Fitch Ratings has affirmed Mortgage and Credit Guarantee Fund of the Republic of Azerbaijan's (Fund) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB+' with Stable Outlook. 

The affirmation reflects Fitch's unchanged view on the Fund’s strong link with the Republic of Azerbaijan (BB+/Stable). Under its Government-Related Entities (GRE) Criteria, Fitch views the government's ability and willingness to provide support to the Fund as very high. Based on the assessment of strength of linkage and incentive to support Fitch has equalised the Fund's IDRs with those of Azerbaijan irrespective of the Standalone Credit Profile (SCP).

The Fund is a non-for-profit organisation, which is fully owned by the state. 

The state-initiated expansion of the Fund’s activity beyond mortgage operations through adding functions of supporting small and medium enterprises (SMEs) under the Fund’s umbrella further enhanced the Fund's strategic importance in the implementation of the state’s socio-economic objectives.  

Since its inception the Fund continuously receives different kinds of support from the state. This includes annual capital injections, transfers from the state and central bank’s buy-back guarantee on its bonds. The latter implies central bank’s obligation to buy back the Fund’s bonds from the bondholders on their request. The Fund also enjoys indirect support, which includes low-cost funding, exemption of income tax starting from 2019 and use of profits gained from the operations at its disposal.

Fitch expects the Fund will continue to benefit from ongoing state support over the medium term taking into account the expansion of its activity both in its traditional segment of providing affordable housing and in new operations covering guarantees and subsidies on loans to SMEs.

Fitch views the Fund as a strategically important entity in implementation the state’s policy of provision affordable housing to the population. The Fund is the only state entity that provides subsidised mortgages in the republic, hence lacking substitutes for provision mortgages amid weak national banking sector. The Fund is the third-largest participant of the domestic bond market after the national finance ministry and the central bank. 

Operational Profile  

The Fund plays a critical role in state housing policy as it establishes mechanism for providing the republic’s population with affordable housing through long-term mortgage loans at below-market rate. In 2018-2019, the Fund worked on implementation of rent-to-own programm, which is aimed at people with insufficient funds for down payment or those who are not eligible for mortgage loan. The programme will be available for population already in 2020.

Although the Fund is a non-for-profit organisation, it remains steadily profitable since its establishment. Management estimates the Fund’s return on equity was about 3.8% and return on assets at about 1.9% in 2019.