What Azerbaijan’s banks sector expects in 2009?

Business Materials 20 December 2008 11:58 (UTC +04:00)

Azerbaijan, Baku, Dec. 20/ Trend I. Khalilova, N. Ismaylova/ Within the last five months Azerbaijani bank sector has been in hard situation because of world processes and limitation of access to foreign borrowings. In spite of the fact that National Bank of Azerbaijan (NBA) announced about willingness to back liquidity in bank system and in case of appeal the banks will get credit resources, banks passed to more conservative policy while business planning for 2009.

At the current situation banks are obliged to reduce volumes of loans because of loss of main financial sources - global financial markets in which crisis continues. But credit granting is out of the question, Rashad Orujev, director of NBA department for control over credit organizations, said.

"At the present situation it is impossible to expect credit boom which was observed over the last years because banks will more selectively deal with credit granting, Orujev said.

Banks are obliged to correct their general policy at least for 2009 given the fact that 65% of bank assets account for credit portfolio as loans are the most profitable and fast growing assets in Azerbaijan market.

Within the last months flow out of investments from bank system took place. But it doesn't have mass character and this process mainly takes place by reserving large investments

Some investors invest the funds in order to increase joint stock capital. In Oct., AZN 18mln of total amount of deposits withdrew from bank sector is used in this purpose. On the other hand, because of reduction of crediting volumes by banks some businessmen were obliged to operate their business at their own funds invested in bank deposits but not borrowed ones.

Though actions taken by NBA lately led to additional liquidity in the amount of AZN 350mln but given that banks granted credit in the amount of AZN 450mln only in November, one can say that there is a great demand in credit resources in the country.

At the current situation, Director of International Bank of Azerbaijani (IBA) Jahangir Hajiyev offers to use internal funds. In any case, because of investment of means abroad income can't exceed 2.5% due to world processes. But in Azerbaijan it is possible to earn much more.

IBA aims to keep activity in bank market of the country by introducing new products in 2009 as well as to render financial assistance to its daughter companies.

The process to increase IBA capital to AZN 200mln will be completed in 2009, but it is offered to increase it to AZN 1bln at NBA recommendation. But final decision on capitalization is made by shareholders of bank where 50.2% of shares are state-owned.

Capital Bank also intends to accelerate rates in 2009. Profit of bank is forecast in the amount of AZN 65mln. World financial crisis won't hamper bank to reach forecast indexes and Capital Bank intends to gain profit in the amount of AZN 14-16mln in 2009, Rauf Rzayev, chairman of Capital Bank board.

According to forecast bank assets by 2009 will reach AZN 450mln andexceed AZN 500mln in 2010.

Assets of Capital Bank made up AZN 422.4mln as of Oct. 1, 2008.

In January-September, bank's income totaled AZN 44mln (increase by 67.3% compared with the same period of 2007), net profit - AZN 6.2mln that increased planned index by 35%.

For the last 4 to 5 years bank managed to increase capital, Rzayev said. So, presently, bank capital totals AZN 78mln while it totaled AZN 8mln in 2004.

AzerTurk Bank will continue to accelerate growth rates in spite of aggravation of world financial crisis. "But bank will specify strategy of business development in early 2009," Mehmet Sami Ajarozmen, chairman of AzerTurk Bank board, said. The average rate of growth of bank indices is expected to make up 30% at least given 15% forecast of inflation growth in 2009. Presently, assets of AzerTurk Bank amount to AZN 50mln and they are expected to increase by 25-30% in 2009.

AzerTurk Bank hasn't suspended granting loans unlike some local banks and will continue to increase credit portfolio in 2009, Ajarozmen said. Turkish T.C. Ziraat Bankas A.S. plans to increase loan granting for agricultural production in Azerbaijan via AzerTurk Bank, where its share makes up 50%, Ajarozmen said earlier.

The network of branches is planned to be expanded. Total number of AzerTurk Bank branches will reach 6-7 after three more branches are established.

Plans of bank also include introduction of new bank services as well as Internet Banking.

In 2009 authorized capital stock is expected to be increased twice to AZN 20mln. This index can be higher in case of increase in Ziraat Bankasi joint stock share.

"Azerbaijani Texnika Bank plans to increase joint capital by 50% - to AZN 90mln in 2009," Khaqani Guluzade, first deputy chairman of bank board, said. Aggregate capital is expected to increase owing to bank profit and its authorized capital. Authorized capital, which totals AZN 27mln at the moment, will be increased by 20% to AZN 30%mln.

Assets and credit portfolio of Texnika Bank will be increased by 10-15%. Presently, half of bank credit portfolio consists of business credit. In future, bank intends to increase their granting by 60-70%.

But in 2009 Texnika Bank won't increase consumer loans as it gives more preference to business loans.

Azerdemiryolbank has corrected general bank strategy and strategy of business development.

In 2009, bank intends to achieve goals such as a change in structure of assets and increase in share of highly liquid funds, in particular, on Nostro accounts, reduction of short term commercial funds and increase in long term strategic funds. In 2009, Azerdemiryolbank also plans to increase transfer of profit to bank capital, to change structure of portfolio in an attempt to increase share of funds borrowed from domestic financial market.

According to Azerdemiryolbank, changes will also cover the bank's credit policy. Changes in the structure of the loan portfolio will be made to increase the percentage of micro credits, small and medium-sized entrepreneurship in both urban and rural regions, including lending for corporate clients engaged in infrastructural projects for public order and generating operating income. To improve the management of credit risk and to maintain liquidity at an acceptable level length of the loans will be reduced, the volume of credit lines will be cut, and proportion of loans with annuity repayment will be increased. UniBank, despite the situation, intends to continue its work with international financial institutions to attract new borrowings next year. "We do not yet know under what conditions they will be drawn in, but we hope to be able to obtain a minimum of two syndicated loans amounting to $25-30mln each. Our shareholders - EBRD and German Investment Corporation (DEG), are ready to support the bank. A number of new loan products is being considered, ad they are expected to be issued in the first quarter of 2009," said chairman of the UniBank Supervisory Board Eldar Garibov.In addition, negotiations are underway with IFC, the Dutch financial company FMO, and BSTDB. Along UniBank has been working on development of the branch network. The Bank intends to continue work in this direction in 2009, although plans for long-term development of the branch network may be reviewed. "We understand that through 28 branches it will be impossible to cover the entire country, so more work will be done to develop regional network," he said. In 2009, UniBank plans to double its authorized capital to AZN 30mln. Growth of the capital promotes increase of the loan portfolio and the maximum amount of credit to one borrower. Furthermore, capital increase is an additional impetus to the growth of assets and total loans involved. So far, aggregate capital of UniBank has reached AZN 65mln. Non-bank credit organization TBC Credit with 75% of Georgian capital will next year step up lending operations, which have been restricted in recent months because of a lack of ability to drawn in loans. In addition to popular consumer loans, one of the priorities for this period will be lending of business projects aimed at supporting and developing small and medium-sized businesses, which is particularly important in a changing economy, said Deputy Director General of TBC Credit Ajdar Aliyev.

In 2008, TBC Credit granted loan worth AZN 16mln which is twice more than the indictor of 2007. A number of systematic steps enabled the credit organization to increase number of clients by three times and occupy some more shares in the market, Aliyev said.

As a whole, the poll has it that the banks are seeking to retain their liquidity through capitalization, that is, through their own funds. It is noticeable that capitalization does not depend on the directions of the National Bank for the last requirement for the minimal amount of capital was fixed at AZN 10mln on Jul. 2007.

IMF also confirmed adequacy of money-and-credit policy of the National Bank to withstand global financial crisis and assist bank system of the country.

"NBA's current policy is adequate and it helped to address liquidity problem and ensure banks access to additional resources while there is shortage of liquidity in world markets," said Valeria Fikera, head of IMF mission and deputy director for Middle East and Central Asia.

He said wait-and-see attitude of Azerbaijan's bank sector is natural under condition of world financial crisis.

" Azerbaijan's bank sector is stabile and the National Bank of Azerbaijan is ready to make precise intervention by granting liquidity to bank sector if necessary," Fikera said.

Since the beginning of the global financial crisis, NBA has eased requirements for obligatory reserves and interests rate, which according to the IMF mission, was a right decision. Otherwise, Azerbaijani economy would have suffered from psychological impact.

IMF says that unlike other region, Azerbaijan did not face with the large outflow of capital of population from the banks. However, National Bank needs to watch the situation closely in attempt to provide bank system with liquidity.

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