Azerbaijan offered to expand ways of banks’ merger by law

Business Materials 28 July 2015 17:14 (UTC +04:00)

Baku, Azerbaijan, July 28

By Azad Hasanli - Trend:

The World Bank (WB) is ready to assist Azerbaijan in improving the legislation and consolidation tools in the banking sector, Angela Prigozhina, WB Coordinator for Private and Financial Sector in the Southern Caucasus, told Trend.

"It is desirable to stimulate the consolidation of banks through the development of appropriate tools," she said. "But given that the stimulation of different types of the banks' restructuring is limited by law, the Central Bank of Azerbaijan should consider the world's experience in this sphere to expand the process."

She said that the consolidation tool is quite wide.

"For example, there is a technical procedure for merger and acquisition, assuming certain accounting, financial and investment commitments, which must be prescribed by law," she said. "There are the countries where the merger is technically impossible because their legislation does not allow this or this takes much time technically."

She said all the methods and commitments, associated with the consolidation process, should be clearly spelled out in the laws, as investors need to know about the tax and investment commitments, how much time will be spent on merger, as well as what costs are associated with this.

"Meanwhile, the consolidation procedure should be as simple as possible, so that investors don't have additional questions or concerns," said the expert.

She said the acquisition of individual assets and liabilities of a bank can be one of the options for a merger.

Also, as Prigozhina said, a transition bank can be created to sell a "clean" bank to the investor.

She also believes that the presence of a strategic investor is one of the incentives to the consolidation.

"For Azerbaijan it is a very relevant topic," said Prigozhina. "We were happy to hear the Central Bank's Chairman Elman Rustamov saying that he strongly welcomes the entry of strategic western investors in Azerbaijan's banking market," she said.

Because, they can bring new technologies, knowledge, attract resources and so on, she said. "In other words, if several influential financial groups enter the Azerbaijani market, this will allow to increase the stability and attractiveness of Azerbaijan's financial market."

Azerbaijan already has successful experience in consolidation of banks with participation of for example, EBRD. Current Unibank was established as a result of merger of two commercial banks - MBANK and PROMTEXBANK where EBRD obtained 15-percent share, while 8.3333 percent is owned by German Investment Corporation DEG. This was followed by a merger of the Bank of Baku and IlkBank in 2005.

Currently, 43 banks operate in Azerbaijan. The Central Bank of Azerbaijan cancelled the licenses of two banks in July.

Edited by SI