Azerbaijan, Baku, Feb. 25 / Trend I.Khalilova /
Four or five banks on the Azerbaijani market have already started negotiations for merging their healthy assets, a source close to negotiation process told Trend on Monday.
"Today, the most important issue to decide on consolidation is not the lack of capital (starting January 1, 2014 the minimum capital requirement is 50 million manat), but inability to earn it", the source said, adding that the best way out of the situation in the face of increasing competition in market is unification.
Although banks have already started concrete negotiations on consolidation, the main problem in this process is that the banks do not want to assign to each other.
"Success of the consolidation process requires banks to abandon their ambitions, and a psychological approach to this issue is of significant importance," the source said.
It is expected that by mid-2013 the first agreement among banks on consolidation of their assets will be reached.
The banking system of the country already possesses a successful practice of consolidation of banks with participation of the EBRD. The present UniBank was formed through the merger in 2002 of two commercial banks, MBank and Promtexbank, where the EBRD has acquired a 15 per cent stake. This was followed by a merger of the Bank of Baku JSC with IlkBank in 2005.
It is possible that international financial institutions would also get involved in the current consolidation process. In particular, the European Bank for Reconstruction and Development, International Finance Corporation, Asian Development Bank, which are interested in participation in the capital of possible new groups have already expressed their desire to join this process.
"This is a good and healthy process that the banks have entered the negotiation level. I welcome the merger of banks, and the more the better, especially if this process involves objectively healthy banks," president of The Azerbaijan Association of Banks Eldar Ismailov told Trend.
According to him, this trend is driven by the Central Bank of Azerbaijan (CBA), which in turn is ready to support the involvement of the WFIs and foreign banks, wishing to act as donors, both through the technical assistance to the process of consolidation, and through equity participation.
"We expect some consolidation in the banking system of the country. Today, nearly 87 per cent of the banks implement new regulatory requirements for capitalisation," chairman of the Central Bank Elman Rustamov said earlier, adding that "a number of banks may not bring the capital to the required level, so in order to maintain competitiveness in the market even with medium-sized banks, it is necessary to seize the opportunity for consolidation."
In his opinion, the consolidation and centralisation process in the banking system is another historical trend that started since the formation of the market economy. The larger banks are the more competitive and profitable they are in the market.
"If you look at the performance of neighbouring countries and those with the same size of the economy as in Azerbaijan, including their number of banks and branches accounting for every 100,000 of the population, consolidation of the banking sector in these countries took place through expanding the network of bank branches and not by increasing the number of banks, "Rustamov said.
He said for the institutional development of the banking sector, departments should be set up in areas with high density so the population has access to financial services.
"It is impractical to maintain hundreds of banks for this, since it will be able to capitalise them, Rustamov said: "I believe this is a positive trend and will be continued."
As of January 1, 2013, the total assets of the 43 banks operating in Azerbaijan reached $17, 643 billion manat, increasing by 24.2 per cent compared with the beginning of last year.
According to the CBA, the top five banks in the country have total assets of 10.462 billion manat (or 59.3 per cent of total banking system assets), 61.9 per cent of the total market liabilities (9.3 billion manat) and 50.2 per cent of the total market capital (1, 29 billion manat).
The share of banks holding six to 15 places stands at 5.175 billion manat of assets.