As a rule, the beginning of the year is the time for summarizing the totals of the past year. 2005 will undoubtedly enter the history as the turning year in the banking system of the country, which is remembered for the qualitative changes, remarkable development of retail business, consolidation of capital, expansion of a specter of services, increase of borrowings from the international financial institutes.
Major factor is the intensification of economic subjects, rise in community incomes, rehabilitation of confidence towards the banks, which manifested itself in stable and dynamic growth of deposits. The last year remained in memories with an increase of inflation processes, which Azerbaijan has actually become disaccustomed over the past 6-8 year. As the government expected, single-digit inflation ratio was achieved in the end of the year, which was fixed at 9.6%, while the basic inflation, calculated by the National Bank of Azerbaijan, does not exceed 6%. 60%-rise in consumer prices was caused by non-monetary reasons, which means only 40% was caused by a growth of money mass.
Thanks to rise in supply in the currency market due to high prices of oil and level of investments the consolidation of the exchange of rates of the Azerbaijani manat will continue this year, too.
In general, the NBA managed to last year ensure the economic stability in the country and support the economic upgrade. It is well seen on the growth pace of some banking indices. As of 1 November 2005 rise in the banks assets made up 42%, private capital of banks 39%, credit investments - 47% (as of 1 December), including long-term credits 81%.
Such intensive development of the banking sector is linked with the three factors. Firstly, common economic revitalization in the country positively impacts on the banking system. Secondly, radical reforms have been conducted in the banking over past 10 years. Thirdly, there was established a special regime in this sector, when good partnership relationships exist between the existing regulating and regulated bodies.
Meanwhile, inconsiderable, but stable rise in deposits and savings of legal and physical entities continues. As of 1 December the total amount of bank deposits and savings of legal and physical entities made up 6352.7bn manats against 6480.5bn manats as of 1 November and against 5088.8bn manats as of 1 January 2005.
A resolution by NBA on increase of rates from 7% to 9% was a key factor for growth of rates of banking deposit. As of 1 December the average rate of bank deposits in the national currency comprised 8.41% against 8.16% as of 1 November and 6.93% as of 1 January 2005. The real deposit rate for the first time made up 5.31% in January to November when inflation ratio was equal to 3.1%. The average rate of banking deposit in hard currency constituted 10.18% against 10.32% as of 1 November and 9.43% as of 1 January 2005.
The average annual rate on banking crediting the economy made up 17.44% in foreign currency against 17.28% as of 1 November and 18.96% as of 1 January 2005.
All banks coped with capitalization
Of course, one of the key achievements of the NBAs activities in 2005 was the concentration on the process of capitalization. A problem of capitalization became very significant for the fiscal market of Azerbaijan. Increase of capital did not pass by the insurance sector, but also became a new stage in the banking sector. At last, the capita of banks reached the level defined a year ago for the newly established banks ($5m). According to results of monitoring, al banks attained the point as of 1 January 2006, though preliminarily 10 banks failed to attain the level.
Though minimal limit for capitalization is not the innovation for the banking sector, the National Bank of Azerbaijan decided essentially change its policy in this issue. If earlier the establishment of the minimal statutory capital taken as basis for the banks, today the minimal aggregate capital serves as basis.
The NBA approaches very strictly to the reformation of the banking sector and requires increasing the statutory capital to $10m in two years. Positive tendency in increase of average statutory capital is on eyes. As of totals of November 2005 average statutory capital of the Azerbaijani bank dropped from 27.3bn manats to 27.9bn manats against 23.9bn manats as of beginning of the year and normative requirement for $3.5m as of aggravate capital of the bank, the National Bank of Azerbaijan announced.
In November the statutory capital of banks dropped from 1173.9bn manats to 1201.73bn manats, or 2.37%, while this year the statutory capital comprised only 14.3%. The capital of 41 commercial banks grew in June from 1033.9bn manats to 1061.73bn manats. The capital of two state banks was maintained at the level of 140bn manats. As of 1 December 2005 25,895bn manats of statutory capital falls per bank in average.
The total capital of 17 banks with foreign participation grew in November from 476.4bn manats to 482.13bn manats and their share in entire statutory capital comprised 40.12%, while net foreign investments (229.9bn manats) comprised only 19.13% of the total sum.
Number of with rating grows
To consolidate the image on the eyes of the world community the banks of Azerbaijan have become active in the achievement of credit ratings. Third bank in Azerbaijan received a rating in Azerbaijan last year and all from the international agency Fitch Ratings. Among them is Kapital Bank with a long-term rating "B+", short-term rating "B", individual "D/E" and support rating "4". The forecast for long-term rating is stable.
On the eve of denomination
Along with the successes, on the eve of the denomination process and consequently deficit in cash in the banks, the population faced with the currency crisis. Along with toughening the control over the banks activities, the NBA also toughens the requirements in their technical enlightenment, which will also result significant cut in their number.
Interests towards Azerbaijan boost
The big foreign companies and banks started taking interests in Azerbaijani banking market, said Rufat Aslanly, the head of the Department for Control over Credit Organizations of the National Bank of Azerbaijan. В"We have met with some of them and they were interested in the current state of the banking market. Moreover, the international financial institutes also told us about their will to come to Azerbaijan, he underlined.
Aslanly did not rule out that the foreign companies, or banks could be represented in the banking market of the country even in 2006. It will be occur in several stages. In the initial stage the process can happen through purchase of shares from the existing Azerbaijani banks.
One of the biggest banks of Kazakhstan TuranAlem is interested in the purchase of stock of one of the local banks. Besides, it is part of plans for 2006.
Despite the participation of the foreign capital in the domestic banking market was liberalized two years ago, no branch, or a daughter company of any foreign bank was opened in the country. Increase of the share of foreign capital in the aggregate banking capital occurred through sale of part of shares in several banks (UniBank, Bank of Baku, Respublika, Azerdemiryolank). Moreover, the European Bank for Reconstruction and Development acted as a major buyer.
The banking sector attracts more and more attention of the foreign experts. In their opinion, today the Azerbaijani banks cannot fully cover demand of the national economy. In particular, censure by the international experts is linked with the approval of big credits over several million dollars which can be realized only by the big banks. The existence of state-run banks (the International Bank of Azerbaijan, Kapitalbank) hints to the necessity of accelerating the privatization.
Conclusion
The major conclusion of 2005 is that the banking system confirms its ability of elf-development. There is a ground to speak about transition of the banking system to a qualitatively new level. The growing economy gave relevant impetus, required the speedy development of retail operations, enlargement of the banking capital, and the credit establishments as the subjects of business replied to the demand and quite professionally.
Integration of the bank into the real economic processes, their necessity as an element of market relationships is a serious security guarantee and vitality of the banking system, security for further progress.