Review of main events in Azerbaijani financial market in 2020

Review of main events in Azerbaijani financial market in 2020

BAKU, Azerbaijan, Jan. 3

By Zeyni Jafarov - Trend:

Trend International News Agency has presented a review of the most important events of 2020 in the Azerbaijani financial sector.

Banking sector

By early 2020, the Central Bank of Azerbaijan (CBA), which assumed the obligations of the liquidated Financial Market Supervisory Authority, announced the plans on monetary policy for the entire 2020.

Trend previously reported that the new financial regulator announced that it will continue to work on the implementation of the conditions for the phased transition to the targeted inflation regime in Azerbaijan as part of improving the monetary policy strategy and will also continue to actively work to ensure synchronous movement in the interest rate corridor of short-term interest rates in the interbank market. As a result, the CBA decided to leave the inflation rate in the range of 4 ± 2 percent.

The priority of the CBA in 2020 was an investment in the development of payment systems, innovations, the introduction and expansion of the latest financial technologies, including blockchain technology.

Moreover, the CBA with the support of the Ministry of Education and Mastercard has launched the Smart Student Card project.

The Baku State University, the Baku Engineering University, the Azerbaijan State University of Economics, the Academy of Public Administration under the President of Azerbaijan, the Baku branch of M.V. Lomonosov Moscow State University, and the Azerbaijan State Marine Academy were integrated into this project in 2020.

The CBA and the National Microcredit Agency of Italy have signed a Memorandum of Understanding and Cooperation.

The memorandum signed between the two organizations envisaged the cooperation in encouraging microcredit instruments, improving the legal and regulatory framework, as well as monitoring and evaluation mechanisms.

At the same time, this cooperation was intended to play an important role in enhancing opportunities for exchange of experience with foreign partner organizations in this sphere to develop the microfinance services sector and strengthen control over the activity of microfinance institutions.

The Azerbaijani economy has faced a real challenge since early March 2020. First, the coronavirus penetrated the country, making its own adjustments to the national economy and provoking new solutions to mitigate the consequences of the impending global crisis. Then Russia and Saudi Arabia broke off the OPEC + agreement to reduce oil production by provoking record drops in oil prices - a commodity that ensures most of Azerbaijan's economic growth.

At the foreign exchange auctions, the demand of banks has increased by many times and began to exceed 200-300 million manat ($117-176 million), but by the end of the year, there was 70-80 million manat ($41-47 million).

A few days after the agreement of the countries participating in the OPEC + agreement, the head of the CBA Elman Rustamov unequivocally stressed that the country was fully prepared for such challenges.

“We have sufficient experience in managing the crisis and, also, during the period of high oil prices, our strategic foreign exchange reserves have been greatly increased, which allows having the means and tools to influence the external shock, especially not caused by the ongoing economic, social or political processes in Azerbaijan,” Rustamov added.

After the Fund to Support the Fight Against Coronavirus was established following the decree of the president of Azerbaijan dated March 19, 2020 "On Measures to Protect Public Health and Strengthen the Fight Against Coronavirus Infection in Azerbaijan", the CBA created a mechanism to expand and facilitate opportunities and methods of transferring funds from the population and entrepreneurs, taking into account the intensity of payments and applications of individuals and legal entities.

By late April 2020, the CBA decided on credit incentives in the banking sector, within which the opportunity for entrepreneurs to restructure loans was ensured. Individuals could also restructure mortgage loans issued through the Azerbaijani Mortgage and Credit Guarantee Fund.

In case of full or partial delay in business and consumer loans until September 30, 2020, credit organizations were recommended not to collect fines, penalties, and other payments from customers.

The cancellation of licenses of four banks, namely, Atabank OJSC, Amrah Bank OJSC, AGBank OJSC, and NBCBank OJSC was an important event in the Azerbaijani banking sector in 2020.

The compensation on insured deposits in the amount of 615.1 million manat ($361.8 million) was paid to the depositors of these banks as of late December 2020.

Along with these events, Azerbaijan has become a new donor of the Asian Development Bank. Thus, more than $2.3 billion or 58 percent out of the total volume will be financed through contributions of 30 donors, including two new donors - Azerbaijan and the Philippines.

During the year, the CBA presented the interest rate seven times and the rate concentrated at 6.25 percent by the end of 2020. The interest rate remained unchanged at 7.25 percent in January, March, and May.

The upper limit at the end of December 2020 was set at 6.75 percent and the lower limit at 5.75 percent.

Insurance sector

The activity of two insurance companies was terminated in the Azerbaijani insurance sector in 2020. Thus, the management of "Amrah Sigorta" OJSC decided to terminate the activity and voluntarily liquidate the company.

Moreover, the license of the Standard Insurance company for carrying out insurance activity was canceled upon the decision of the CBA while the court decision on its bankruptcy entered into force on September 14, 2020.

The Azerbaijan Insurers Association through the organizational support of the CBA has launched a large-scale training program with the help of experienced Turkish insurance employees.

The first direction of the training, in which a big number of trainees participated, was devoted to the actuarial specialty in the insurance sector. Actuarial training for insurers, which play an important role in ensuring financial stability, are conducted in accordance with international practice.

When the pandemic began to spread in Azerbaijan, insurance companies developed a special action plan and continued their activity under the current situation.

The working regime of insurance companies was restructured, in many of them, employees switched to remote work by using modern electronic means of communication. Although the COVID-19 epidemic affected the insurance market in Azerbaijan, it did not have a great impact on the activity of these companies.

Despite the current situation, the insurance companies worked well in early 2020.

Chairman of the CBA - insurance market regulator Elman Rustamov stressed that the collection of insurance premiums in the first quarter of 2020 increased by more than 19 percent, which testifies to the positive dynamics in the development of the insurance sector in the country.

As of early December of 2020, insurance fees of Azerbaijani companies amounted to about 669 million manat ($393 million) while payments - 391 million manat ($230 million), which demonstrates an annual growth of 8.7 percent and 55.2 percent, respectively.

Some 21 insurance companies and one reinsurance company operate in Azerbaijan as of late 2020.

Capital market

The revival was observed in the stock market in 2020. In accordance with the decision of the Listing Committee of the Baku Stock Exchange (BSE) on September 18, 2020, the shares of AzerGold CJSC worth $20 million were included in the listing in the standard segment of the market.

Azerbaijani Minister of Economy Mikayil Jabbarov said at an event organized on the occasion of the issuance of AzerGold bonds that the issue of AzerGold bonds is considered one of the most important events in 2020 in the capital market.

Jabbarov stressed that this step will make a great contribution to the development of the financial and mining sector, as well as will play a special role in shaping new investment opportunities for citizens.

Following the decision of the Listing Committee of the Stock Exchange on October 6, 2020, shares of Ferrum Kapital LLC worth 2.5 million manat ($1.5 million) were also included in the listing in the standard segment of the market.

MFX-Trading Investment Company OJSC was also admitted to the Baku Stock Exchange in 2020 and thus the number of BSE members reached nine.

As a result, as of early December 2020, the total volume of transactions in corporate securities at the Baku Stock Exchange amounted to 1.8 billion manat ($1.05 billion).

In total, 2,504 transactions were carried out during that period. Some 2,347 transactions of them (93.7 percent) worth more than 1.5 billion manat ($882 million) accounted for the secondary market. In particular, 1,927 shares worth 29.8 million manat ($17.5 million) and 420 bonds worth 1.5 billion manat ($882 million) were sold.

Some 90 transactions or 3.8 percent of all operations in the secondary market accounted for the sale of mortgage bonds in the amount of 1.4 billion manat ($823 million).

Some 157 transactions (6.3 percent) were carried out in the amount of about 283 million manat ($166 million) in the primary market, including 54 shares worth 40 million manat ($23 million) and 103 bonds worth 243 million manat ($142 million) were sold. Twelve more transactions (7.6 percent) in the primary market accounted for the sale of mortgage bonds in the amount of 200.8 million manat ($118 million).

REPO deals on corporate securities at the beginning of December 2020 amounted to 36.6 million manat ($21.5 million). In total, 1,163 REPO transactions were carried out.

The total volume of transactions in state securities at the Baku Stock Exchange (BSE) amounted to 7.7 billion manat ($4.5 billion) and their number reached 1,567. Some 1,029 transactions worth 6.7 billion manat that's $3.9 billion (about 88 percent of the total number) were made at the primary market.

Some 538 transactions totaling 937.8 million manat ($551.6 million) accounted for the secondary market of state securities. Their share amounted to 8.2 percent of the total volume and 12.2 percent of the total number of transactions in state securities.

The volume of REPO transactions in state securities amounted to 1.8 billion manat ($1.05 billion) while as of early December 2020, 1,094 REPO transactions in state securities were carried out at the BSE.

In total, the number of concluded transactions increased by 6.7 percent and amounted to 5,234 in 2020.

Besides all the above-mentioned events, 2020 was remembered by the stability of the Azerbaijani manat against the US dollar.

Economy Department of Trend News Agency

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