How does azerbaijani banking sector attract foreign bankers?
Some 46 banking organizations function in Azerbaijan and their number is inclined to increase. On 29 November the Board of the National Bank of Azerbaijan (NBA) made a decision to provide general license to two banks with 100% Azerbaijani capital - PasaBank OSC and joint commercial bank Avrasia Bank. In addition, this year operation department of Russian VneshTorBank is planned to be opened in Azerbaijan. Georgia's commercial TBC Bank expressed its wish to open its branch in Azerbaijan. Moreover, license was presented to opening of representation of German Commerz Bank. Besides, appeals are expected from French bank of Societe General, Kazakhstan banks (TuranAlem Bank, Khaliq Bank) and others.
The interest of the international financial institutions and foreign banks towards Azerbaijan's banking sector sharply increased in the recent period. Due to the rise in the investment attraction of Azerbaijan's banking sector, the NBA receives many appeals for flow of the foreign capital into the Country. It is the result of the macro-economic stability and high revenues.
The NBA is prepared to consider all applications, but in addition, expects outstanding worldwide banking organizations which may bring modern technologies, activate competitiveness in the banking sector, render technical assistance to develop Azerbaijani banks.
Increasing the number of the banks in Azerbaijan will bring to healthy competition between the credit organizations and it means that more qualitative services will be rendered to population.
In addition, trying to keep level of incomes from crediting, the banks increased amounts of crediting for production, trade and service sector and more actively develop retail business. Last year intensive growth took place in the banking retail business, including development of branch network of the banks, use of new credit products, increase of the competition in the market of deposits.
According to the data by the NBA, in December the deposit base of the Azerbaijani banks increased by 4.1% while this figure was 49.8% in 2007. In December the savings and deposits of the physical entities increased by 7.3% while the deposits of legal entities increased by 1.5%. During the year rise in deposits of individual clients made up 79.2% amid with 31.5% rise in the deposits of corporate clients.
In 2007 the commercial banks of Azerbaijan attracted more than $500mln foreign credits while this figure totaled AZN 444mln in 2006 and AZN 137mln in 2005.
The public trust on the banks significantly increased after the Law on Bank Deposit Insurance came into force. Thus, as of 1 January 2008 the amount of deposits and savings of legal and physical entities made up AZN 3190.3mln compared to AZN 3064.1mln as of 1 December and AZN 2129.2mln as of 1 January 2007. AZN 1691.5mln of the sum fell on AZN and the rest on foreign currency.
According to the adopted Law, a Deposit Insurance Fund was established, which brought together financially healthy banks, including Xalq Bank, AtaBank, International Bank of Azerbaijan, Micro Finance Bank of Azerbaijan, Az?rd?miryolbank, Melli Iran Bank?, Az?r-Turk Bank, Bank of Az?rbaycan, Bank of Baku, Bank Respublika, Kapital Bank, Bank Standard, Az?riqazbank, Muganbank, Nikoyl, Baku branch of National Bank of Pakistan, Rabit?bank, Royal Bank of Baku, Texnikabank, Turanbank, Unibank, Yap? Kredi Bank Az?rbaycan, Zaminbank, Parabank, Банк 'G?nc?', ?mrahbank, United Credit bank, Az?rn?qliyyatbank, Atrabank, Dekabank.
In addition, competition appeared between the banks in the market of hi-technologies (operation with plastic cards, money transfer system, etc.).
The NBA continues to impose new improvement requirements before the banks. This year, the National Bank does not plan to make new requirements to the capital of the banks, but intends to devise strategy for their further capitalization.
Today the key demand of the National Bank is the application of the corporate governance standards. In addition, the issue of transparency is under consideration, and the NBA plans to impose requirement before the banks regarding information disclosure.
The law contains measures for breaking norms. The NBA may provide time for their removal, but if the breaks are not improved within the provided period, the banks may sustain limitation of license until removal of the breaks. Due to the non-fulfillment of the normative requirements to the aggregate capital, the NBA deprived nine banks of receiving deposits from population.
Yet the NBA has not decided to increase the requirement towards the capital. If to take into consideration the growth dynamic, the minimal requirement in other post-Soviet countries, even in Eastern Europe, the minimal requirement totals $5mln. The NBA considers that yet the capital in amount of AZN 10mln is normal and therefore, no formal decision has been made.
Fundamental reforms have been successfully continuing in the banking system of Azerbaijan for already ten years. A special regime has been created in this sector where partnership relations have been established between the regulating and regulated organizations. In such conditions, no special resistance is observed in implementation of normative requirements. In addition, the measures being taken by the NBA are discussed with the banks, and projects of documents regarding norms are sent to the Association of Banks of Azerbaijan and the concluding document considers proposals of the banks.
Thus, the measures on application of corporate governance standards are obligatory after adoption of the new banking legislation. Due to it, the NBA makes assessment for each bank with regards to corporate governance. If shortages are discovered, a plan of measures is prepared for each bank. The plan describes steps to resolve revealed problems and they are realized in co-operation with banks.
The results of the effective banking control may be testified by the fact that currently the banking sector of the country attracts big foreign banks and international financial organizations.