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Increase of bank capital to improve sector facility to serve economy

Business Materials 28 September 2012 19:04

Azerbaijan, Baku, Sept. 28 /Trend A.Akhundov /

The capital increase of Azerbaijani banks will improve the facility of bank sector to serve interests of country's economy, PASHA Bank head of administration Farid Akhundov says.

The minimum amount of associated capital of acting banks as well as authorized capital of newly established banks were increased from 10 million manat (12 million dollars) to 50 million manats (63.7 million dollars) according to decision of CBA as of July 25. New requirements to capitalization of acting banks will come into force starting January 1 2014.

"Increase of capital is currently a trend in the whole world. For instance, in Turkey it's very actual, when the establishment of a bank is accompanied by high requirements to its capital. The same situation is to be seen in other countries. The world banks and banks in neighboring countries are transferring to Basel III recommendations, which increase requirements to capital adequacy", Akhundov stated.

In his words, bank capitalization leads to increase of major market player's importance.

"When it comes to the amount of capital, a bank could be small, have assets of 5 to 10 millions and operate successfully. A bank could has thousand times higher assets and not have possibilities to operate normally. From regulator's point of view, a great amount of capital enables increase of major market player's importance. It's not a secret that Azerbaijani banks all together are not able to serve interests of Azerbaijani economy. The share of bank sector assets amounts only 25 percents of GDP. This is not much. This step might affect facilities of banks to conduct more operations for a greater number of clients and in a greater volume", Akhundov said.

According to Akhundov, the risk exists for all major banks to create serious system problems in future.

"I suppose that the Central Bank understands this. The regulator's wish is to have respectively large number of players with absence of 1 or 2 dominating ones, and we welcome this purpose. We consider, that the competition in the market has to be strengthened. We are not going to compete only between each other, but also with regional and foreign banks. In this regard, we have to be very strong from institutional and infrastructural point of view. Lots of work has to be accomplished", Akhundov said.

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