The International Bank of Azerbaijan (IBA), the largest lender in the country, reported a 24% y/y increase in operating income to AZN218mn (€123.4) in the first quarter of 2017. The bank also registered a profit of AZN90mn, up from unspecified losses in 2016.

IBA's Q1 financial results are unexpectedly positive seeing how, earlier this year, ratings agencies Moody's and Fitch both anticipated a protracted recovery and continued foreign exchange-related losses for the lender. However, the poor forecasts earlier this year took place against the backdrop of an accelerated depreciation of the national currency, which has since slowed down.

Accounting for a third of banking assets in the country, IBA was taken over by the government in March 2015, after a steep depreciation of the national currency pushed it to the brink of default. Since then, Baku has purchased non-performing loans from IBA and injected AZN600mn of capital in the bank.

After rehabilitating the bank, the Azerbaijani government is hoping to privatise it - the government's share in the lender has increased from 51% in early 2015 to 91.3% at the moment.

However, analysts expect that IBA will continue to be loss-making or barely break even in the medium term, as the lender does not have a strategy to revamp its business and increase its loan portfolio, and the Azerbaijani economy is doing poorly due to low oil and gas prices, which have affected the performance of the banking sector.

In its statement published on April 14, IBA said that it continued to work on cost cutting - its plans are to save AZN48bn in operational expenses in 2017 - and reduce risk by restructuring its loan portfolio.