Monetary sector

Currency reserves of the National Bank of Azerbaijan (NBA) increased 52.8 percent or $2, 121, 700,000 and reached $6.137 billion in 2008, a source in the National Bank of Azerbaijan said. Currency reserves totaled $1.967 billion in 2006 and $4.015 billion in 2007.

The NBA did not expect the figure exceed $6 billion as it was projected at $5.6-$5.7 billion which points to adequate policy of the Azerbaijani government who corrected strategy of currency reserve management.

To ensure security of currency reserves, NBA keeps its reserves in the U.S. Federal Reserve System (in dollar) and the UK Central Bank (in pound sterling). Reserves in euro are preserved by more stable counteragents. 

In 2008, the NBA balanced currency content of its portfolio. So 60 percent of currencies account for dollars and 40 percent for euro and pound sterling. 

Despite global financial crisis, Azerbaijani economny retained high growth rates and financial stability.

In 2008, assets of the bank system increased 53. 14%, credit portfolio - 53% and population's deposits -36.6%. The bank system saw high growth rates until second half of 2008. Later it stabilized in accordance to global conditions and internal economic situation. So, bank system adapted to new dynamics of economic growth and money supply due to restriction of liquidity on world financial markets. 

To secure flexible management of financial risks, the National Bank took preventive measures to ensure extra liquidity worth $350 mln in the bank system. The banks amended their strategies assessing risks in currect situation.

The requirements for quality and assests of the bank sector were increased in an effort to step up financial reserves. In early 2008, the NBA took steps to ensure safe rate of foreign borrowings.

The measures were taken to increase potential of risk management. Bank control over financial stability was promoted.  

Starting from Oct. refinancing rate was reduced from 15% to 8% each year. Norms of obligatory reservation on bank liabilities both in national and foreign currency was reduced from 12 to 6% and norms on obligatory reservation on foreign liabilities - from 5% to zero.

The National Bank also took measures on prudential management in an effort to up financial security in the bank sector. The NBA toughened rates on classification of assets: the rates of controlled assets increased from 6 to 10%, rate of non-satisfactory assets - fro 25% to 30% and dangerous assets - from 50 to 60%. Besides, requirements on providing real estate while issuing loans increased from 120% to 150%, limits were imposed in maximum amount of subordinate loans in the first -level capital. It can total 50%.

Currency market and rates of AZN

In 2008, official exchange rate of the national currency appreciated 5.24% against dollar or AZN 0,0443. 

Positive qualitative changes continued in the monetary structure, but dollar rate of economy was reduced. Since March the rate policy was conducted via bi currency structure consisting of dollar and euro with intention to increase disinflation potential of monetary policy. This regime increased impact on average rate of manat (nominal effective rate) towards currency foreign trade partners.

In total, the nominal effective rate strengthened more than by 12% in 2008 and this is significant factor to neutralize "import of inflation" from countries-partners.

IN December, Exchange rate of the national currency rose by 78 points compared to USD. Dollar dereciated from 0.8088 manat against the USD to AZN 0.8010 to USD.

Exchage rate of USD decreased gradually with little hesitations. Maximal and minimal rates of the rates were registered on Dec. 29 (0.8005) and Dec. 2 (0.8094) respectively. But the oscillation between the maximal and minimal importance made up 89 points. 

In December, the EUR rate in Azerbaijan incrased by 1033 points (from 1.0259 EUR/AZN to EUR/AZN 1.1292), but the process also was not progressive. The monthly minimum of rate - 1.0237 EUR/AZN - took place on Dec. 2, monthly maximum of rate - 1.1561 EUR/AZN on Dc. 18. The fluctuations between maximal and minimal significance constituted 1324 points.

Exchange rate of the national currency in the reported period increased by 0.9% - from 0. 8084 to 0. 8013 per 1 USD. As a result, the average rate of AZN in relevant to USD made up AZN 0. 8028per 1 USD, though in November it was AZN 0. 8084.

Based on trades in the currency section, Baki Banklararasi Valyuta Birjasi (BISE) selected five leading bank operators of the hard currency in Dec. 2008.

Unibank leads among five banks for its share of trades. The other banks include International Bank of Azerbaijan, Khalg Bank joint stock and commercial bank, Yapi Kredi Bank Azerbaijan business bank and Bank Respublika joint stock and commercial bank.

Below is the list of leading operator banks of hard currency market in Dec. 2008:

The data does not include deals of the National Bank of Azerbaijan.

In 2008 Baku Interbank Stock Exchange (BISE) reached all time high volume of trades since its 15-year activities. In 2008, the volume of credit deals totaled 2.051 billion manats which totals around 2.495 billion in dollar equivalent. The volume of deals exceeded the 2007 indicator by 517 million manats or 34 percent. Around 1,209 deals were registered in the currency section averaging 2.038 million in dollar equivalent.

The average volume of currency deals exceeded $10.14 million for the first time which is 39% more than as compared to average of 2007.

The total volume of deals in the U.S. dollar in Bourse E-system of trades - BEST totaled 2.023 billion manats ($2.464 billion) and 27.553 million manats on EUR/AZN instrument. Altogether, a total of 486 trade sessions were held in BEST system which involved 35 banks.

Monetary market

According to the National Bank of Azerbaijan, as of 1 January 2009 the amount of the reserve money comprised AZN 4963.9 mln as compared to AZN 4382.3 mln as of 1 December 1, AZN 3.440.8mln as of 1 January 2008 with increase of 13.3% and 44.3% respectively.

Reserve money in AZN made up AZN 4781.3 mln as compared to AZN 4212,5 mln as of Dec. 1, AZN 3.220.8mln as compared to Jan. 1, 2008. Compard to Nov. Reserve money increased 13.5% in Dec. and 48.45% in the course of the year. 

Without taking into account the seasonal factors, in December money base grew by 3.9% as compared to previous month, by 47.15% as compared to the beginning of the year. As of 1 December, it totaled AZN 4419.4 mln as compared to AZN 4254.7 mln as of 1 December, AZN 3.003.3mln at the beginning of 2008.

As of 1 January, cash money in circulation (AZN 4425.8 mln) comprised 89.16% of money base as compared to 89.87% as of 1 December, 84.61% as of the beginning of 2008.

As of 1 January the level of bank reserves totaled AZN 537.5 mln, including AZN 429.5 mln of free and AZN 108mln of required reserves. Cut in obligatory reserves is linked with drop in reservation norms set for them.

Rise in cash money supply is due to NBA's significant intervention with the currency market. On the other hand, drop in rate is attributed to improving system of manat assignments to the public budget which requires additional emission.

As of January 1, 2008, the Broad Money Supply (M3) made up AZN 8494.2 mln as compared to AZN 7718.7 mln as of 1 December, AZN 5897.3 mln at the beginning of year with an increase of 10.04% and 44% respectively.

Parameters of the monetary market, mln AZN

The National Bank of Azerbaijan (NBA) stated increase in money mass (М2) by AZN 568.2 or 10.3%. 

In annual calculation (as of Jan.1, 2008) rise constituted AZN 1679.4 mln or 38.1%. Thus, on Jan. 1, 2009, M2 was AZN 6.081mln as compared to AZN 5512.8 mln as of Dec. 1, AZN 4401.6 mln as of beginning of 2008.

As of Nov. 1, transaction money (M1) made up AZN 5.145mln as compared to AZN 4593.7 mln as of Dec. 1, AZN 3.652.7mln as of Jan. 1, 2008. Compared to November, this indicator rose AZN 551.3mln (12%) and AZN 1492.3 (40.85%) in annual calculation.

The cash money mass (М0) increased by 13% (AZN 477.2 mln) in December 52.08% (AZN 1432.2mln) and by 69.7% (AZN 1.493.9mln) in the annual calculation. As of Jan. 1, the index of M0 comprised AZN 4145.7 mln as compared to AZN 4145.7 mln as of 1 December, AZN 2.713.5mln at the beginning of year and AZN 2713.5 mln as of early 2008. 

Credit market

In December, the Azerbaijani banks increased crediting the economy by 4.5% and 53% in annual calculation. Compared to December 2007, banks reduced lending (crediting rose by 7.9% in December 2007) due to the global financial crisis.

As of Jan. 1, 2009 the banks gave loan in amount of AZN 7163.2 mln (including AZN 3.649mln in national currency and AZN 3514.2 mln in hard currency) compared to AZN 6855.5 mln (including AZN 3552.4 mln in national currency and AZN 3.303mln in hard currency) as Dec. 1, 2008 and AZN 4.681.8 (including AZN 2.513.7mln in national currency and AZN 2168.1 mln in hard currency) as of Jan. 1, 2008.

Some AZN 159.8 mln of the total loan was overdue as compared to AZN 145.3 mln as of Dec. 1, and AZN 100.3mln as of 1 January 2008. Statistics of overdue loan did not consider non-bank credit organization Aqrarkredit.

Short-term credits were allocated in the amount of AZN 2392.6 (including AZN 96.7 mln overdue credit) compared to AZN 2.201.2 mln (including AZN 88.2mln overdue loan) as of Dec. 1, 2008, AZN 1.719mln (including AZN 69.5mln of overdue loan) as of 1 January 2008.. As of Jan. 1, 3.6% of short-term loan and 42.1% of overdue loan was in hard currency.

The long-term crediting made up AZN 4930.4 mln (AZN 63.1mln) as compared to AZN 4799.7 mln (AZN 57.2 mln) as of Dec. 1, 2008, AZN 3063.1 mln (AZN 30.8mln) as of Jan. During this period, 52.02% of long-term crediting and 41.04% of overdue debts fell on hard currency.

As of 1 January 2009 the credit portfolio of banks with foreign capital made up AZN 2024.9 mln, including AZN 379.9 mln of credits fully by foreign banks (5.7%). As of Jan. 1, 2009 only state-run banks allocated AZN 3027.5 mln in credits (up by 42.3%) and private banks AZN 3.961 mln (55.3%).

As of Jan. 1, 2009 average annual rate of banking crediting in the economy comprised 17.45% in national currency against 18.08% as of Dec. 1 and 16.97% as of 1 January 2008. The real credit rate made up 3.29% amid inflation ratio of 14.7%. The average annual rate on banking crediting the economy made up 14.32% in hard currency as compared to 16.26% as of Jan.1, 2008.

As of Jan. 1, the average annual rate of banking crediting of legal entities made up 14.87% in national currency against 15.88% as of Dec. 1, 2008 and 15.92% as of Jan. 1 2008. The average annual rate of banking credit of the corporate clients constituted 12.37% in hard currency as compared to 11.93% and 13.72% respectively as of Dec. 2008.

Banking sector

In December, the total amount of deposits of the Azerbaijani banks increased by 7.4% and in 2008 deposits increased by 36.6%.

According to the National Bank of Azerbaijan, as of Nov. 1 the amount of deposits and savings of legal and physical entities made up AZN 4348.6 mln compared to AZN 4050.1 mln as of Dec. 1, AZN 3.183.7mln as of Jan. 1, 2008. AZN 1935.3 mln of the sum fell on AZN and remaining part (AZN2413.3mln) on foreign currency. In December, deposits in national currency increased 4.9% and foreign currency - 9.4%.

In December, the savings and deposits of the physical entities increased by 5.3%, amid 9%-increase of legal entities' deposits. During the year the individual deposits rose by 29.6%, despite a rise of corporate clients' deposits by 42.5%.

As of Jan. 1 2009, the amount of deposits of physical entities in the banks totaled AZN 1903.7 as compared to AZN 1808.1 3mln as of 1 December, AZN 1468.4 mln as of Jan. 1, 2008.

As of Jan. 1 2009, the amount of deposits of physical entities in the banks totaled AZN 2444.9 as compared to AZN 2.242mln as of 1 Dec. 1, AZN 1.715.3mln as of Jan. 1, 2008.

As of Jan. 2009, AZN 1035.6 mln of deposits and savings of physical persons was realized in national currency and AZN 868.1 mln in hard currency. Some AZN 898.7 mln of legal persons' deposits were realized in AZN and AZN 1546.2 mln in hard currency.

As of Jan. 1, 2009 the average rate of bank deposits in the national currency comprised 11.67 % as compared to 11.87% as of Dec. 1, 11.36 as of the beginning of the year. The average rate of banking deposit in foreign currency is 7.96% as compared to 7.91 %, 12.22% and 807% respectively.

As of Jan. 1, 2008 the average rate of bank deposits of legal entities in the national currency comprised 10.36 % compared Dec. and 1, 9.68% as of the beginning of the year. The average rate of banking deposit of corporate client in foreign currency is 5.4 % compared to 5.17% and 7.68% respectively.

As of Jan. 1, 2009 the average rate of bank deposits of physical entities in the national currency comprised 12.54 % compared to 12.64% as of Dec. 1, 12.47% as of the beginning of the year. The average rate of banking deposit of individual client in foreign currency is 12.43% as compared to 12.72% as of the beginning of the year and 12.47%.   

The Nationa Bank of Azerbaijan issued a license to AZFINANSBANK in December. So, there are 46 banks in Azerbaijan. It was the second commercial bank to receive bank license in 2008. The NBA issued a license to the Nakhchivanbank who has capital of AZN 10mln.

The number of profitable banks in Azerbaijan increased from 36 to 38 in December 2008. The number is two less than in December 2007, the Azerbaijani National Bank said.

Revenues in the sector increased 44.7 percent compared to January 2007 to 192.08 million manat.

The number of unprofitable banks decreased by one compared to November and three compared to early 2008. Eight banks lost 7.4 million manat, which is twice more than the figure for early 2008.

Financial Results of Bank Activities (After Tax Payments) with Million Manat:

In October, the capitalization of the Azerbaijani banking sector increased by 4.8 % and as of 1 Jan by 47.8% as compared to the beginning of the year.

According to the data provided by the National Bank of Azerbaijan, as of 1 Jan. 2009, the capital of 43 banks exceeded AZN 10mln. Its percentage in the total amount of capital of banks increased from 97.9% to 98.6%. Two banks with the percentage of 1.1% have formed their capital between AZN 5 and 10mln, one bank - AZN 3.5 and 5mln.

During this period, 46 banks held a license for banking activities in the country. Their number reduced as a result that the license of two banks, Poctbank and Atlantbank, is invalid. The NBA canceled the licenses of these two banks from 9 July.

A total of seven banks operate with restricted license. They can not receive deposits. Due to this, they could not become the members of the Deposit Insurance Fund. [Sanctions were imposed due to non-conformance to volume of a total capital at AZN 10.