Review of monetary sector in Azerbaijan (January-March 2011)

The Central Bank of Azerbaijan (CBA) increased the interest rate from three to five percent from March 1, 2011. The Central Bank also decided to increase the compulsory reserve requirements on domestic and foreign liabilities of banks from two to three percent.

These decisions have been made as part of targeted measures of the CBA to preserve the price and financial stability in the country.

"Increase in food and energy prices has been observed in world markets over recent months. At the same time, there is a significant difference between countries and regions in the dynamics of economic growth and indicators of financial stability. In these circumstances, the flow of capital strengthens in the countries with sustained growth," said CBA.

In the current global economic situation, the growth in the economy of Azerbaijan continues, the rate of economic activity and production capacity increases. An increase is recorded in sources of monetary growth, the amount of surplus in balance of payments and foreign exchange reserves in the country.

"In these conditions, it is important to keep control over inflationary factors," said the CBA.
The decision to increase the interest rate is also aimed at strengthening the capacity of the Central Bank for the sterilization of excess money supply by providing appropriate conditions in financial markets.

Currency market and manat rate

As of April 1, 2011, total amount of the transactions with sale and purchase of foreign currency at the Azerbaijani banks was 2.1 billion manat.

The banks sold foreign currency worth 1.7 billion in the first quarter of 2011, which is by 28.79 percent more than the figure fixed as of April 1, 2010 (1.3 billion manats).

In turn, the banks bought 425 million worth foreign currency, which is by 18.71 percent more than last year (358 million manat ).

Thus, surplus of the buy-sell operations with foreign currency made up 1.3 billion manat.

The International Bank of Azerbaijan (IBA) has headed five bank-leaders of exchange currency market in accordance with shares of transactions concluded by it on the results of trades in currency section on tool USD/AZN_TOD Baku Interbank Currency Exchange (Baki Banklararasi Valyuta Birjasi - BBVB) in March, 2011, the exchange said.
ASB, AGBank, Yapi Kredi Bank Azerbaijan and AFB BANK also included in the number of the leading dealers of organized currency market. In accordance with it below is the list of banks - the leading operators of exchange market of hard currency in March 2011:

*the figures do not include transactions of the Central Bank of Azerbaijan

In total, 14 banks have taken part in the trades of currency section of the BBVB in March 2011. In accounting month in "Bourse E-System of Trades" (BEST) 34 trading sessions are conducted and 39 transactions are registered. The total volume of trades of currency section in accounting month on USD/AZN has made 90.808 million manat or $114.581 million.

The turnover on tool EUR/AZN has made 331,800 manat.

In comparison with indicators of February in accounting month the total volume of trades in currency section has decreased on 19.243 million manat or 17.5 percent.

As a whole, on results of January-March of this year, the volume of E-Trades with foreign currencies at BBVB has made 263.987 mln. manat, that exceeded the volume indicators of the first quarter of 2010 on 118.169 mln. manat or 1.8 times.

The average daily turnover in "Bourse E-System of Trades" on USD/AZN reached approximately $ 6.740 million, then that the average volume of each transaction has made $ 2.938 million.

The exchange rate of national currency on tool USD/AZN_TOD in accounting month has increased on 0.2 percent from 0.7927 to 0.7913 for 1 USD. Thus the US dollar average rate in consideration to manat has made in March 0.7925 manat for 1 USD, compared to 0.7941 manat following the February results of current year.

Monetary market

The Central Bank of Azerbaijan (CBA) noted the increase in money supply (M2) (cash in circulation (outside banks) and remainders in the domestic currency on accounts of non-financial organizations, financial (excluding credit) organizations and phyiscal entities) by 2.6 percent in March and 31.3 percent compared to the same period of 2010, the CBA reported.

So, as of April 1, 2011, the rate of M2 was 8115.5 million manat compared to 7907.7 million manat as of early March and 6182.6 million manat as of April 1, 2010.

The amount of cash money supply (M0) as of April 1, 2011 hit 5427.1 million manat compared to 5363.1 million manat as of early March and 4312.1 million manat as of April 1, 2010.

As of early April, Broad Money Supply (M3) totaled 10757.4 million manat compared to 10272.6 million manat in early March and 8673.4 million manat as of April 1, 2010.

The transaction money (M1) amounted to 6608.5 million manat as of April 1 compared to 6555.5 million manat as of early March and 5190.7 million manat as of April 1, 2010.

Parameters of monetary market, in mln manat

As of April 1, 2011 the volume of reserve money in Azerbaijan made up 6.282.9 million manat. The figure increased by 2.6 percent, while it reduced by 3.7 percent since the beginning of the year. The figure rose by 27.8 percent in an annual calculation .

According to the CBA, as of Feb. 1, 2011 reserve money in manat made up 6.120.5 million, as of Jan. 1 - 6.520.9 million manat and 4.916.7 million manat as of April 1, 2010.

As of Aprl 1, reserve money in manat made up 6.269 million manat compared to 5.960.6 million manat as of March 1, 6.099.5 million manat as of March 1 and 4.902 million manat as of April 1, 2010.

Money in circulation made up 5.749.7 million manat in this period, whereas the figure was 5.685.1 million manat as of March 1, 5.793.2 million manat as of January 1, and 4.608.1 million manat as of April 1, 2010.

In turn, bank reserves constituted 527.6 million manat (431.4 million, 725.5 million manat and 301.4 million manat respectively).

Money base, cleared off seasonal factors, summed up 6.366.9 million manat as of end March. As of March 1, the figure was 6.191.4 million manat, 5.766.9 million manat as of January 1, and 5.008.5 million manat as of April 1, 2010.

Cash money mass in circulation with regard to money base was 91.51 percent in this period compared to 92.89 percent as of end February, 88.84 percent as of beginning of the year and 93.72 percent as of end March 2010.

Credit market

Azerbaijani banks decreased lending to the Azerbaijani economy by 8.6 percent in March and by 1.4 percent compared to March 2010, the Central Bank of Azerbaijan (CBA) reported.

As of April 1, 2011, revenues from loans that the banks allotted earlier constituted 7.37 of income, while issuing new loans made up 5.76 percent of expenditure operations in the country's payment system in the first quarter of this year.

In January to March 2011 the banks received 380.24 million manat from repayment of and payment of interests on earlier issued loans, and lent 293.325 million manat. The difference of 86.915 million manat was taken out of the credit market. As a result, repayment of loan exceeded lending by 29.6 percent.

As of April 1, 2011, banks' volume of loan portfolio made up 8.366 million manat and lending made up only 3.51 percent of the banks' loan portfolio. Meanwhile, net taking of loan from the loan market constituted 10.4 percent of the accumulated portfolio.

As of early April, the banks provided loans totaling 8.366 million manat (including 5.017.9 billion manat in national currency and 3.348.1 billion in hard currency) compared to 8.485.2 billion manat (5.044.3 billion manat in national currency and 3.440.9 billion manat in hard currency) as of March 2010. The banks allocated 9.152.8 billion manat (5.888.6 billion manat and 3.264.2 billion manat) as of February, 2011. The share of loans issued in national currency made up 60 percent and in foreign currency - 40 percent.

Of the total portfolio, loans worth 539.9 million manat were overdue compared to 509.4 million manat in February, and about 355.9 million manat in March 2010. In March the overdue loans and credits rose by 6 percent compared to 51.7 percent in 2010. Statistics of overdue loans does not include similar loans of non-bank credit institution Aqrarkredit. Increase in overdue loans in the banking sector negatively affects yield and profitability of Azerbaijani banks.

Short-term loans in manat in March amounted to 1.537.4 billion manat, long-term - 3.480.5 billion manat. Of the total loans in foreign currency, 1.099.7 billion manat loans were short-term, 2.248.4 billion manat - long-term.

Long-term loans amounted to 5.728.9 billion manat compared to 6.651.5 billion manat in February and 6.196.3 billion manat at the end of March 2010. In March, the amount of long-term loans declined by 13.9 percent, compared to March 2010 - by 7.5 percent.

In March, the only state bank of the country (the International Bank of Azerbaijan) granted loans totaling 3.020.6 billion manat with a specific weight of 36.1 percent (decreased by 23.4 percent during the month), and private banks - 5.136.6 billion manat with a specific weight of 61.4 percent (increased by 2.7 percent). The remaining 2.5 percent fall on the share of non-bank credit organizations, which granted loans worth 208.9 million manat.

As of April 1 the average rate on bank lending of Azerbaijani economy in national currency amounted to 16.41 percent compared to 16.43 percent as of March 1, 13.99 percent as of April 1, 2010, the Central Bank said.

The average rate on bank lending in hard currency was 16.37 percent compared to 16.89 percent and 15.4 percent respectively.

As of early April the average rate on bank lending of legal entities in national currency amounted to 14.4 percent compared to 14.46 percent compared to March 1 2011, 11.60 percent compared to April 1, 2010. The average rate on bank lending of corporate clients in hard currency was 13.29 percent compared to 13.71 percent as of March 1 2011, 12.55 percent compared to April 1, 2010.

During the reporting period, the average rate on bank lending of physical entities in national currency amounted to 19.75 percent compared to 19.67 percent as of March 1, 2011 and 19.93 percent compared to April 2010. The average rate on bank lending of individual clients in hard currency was 23.42 percent compared to 23.8 percent and 22.09 percent respectively.

Banking sector

Depositary base of Azerbaijani banks increased by 6.2 percent in April, by 1.5 percent from early 2011, the Central Bank of Azerbaijan (CBA) said.

Based on the CBA data, as of late March, total sum of bank deposits by legal and physical entities hit 5.532.3 million manat compared to 5.209.8 million manat as of late February and 5.448.8 million manat as of early year. About 2.541.5 million of this amount accounted for manat and 2.990.8 million manat for currency.

In March, deposits by physical entities increased by 4.7 percent and deposits by legal entities by 8.5 percent. The deposits by individual clients increased by 8.6 percent, corporative clients reduced by 7.3 percent compared to early 2011.

As of late March, the deposits of physical entities hit 3289.1million manat compared to 3142.9 million manat as of late February and 3029.8 million manat as of Jan.1, 2011.

Deposits of legal entities totaled 2.243.2 million manat in late March compared to 2066.9 million manat as of late February and 2.419 million manat as of Jan.1.

The average rate on deposits in manat as of April 1 amounted to 11.08 percent compared to 11.14 percent as of March 2011, 11.40 percent - April 1, 2010.

The average rate on deposits in foreign currency amounted to 11.09 percent compared to 11.89 percent and 11.09 percent respectively.

As of April 1, the average rate on deposits of individuals in manat was 11.73 percent compared to 11.79 percent as of March 1, 2011, 13.09 percent - as of April 1, 2010. The average rate on individuals' deposits in foreign currencies amounted to 11.49 percent compared to 12.08 percent and 12.58 percent respectively.

As of April 1, the average rate of corporate deposits in manat was 6.17 percent compared to 6.43 percent as of March 1, 2011 and 5.36 percent as of April 1, 2010. The average rate on deposits of corporate customers in foreign currencies amounted to 6.28 percent compared to 7.18 percent and 5.88 percent respectively.

In the first quarter of 2011 the capitalization of the banking sector in Azerbaijan increased by 1.7 percent, and in March - by 0.7 per cent, amounting to 2,205.58 million manat, the Central Bank of Azerbaijan (CBA) said.

According to statistic data of the CBA, the number of banks with capital exceeding 10 million manat, hit 41 in March, decreasing by one bank compared to late 2010, and increased by one bank compared to February 2011. Share of this category of banks in the total amount of capital of all banks in the country in March, as in early year amounted to 98.9 percent, while in February - 98.5 percent.

Two banks' (with share of 0.9 percent) capital is formed in the range from 5 to 10 million manat, one bank (0.2 percent) - from 3.5 million to 5 million manat.

The number of profitable banks in Azerbaijan amounted to 3 4 in March 2011. The figure increased by 3 compared to February and by 1 unit compared to March 2010, the Central Bank of Azerbaijan (CBA) said.

As of April 1, total profits in the banking sector (34 banks) hit 48.57 million manat. The index increased by 71.1 percent compared to February and reduced by 15.4 percent compared to the same period of last year.

The number of unprofitable banks reduced by 3 banks compared to February and annual calculation. As a result, the loss of 1 0 banks amounted to 10. 99 million manat, or 7.1 percent more compared to February and less by 43 percent in annual calcualtion.

The total profit of the banking system hit 37.58 million manat.

Bank Financial Results (After Tax) in million manat:

The official exchange rate is 0.79 16 manat to $1.

Total assets of Azerbaijani banks as of the end of the first quarter of 2011 amounted to 12.63 billion manat, which is 5 percent less compared to early 2011 and 4 percent as of late February, the Central Bank of Azerbaijan (CBA) said.

Banks' investments amounted to 1134.98 million manat, increasing in early 2011 by 6.1 percent, loans allocated to customers - 7763.45 million manat (decreasing by 9.5 percent). The volume of loans and deposits issued by the financial sector amounted to 520.83 million manat. Funds on correspondent accounts for the period amounted to 1404.43 million manat. Cash of Azerbaijani banks as of April 1, amounted to 597.52 million manat, increasing by 22.4 percent from early 2011.

Total liabilities of Azerbaijani banks amounted to 10.426 billion manat as of April 1, 2011, decreasing by 6.3 percent from early 2011. About 5464.84 million manat fall to deposits, and 4282.83 million manat - loans and deposits received from the financial market.

Stock market

The turnover of Baku Stock Exchange (BSE) in March 2011 increased by 7.5 times compared to March 2010 and in January-March - 4.39 times compared to the same period of the last year.

The total turnover of transactions on all instruments at BSE for January-March 2011 totaled 1.656.011 billion manat compared to 377.385 million manat last year.

In March, the turnover amounted to 783.405 million manat compared to 104.107 million manat in March 2010.

In January-March 2011, 89.87 percent of transactions accounted for government securities (1.488.334 billion AZN), and the rest - corporate securities (167.676 million AZN).

The securities market in Azerbaijan increased in the first quarter. The segment of the corporate securities market has grown 2.3 times, state securities - 4.8 times.

The National Depository Center (NDC) at the Azerbaijani State Securities Committee registered 340 stock transactions for the sale of shares in the amount of 43.8 million manat at the contract price and in the amount of 42.7 million manat - at par value in March, the NDC said.

The Depository Center registered 12 non-stock exchange transactions in the amount of 1.62 million manat at a nominal price and 56 transactions on the additional issue in the amount of 52.5 million manat at a nominal price. The volume of registered stock exchange transactions exceeded the non-stock ones by 26.4 times in March.

Securities in the amount of 4.02 billion manat are deposited in the NDC.