Major events in Azerbaijan’s banking market 2013

Baku, Azerbaijan, Dec.29

By Abbas Akhundov - Trend:

Azerbaijan's banking market continued its development in 2013. According to the Central Bank of Azerbaijan financial sustainability of banks was strengthened in 2012, the quality indicators of assets, liquidity and profitability were improved. Capital adequacy of the sector remained at a high level - 17.6 percent compared to required 12 percent.

Financial results were also positive, the number of profitable banks increased. Currently, return on assets (ROA) of the whole sector is two percent and the return on equity (ROE) is 15 percent.

The 2013 year was marked for the country's banking market primarily with the increase of capitalization of the sector and tightening of regulator's requirements for credit operations of banks.

Requirements for capital were deterred

The CBA prolonged the period for implementation of the requirement of increasing the minimal aggregate capital to 50 million manat till Jan.1 2015. According to the preliminary decision, banks operating in Azerbaijan would have to have minimum 50 million manat from Jan.1, 2014.

The banks' equity capital increased by 57 percent or by 1.2 billion manat and exceeded 3.4 billion manat in 16 months since the adoption of the decision.

Currently, some five of 43 operating banks do not meet the new requirement.

Banks must submit their own programs on capitalization to Central Bank of Azerbaijan till Jan.15.

The banks that still are unable to bring the capital to the required level will be able to transform into non-bank credit organizations. The Central Bank began working on an appropriate legislative framework in 2013.

Banks have stopped issuing loans out of branches and offices

The Central Bank banned the issuance of consumer loans by the commercial banks in retail trade centers in February. They can be issued in a centralized manner directly in the banks.

The Central Bank made this decision based on an increase in consumer credit defaults.

Earlier, many banks cooperated with the centers selling cars, furniture, electrical equipment, mobile phones and so on, while issuing the loans. The banks opened their offices in the trade centers to accelerate and simplify the loan issuance.

Later, the Central Bank announced that the banks have stopped rendering the banking services out of their branches and offices and the controller did not have to resort to any sanctions.

Control over consumer protection strengthened

The Central Bank charged the commercial banks to publish the actual annual interest rates on loans (FIFD) on their websites or in advertising campaigns.

When calculating FIFD, the payments on the main amount of the loan, interest and fees on the loan, insurance costs, administrative and all other costs must be taken into account.

Percentage ceiling on insured deposits reduced

The Azerbaijan Deposit Insurance Fund reduced the percentage ceiling on insured deposits from 12 to 10 percent. The fund has left the maximum level of insurance coverage for one contribution unchanged at 30,000 manats.

Payment of deposits of failed bank

This year for the first time in the history of the sector, deposits were returned in a failed bank.

In July 2013 the ADIF completed payment of compensation to depositors of RoyalBank, license of which was revoked in July 2012.

By court decision the bank was declared bankrupt, and its closure was a recognized insurance case.

As a result, the ADIF paid 88.8 percent from reimbursable amounts, namely 13 million manat.

Preparation for establishment of private credit bureau

Work on selecting a technical partner of the first private credit bureau in Azerbaijan is almost completed. According to the corresponding tender results, a shortlist has included two companies- Italian CRIF and Icelandic Creditinfo. Both companies have held a presentation of the technical part of their proposals.

A further step envisages a visit by representatives of the organizing committee, during which it will review the proposed solutions from candidates. The visit is scheduled for Jan. 26. The contract negotiations are to start in the first quarter of 2014.

The technical partner will have a controlling stake (51 per cent share capital) of the bureau, while the remainder will be distributed among the participants of the executive committee.

The bureau's potential shareholders include Access Bank, AGBank, Azerbaycan Senaye Banki, Bank Respublika, Demir Bank, Muganbank, PASA Bank, Turan Bank, Yapi Kredi Bank Azerbaijan and UniBank.

Director General of the Central Bank of Azerbaijan, Rashad Orujov told Trend that the draft law, which will regulate the private credit bureaus' activity in the country, may be submitted to the Milli Majlis (parliament) of Azerbaijan for consideration at the next spring session. He expressed the hope that the first private credit bureau in Azerbaijan will begin operating next year.

Following the launch of private credit bureaus, the CBA will limit activity of the Centralized Credit Registry.

Recapitalization of the International Bank of Azerbaijan

Shareholders of the International Bank of Azerbaijan adopted the concept of increasing the authorized capital by 500 million manats over four years.

As a result, the authorized capital of the country's largest bank will exceed 868 million manats.

At the initial stage the capital was increased by 200 million manats and at later stages it will be increased to 100 million manats per year.

Conclusion

These are the main events that took place in the Azerbaijani banking market in 2013. The past year has once again highlighted the important role of effective regulation of the banking system in maintaining financial and macroeconomic stability in the country.

Official exchange rate for December 29 is 0.7845 AZN/USD.

Translated by L.Z., N.H., M.L., E.A.

Edited by C.N.

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