Analysis of the development of the banking market in Azerbaijan and the assessment of its prospects for the future is impossible without an analysis of the macroeconomic situation in the country, because its development depends on the economic situation in the country.
Because of objective and subjective reasons, like the republic's economy as a whole, the banking sector of Azerbaijan was less affected by the global crisis. Moreover, several tense situation prevailing in the banking sector early last year now looks more optimistic. This is reflected in the improvement of banking indicators, restore business and credit activity.
Macroeconomic situation
2009 was successful for Azerbaijan, which is testified by the main macroeconomic indicators. GDP growth was 9.3 percent, its per capita level - 7.9 percent, growth in non-oil sector amounted to 3.2 percent. For the development of economic and social spheres, all sources of funding directed 7.4 billion manat, including 2.9 billion manat in the regions.
EBRD predicts 9 percent GDP growth for Azerbaijan in 2010, raising expectations for growth by 1.9 percent. In 2011 EBRD forecasts 8 percent GDP growth. These forecasts for 2010 and 2011 are the highest after Turkmenistan (14 percent in 2010 and 13 percent in 2011) in the region, Central Europe, Central Asia and Turkey, covering 30 countries.
WB believes that oil and gas revenues of Azerbaijan provided a unique opportunity - to improve the quality of life of all its citizens. Income per capita in the country has quadrupled in the period from 2004 to 2008, and is expected to exceed $6500 by 2013. "Nevertheless, the country should make more coordinated efforts to diversify the economy to reduce dependence on oil and gas sales, maintain macroeconomic and financial stability, and develop human capital," says the World Bank economic memorandum.
Banking sector expects radical steps
The results of the Central Bank's stress-testing showed that even under the most unfavorable scenarios for the development of the macroeconomic situation, the banking system can withstand severe shocks and absorb the losses arising from this. This is explained by the fact that most of the potential risks have been recognized by banks and adequate reserves have been created to neutralize them.
The current situation in the banking system is changing for the better as compared with the first quarter of 2009. Deposits of the population not only recovered at the beginning of the year, but also demonstrate the growth: in 2009 by 22.5%. The loan portfolio is also beginning to resume growth, and during the last year it increased by 17.4%, in general assets during this period increased by 13.5%. External financing of the banks also gradually resumes, in 2009 the Bank attracted foreign loans worth about $800 million.
Despite this, most recently information plays up in the society about the probability of closure, merger or bankruptcy of banks operating in the country. But the Central Bank issued a special statement, which said that currently the CBA does not discuss the issue of closing or merger of some banks, and the Central Bank did not make any decisions in this regard. The banking system of the country continues to work normally, and there are no risks that could adversely affect their financial situation, the statement said.
It is hard to speak on the optimal number of banks, because the practice shows that not all of Azerbaijan's territory is covered by full-valued banking services. 46 banks, covering the republic through 626 branches, operate in the country. Definitely, the banking market, as others where there is scale efficiency, will not escape the processes of consolidation. It shows itself in the form of creating megabanks and big banking groups with banks of different product and customer orientation. The consolidation of banks is a long process that has began since 1995. Since then, the number of banks in the country has reduced five times. The policy of consolidation of banks is long-term and conservative, and here it is not acceptable to have mandatory use of an administrative resource, the Head of CBA Elman Rustamov said recently.
Meanwhile, based on an assessment of the overall situation in the banking market, the agenda of the Central Bank was again included the issue of consolidation of banks, and therefore the CBA began preparing a strategy to consolidate and optimize the banking system. According to deputy chairman of the CBA Alim Guliyev, today there is a group of banks that it would be better to exclude from the banking system.
The Central Bank made a serious statement that 15-20 banks are enough for the economy of Azerbaijan. Currently, there are 46 banks operational in the country, and we believe that this is an extreme number for such country as Azerbaijan. Therefore, one of the principal tasks of the Central Bank in 2010 will be to work out a strategy of consolidation and optimization of the banking system, Guliyev said.
Depending on the banks, which fall under consolidation, some banks will merge or their licenses will be limited, and they will act as non-banking credit organizations. In other cases, such banks will generally stop operating on the local market. As a result of this scenario, the number of banks will be reduced 2.3-3 times in Azerbaijan.
According to Central Bank's strategy of consolidation of banking organizations, the banks will be given time to make suitable decisions for them - to determine the forms of consolidation (merger with another bank, change the status of non-bank credit organization or liquidation). This process will take long period, but will begin in 2010. Thus the main task of CBA will be to ensure security of deposits in banks. To maintain trust in the banking sector, the deposits of the population should not be damaged. In the case of making a decision on the consolidation of a bank, the deposits of the population will either be transferred to more healthy banks or the depositor will be compensated through the Deposit Insurance Fund. Today, 42 banks are members of the Fund.
Influential international financial organizations also confirm that a healthy banking system functions in Azerbaijan, which securely stores the funds of depositors. The President of the Association of Banks of Azerbaijan Eldar Ismayilov believes that Azerbaijan is in the process of the economic development and if the evolution system is healthy, it eventually and naturally filters out unnecessary number of banks. In Japan, 8 percent of large enterprises control over 90 percent of the economy. Therefore, the number of banks determines the structure of the economy, which today is linked to the oil sector. Of course, the banks that are government property and manage the cash flow should operate, and for other banks the main thing is that they do not violate the law, operate honestly and accurately, and their number will determine the economy and its development.
In 1993 there were over 200 commercial banks, but now there are 46 banks. So, today some banks may be opened, and some drop out of the market, it is a natural process, says the head of the Association of Banks. "I believe that the Central Bank should continue to monitor the weak and strong banks. Maybe not 15-20 systemically important banks, but 3.4 such banks are enough for Azerbaijan. The policy of the Central Bank is sufficiently mature, and it tries to help all banks, small and medium. But as international practice shows, each systemized bank accounts for only 10-12 non-systemized banks, because the economy can not consist only of systemically important banks," Ismayilov said.
List of banks replenished
Statements about the need to reduce the number of banks did not stop the interest in opening new banks, and this year, after one-year break, the process of establishing new banks resumed in Azerbaijan. A new bank BTB Bank, established by three residents - physical entities, has passed state registration through the "single window" system of the Ministry of Taxes. Recent changes in the banking market of the country occurred in 2008. During the year before the last, the number of banks reduced by two as a result of withdrawing licenses of two banks - Poctbank, which had long been practically inactive, and Atlantbank - because of failure to comply with requirement of capitalization, but just their numbers increased in the same number. Licenses for banking activities were provided to Nakhchivanbank JSC and Azfinans Bank (the current name of AFB Bank).
The matter is not quantity, but quality
In fact, the main criterion of the bank should not be the size, but quality of service. Although international organizations (including the IMF) are convinced that the future is for the big banks, it is rather difficult for small banks to maintain qualified infrastructure for normal interaction throughout the country.
However, the format of small banks is more "sharpen" under the interests of small businesses. Small businesses and entrepreneurs will require an exact and individual approach that the big banks will never ensure them.
The solution is loan brokers or a small banking. The interests of depositors, in principle, for the most part are covered by the warranty of Deposit Insurance Fund. The interests of people and companies will not suffer, because the successor will be liable for obligations of clients.
Another important issue is that as a result of reductions in banks, the most qualified and demanded staff remains in the banking market. Practice shows that the dismissed employees quickly find job as economists or accountants of small businesses. As a rule, contacts with banks such employees of companies simply invaluable.
In an economic memorandum, the World Bank also called to maintain and strengthen banking supervision and regulation, improve access to credit for micro, small and medium enterprises. In the field of human capital development, the World Bank recommends to focus on reforms in higher education, since the system meets the needs of the market.