Azerbaijani banking system to have positive troubles in 2013

Azerbaijan, Baku, Dec.26 / Trend /

Leyla Abdullayeva, Trend analytical centre expert Azerbaijan's banking sector in 2012 was characterised by stability and moderate development except for two banks Birlikbank's and Royal Bank's withdrawal from the market. Birlikbank's bankruptcy passed quietly, but Royal Bank's closure led to a historic event in the sector. Taking into account that Royal Bank was a member of the Azerbaijani Deposit Insurance Fund, its bankruptcy was the first insurance case for the fund. At present most of the compensation has been paid to cover the insured deposits of physical entities of the former bank. Texnikabank has faced some difficulties this year. After rebranding, it was renamed as Bank Technique. After the management was changed on May 2012 and re-named in August 2012, the bank's structural offices were reassessed Today, the results obtained in connection with Bank Technique's activity, can be described as positive. The remaining 42 players of the Azerbaijani banking sector peacefully coexisted in the market and brought the financial indices to the Basel-III requirements, while the Azerbaijani Central Bank has not announced its decision to increase the minimum amount of the total capital of banks from 10 million manat to 50 million manat. The decision will come into force from January 1, 2014. Consequently, the banks with inadequate amounts of capital have a year to improve. This event which may be called the culmination of this year has caused a stir in the country's financial sector which will continue into 2013. Many banks have already begun to implement strategies to correspond with the new capital requirement and gradual capitalisation. Some of them do it by placing shares on the stock market, whilst others use the potential of existing shareholders and some individuals are negotiating a merger. New requirement along with the strengthened position of Azerbaijani banks' capital increases the capital and efficiency of financial intermediation. As a result, the stability of the banking system and financial stability will be more enhanced. Brand banks are expected to appear on the Azerbaijani financial market. These will create such a tone in the banking sector, increase competition and force local banks to work better, to develop and to consolidate. Along with an influx of investments, modern management standards, new products, technologies and know-how will be introduced. Today the banking system also focused on the development of infrastructure to expand non-cash payments. The CBA also completed a draft of the state programme to develop non-cash payments in the country until 2017. The main directions of the programme are expanding the infrastructure for electronic payments, strengthening the institutional base, improving the efficiency of their use, education of the population on these issues and more active involvement of the population and economic entities in the use of these services. Active work was carried out on the installation of POS-terminals in Baku, Ganja and Sumgayit this year. By the end of 2015, POS-terminals will be installed in villages and townships of the country. Next year will also be a landmark for the banking sector of Azerbaijan due to the introduction of Islamic banking in the country. Confirmed demand of both individual and legal entities in the products and services of Islamic banking will accelerate the establishment of the relevant legal framework. The first item in this field will be to receive a number of benefits and strengthen the market positions. The process of privatisation of the International Bank of Azerbaijan (IBA), which remains the only state-owned bank in the country, was also postponed to 2013. According to the government, this issue is currently not on the agenda. However the dominant view that the privatisation of IBA will result in an increase of autonomous power and transparency, improvement of corporate governance and strengthening capitalisation, suggests that the privatisation of IBA next year will be for real. This year the interest of international financial institutions and foreign banks in the Azerbaijani banking market was retained. Due to an increase of the investment attractiveness of the Azerbaijani banking market, the Central Bank of Azerbaijan continues to receive appeals from those who want to invest in the country's banking system. For instance, Turkish İsh Bankası expressed its firm intention to acquire a bank in Azerbaijan. In turn, this year Azerbaijan itself became the shareholder of ECOBANK. The Trade and Development Bank of the Economic Cooperation Organisation (ECO) was founded by Iran, Pakistan and Turkey in 2005. Currently the bank consists of 10 members, including Azerbaijan. Another event that took place this year, but will show its impact next year, was a decrease of the discount rate from 5.25 per cent to five per cent by the Central Bank within the preservation of price and financial stability. This step by the CBA facilitates replenishment for commercial banks, thus encouraging credit expansion. In turn, this will lead to a decrease in interest rates next year, the lower the rate is, the lower will be the value of the commercial bank's loans and the low costs of loans contribute the growth of the economy. This means the tendencies that will be observed in the banking sector of Azerbaijan in 2013 become clear. Along with innovations, a number of positive trends will remain in the country's banking system, one of which is an annual increase in the population's credibility. Further steps of the national banks should be more solid and confident as sustainable and efficient development of the banking system is essential for Azerbaijan's financial market amid a still weakened global economy. Do you have any feedback? Contact our journalist at agency@trend.az