Azerbaijan needs to radical reforms in financial sector – WB

Baku, Azerbaijan, Oct. 7

By Anvar Mammadov - Trend:

Azerbaijan needs to carry out radical reforms in the financial sector, which will make it possible to consolidate the country's banking system, the World Bank Country Sector Coordinator for Financial and Private Sector Development in the South Caucasus region Angela Prigozhina told Trend.

"The law on inspection now, unfortunately, limits the powers of the Central Bank of Azerbaijan, and a radical reform is needed here," she said. "If additional reforms regarding the improvement of loan classification and reserves formation on non-performing loans, increasing requirements to capital and quality of the bank funds, the introduction of requirements for supervision on the basis of risks and management of banking operations on the basis of risk are held, all these reforms will cumulatively lead to consolidation of the banking system."

Prigozhina went on to add that the consolidation of banks is quite justified when there is a need to improve the quality of the system, efficiency of services and, of course, stability.

"In our opinion, in Azerbaijan it is needed to improve stability and transparency of the financial system, the quality of services, so it is also important to carry out reforms aimed at increasing the quality of supervision, work with troubled banks, communications with investors and customers to improve financial literacy, as well as strengthening procedures for exit and continuous supervision," she said.

Prigozhina noted that consolidation of banks can proceed in different ways.
Nevertheless, each system itself determines the number of banks, she said, adding that most importantly, these banks should be effective, transparent and reliable and render qualitative services to the population.

Currently, Azerbaijan's financial system is quite small, accordingly, it is necessary to develop the system intensively (to deepen the financial markets, improve the level of investment savings) and extensively (develop the number of instruments and institutions of the financial system), said Prigozhina.

That's to say, these are the important processes for developing the financial system which are the important factors for the development of economy, small and medium-sized business, she said.

Therefore, these reforms shouldn't be avoided and the sooner Azerbaijan starts these reforms, the better, Prigozhina added.

Prigozhina said she believes that now it is the best time for this, since many countries start to hold radical reforms in their markets and adopt sometimes even painful decisions to recover the economy's financial sector under the conditions of crisis.

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.

Edited by SI
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