The consolidation of the national currency and sharp increase of credit portfolio makes a positive impact on the vulnerability of the Azerbaijani banking system, a member of the Management Board of the National Bank of Azerbaijan (NBA), head of the Department for Control over credit organizations, Rufat Aslanli. He was commenting on the second report by Fitch as part of Bank Systemic Risk Report series, which includes the estimation of risks in the banking system on the base of several macro-economic indices.
As a regulating body the NBA also acknowledges the factors and their existence. The same time, we keep the factors, carry out constantly analysis, monitoring, the influence of the factors on the banking sector and on bank separately, Aslanly underlined. Stress-test held by the NBA testify that the banking sector in Azerbaijan is stable enough for sharp consolidation of the national currency and different shocks, including the improvement of the quality of assets and sharp increase of rates. However, it does not imply that the risks can impact on the banking sector, the official of the bank assured.
A report by the rating agency says that systematic risks of the banks of Russia, Ukraine, Kazakhstan and Azerbaijan grew due to credit expansion and consolidation of real exchange of rates of national currencies. The Agency classifies the banking system on two parameters: BSI (banking system indicator), which is based on medium-size rating of banks and MPI (Macro-Prudential Indicator), which stipulates the growth pace of credit portfolios, as well as dynamic of exchange rates, prices at the stock market and prices of property.
As to reduction of MPI from point 1 to 3, to make commentaries it is necessary to have accounts, which the experts of the agency based on, Aslanly noted. At present the relevant structure of the NBA is involved in this issue.
Aslanly acknowledges the presence of sharp rise in credit portfolio. It is linked with low level of credit investment base of the Azerbaijani banks, so, annual rise in the country comprises big funds. Nevertheless, the credit investments and assets of the bank are low in regard to the GDP. As of 1 January 2006, assets in regard to the GDP made up 25%. There are countries where the figure comprises 140-170%, bit this is accumulated assets of the banking system over the past 140-150 years. Official of the NBA did not rule out the presence of high growth dynamic of the banking system and entire economy, as the large-scale programs on development of non-oil sector have been implemented in the country fir two years. These are expenses for rapid dynamic development of economy in whole, including the banking sector. Obviously, the dynamic rise offers definite risks and even threats. To avoid the change of risks to losses, both the regulating practice and the risk management system of the banks must be adequately developed and the NBAs strategy on the banking sector development greatly contributed it. The document envisages establishment and application of corporate system management since 2002, development and improvement of risk management mechanism, Aslanly clarified.
According to Aslanly, starting from 2000-2001 the banking sector has been getting prepared to challenges of 2005-2006. The risks exist, as fast and dynamically we develop. However, we have tremendous potential for further development, as the non-oil sector develops more rapidly and respectively, need for financial services, including the credits, increases. The financial sector accumulates funds and transforms them to different spheres of economy. It is important to have the banking sector skillfully managing the risks, which rapidly rise, while the regulating bodies should operatively and efficiently manage the processes, Aslanly stressed.
The International Bank of Azerbaijan (IBA) still dominates in the total amount of credit investments, as well as other banking segments. If to trace the trend, one can observe that the private also increases its segment in the market. The tendencies have been quite brightly seen over the past 2-3 years, Aslanly underlined.
According to the agency, amount of the banks credits t the private sector in 2004-2005 rose in average: 41.7% - in Azerbaijan, 365% - in Kazakhstan, 19.7% - in Russia, 15.3 in Ukraine.
The BSI indices, quality of banking system of the said countries remained unchanged: Russia, Kazakhstan, Ukraine D (low), Azerbaijan E (very low).
Fitch is going to publish a report of this kind twice a year.