Azerbaijan, Baku, Feb.6 / Trend A.Akhundov /
Azerbaijan should increase the requirement to minimum amount of authorized capital of banks, chairman of the board of the Azerbaijani-Turkish AzerTurkBank Mehmet Sami Acarozmen told Trend on Monday.
"The Central Bank of Azerbaijan takes right steps on regulation of market, however during the last years the CBA hasn't increase requirement for minimum level of capital, which is as I believe, is wrong. This requirement has been at 10 million manat since 2007 and doesn't meet requirements of the country's economy, since it differs from 2007," Mr Acarozmen said.
According to the Central Bank, today three banks do not comply with the requirements for capitalization (minimum capital shall be ten million manat). Two banks (with a specific gravity of 0.8 per cent) have capital in the range from five million to ten million manat, one (0.2 percent) - from 3.5 million to five million manat.
Mr Adzharozmen said this level should be increased to 30 million manat.
"The economy of Azerbaijan is much more developed than the economy of Uzbekistan, however, the minimum requirement for the capitalization of Uzbek banks is above. The same is observed in Kazakhstan, where a minimum requirement is $70 million," Mr Adzharozmen said.
He noted the ratio of the banking sector to GDP is low - about 30 per cent.
According to the CBA, the total assets of banks in Azerbaijan as of December 1, 2011 amounted to 13.665 billion manat, having increased, compared to the beginning of the year by 2.8 percent. In 2011, Azerbaijan's GDP grew by 0.1 per cent amounting to 50.1 billion manat in current prices.
"There are many reasons for this [low level of bank assets], one of them is the level of capitalization of Azerbaijani banks. In developed countries, the volume of bank assets is equal to GDP and even exceeds it. We need new solutions related to the banking sector, which I expect will be made in 2012 . For example, in Uzbekistan, banks need to raise capital annually by 20 percent," Mr Adzharozmen said.
During November 2011 the capitalization of the banking sector in Azerbaijan increased by 0.2 percent, compared to the beginning of last year - 8.4 per cent, exceeding 2.352 billion manat as of Dec.1.
He said low capitalization of banks should lead to the consolidation of banks, which is a positive fact.
Turkish state-owned bank Ziraat bank, which owns 50 percent stake in the bank, is also present in the banking markets of Turkmenistan and Uzbekistan.
Head of the Azerbaijan Bank Training Center (ABTC) Javanshir Abdullayev said the increase in authorized capital by administrative methods should not be the only and obligatory way, as sometimes it may lead to a withdrawal of healthy but not enough capitalized bank or the bank that is not going to consolidate from the market, which ultimately has a negative impact on confidence in the sector.
A better way is to promote increase of the authorized capital not administratively, but through various regulations, Mr Abdullaev said.
"A policy aimed to increase the requirements for the minimum level of capital has been implemented since 1996 and a major goal here is to stimulate the process of consolidation. As a result of this policy, the number of banks reduces, however, it unfortunately did not happen mainly due to consolidation but at the expense of closing (except for two cases: merger of Mbank-Promtexbank and Bank of Baku-Ilkbank). The process of consolidation should be implemented with preserving the principles of market economy," Mr Abdullaev said.
One of the incentives aimed to increase banks' capital, was the release profits allocated to capitalization from tax for three years. The validity of these exemptions expired in 2011.
The action plan for 2011-2015 on implementation of the government program for poverty reduction and sustainable development for 2008-2015 approved by the President of Azerbaijan Ilham Aliyev on June 28, 2011, indicates that it is planned to continue increasing banks' capitalization in order to develop the national banking system.
"The CBA has consistently stimulated the capitalization of banks in order to maintain the stability and soundness of the banking system of Azerbaijan. At the same time, the process of capitalization of banks should comply with the policy of growth of each bank, and the policy of capitalization of each bank individually based on this principle".
With regard to increase of the minimum requirement for the capital of banks, the Central Bank implemented relevant estimate in this direction, but taking into account the urgency of this issue, the final decision is pending.
"At this stage, the Central Bank in accordance with the recommendations of the Basel Committee (Bazel III) on Banking Supervision focuses on the structure and quality of capital," the CBA said.
Official exchange rate is 0.7863 AZN/USD on Feb.6.