production volumes.
A positive factor is the faster growth of non-oil sectors compared to the oil and gas industry. One of the risks for the banking sector in Armenia, Georgia, and Azerbaijan remains the high dynamics of housing prices. Mortgage lending in the region is supported by government programs in national currencies and improved underwriting standards.
S&P also points to growing risks associated with the rapid increase in unsecured consumer loans. In Uzbekistan, the introduction of stricter regulatory measures has slowed retail lending growth, while in Azerbaijan, Armenia, and Georgia, it remains high.
In Azerbaijan, over the past two years, reforms to modernize the regulation and supervision of financial institutions have been launched as part of the Financial Sector Development Strategy for 2024-2026. S&P notes positive dynamics in assessing the country’s industry risks, despite their initially low level.
