Bank loans are the primary source of financing for businesses in the
countries with non-developed financial markets like Azerbaijan. Thus,
analysis of the dynamics of non-performing loans has uttermost importance in preventing banking crises in recession scenarios. This study
aims to analyze the dynamics of non-performing loans in Azerbaijan.
Employing three different estimation methods (FMOLS, DOLS and
CCR), the study reveals a significant negative link between non-performing loan rates and macroeconomic factors like inflation and interest
rates. There is no statistically significant relationship between non-performing loan rates and real GDP growth in Azerbaijan. The lack of a
statistical database on government support to the financing of businesses is a restriction of research. As a policy recommendation, it is proposed that government should improve regulations on collateralization of
loans and banks' loan policies. This study's theoretical and methodological results can serve as a scientific source for further research and can
be used in the monetary policy decision-making process.