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Azerbaijani banks: Own platform for FOREX operations is not profitable activity.

Business Materials 30 December 2010 15:54 (UTC +04:00)

Azerbaijan, Baku, Dec. 30 / Trend N. Ismayilova /

Given that only bank organizations will implement Azerbaijan's market operations on the Forex-OTC foreign exchange market from 2011, the possibility of expanding the range of services in this direction opened for the major players in the country's currency market. However, the creation of a platform allowing private individuals to trade is not attractive to most major foreign exchange market participants in the country. This is mainly due to the lack of high profitability, bankers say.

Deputy head of the Treasury Department of the International Bank of Azerbaijan (IBA), Rashad Hajiyev, said the creation of a platform for conducting transactions on the FOREX market for individuals is unlikely to bring substantial profits to banks. The International Bank of Azerbaijan (IBA), with its November share in the currency section of BBVB at 36.28 percent, is a major player in the country's organized currency market. "Most players on the FOREX market are people with little capital and a narrow bank margin. In these circumstances, chances for profitable operations are rather slim and uncertain, and getting a stable income will be nearly impossible," he said.

Hajiyev added an IBA market study estimated that the creation of such a platform would cost the bank $100,000 to $200,000. This excludes the required expenditures for maintaining personnel to ensure system service delivery.

"It's interesting, but in terms of profitability, such activity today does not bring high returns. There are too many foreign companies, such as Global Forex Trading, which offer similar services, where one, by paying with a plastic card, may open an account at any brokerage company and engage in active trading," Hajiyev said.

Thus, he observed, professional players in the market do not need to contact the local bank. In the medium term, the IBA is not interested in this service, but the bank may provide access to major VIP-clients.

"Smaller banks will be able to extract substantial profits from this, but for the IBA, it would not be significant and the question of reputation is also important to the bank," he said.

Hajiyev noted that one of the responsibilities of banks using this platform will be the provision of training to people engaged in this activity, and it is probable that not all banks will be able to do this.

However, the technical aspect of creating and running such a platform is not complex.

The ASB Bank (obtaining second place with an 18.38 percent share in the foreign exchange auctions in November), reported that today it conducts monetary operations through the Baku Interbank Currency Exchange (BBVB). In addition to currency exchange, such operations are being conducted via open interbank exchange with local and foreign banks. At present, operations take place through the Reuters platform. From next year on, however, the bank plans to install platforms for Bloomberg and Saxo Bank. But, the bank has yet to come up with plans for creating a platform to provide access to private individuals.

The Bank Standard, which also conducts foreign exchange operations through BBVB, said although the bank does not provide services on the FOREX market at present, it does not exclude the possibility of providing them in the future.

Xalq Bank, being a party to trading on BBVB, has no plans to create a similar OTC Trading platform in the future.

The first bank that provided banking services in this area was MuganBank. MuganBank spent over a year going through the process of preparing the bank's trading platform, setting up necessary documents and full range of services, as well as finding appropriate contractors and suppliers of pockets of liquidity among foreign partner banks. The project was finally launched on July 19, 2010.

Today, MuganBank's Trading Station software and hardware products, developed by the company's Meta Quotes Software Corp - Meta Trader-4, allows everyone access to a full range of banking services in the Forex in real time. The relevant software is available for download and installation on a computer through a contract with MuganBank.

Being involved in the Forex market brought MuganBank a steady flow of income. Yet, according to forecasts, the bank stands to earn a lot more this year as it clientele increases. Today the bank has already opened some 100 client accounts.

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