Increase of capital requirements for banks in Azerbaijan stimulates process of consolidation
Azerbaijan, Baku, Feb.16 /Trend A.Akhundov/
Increase of requirements for minimum capital of banks in Azerbaijan is a way to stimulate consolidation, but it will be slow, leading analyst of the international rating agency Standard & Poor's Viktor Nikolsky said.
"Although the existence of such a large number of banks [44 banks operates in Azerbaijan at the moment] in the country does not reflect the needs of the economy, but the consolidation process will be slow' Nikolsky said "Consolidation, and any operations on mergers and acquisitions in the CIS markets is quite dangerous."
Nikolsky said the only way to drastically reduce the number of banks is the position of the regulator related to the capitalization.
"If the capital requirement will be increased by ten times, many banks will disappear due to objective reasons, but I think that the regulator will not go down this path, because it is not the easiest way in terms of stability of the system. As if ten banks to be closed in Russia, no one will notice, the same effect on the system will be very important for Azerbaijan," Nikolsky said.
Currently, the minimum capital requirement to banks is 10 million manat.
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, 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.
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.
The Basel Committee has defined time frames for the new rules at the request of the structure of assets and capital of banks - from January 2013 to January 2015, and banks are required to create a buffer reserve fund from January 2016 to January 2019.
Many experts speak about the sufficiency of 20-25 banks functioning in the banking sector of Azerbaijan, but not 44 banks that operate today.
According to the CBA, number of banks with capital exceeding 10 million manat, amounted to 42 as of Dec 2011, increasing by one bank compared to November, 2011 and remaining unchanged compared to early 2011. Share of this category of banks in the total volume of capital of all banks was 99.4 per cent in December, 2011 compared to 99 per cent in November and 98.9 per cent as of early 2011.
At present two banks doesn't meet the CBA requirement on capitalization (the minimum size of the capital should be 10 million manat). The first bank (with share of 0.4 per cent) has capital ranging from 5 million to 10 million manat, and the second (0.2 per cent) - from 3.5 million to 5 million manat.
Official exchange rate on Feb.16 is 0.7861 AZN/USD