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

The Central bank of Azerbaijan (CBA) has adopted a strategic plan for 2011-2014. The economic development dynamics recorded in the country, rapid growth of the financial system and strengthening of the global economic environment in recent times formed new challenges before the CBA. Theretofore, the Central Bank has identified new priorities for strategic action in the direction of strengthening support for economic development and human capital development, bringing the institutional management in line with current practice, preserve macroeconomic stability and stability of the banking system with a view to effectively respond to these challenges.

The Central Bank of Azerbaijan (CBA) is preparing to introduce several innovations to improve the banking supervision system. The innovations are expected in three directions - in strengthening supervision on risks, improving corporate governance and risk management in banks, and implementation of counter-cyclical supervision.

In order to provide capital management, liquidity and credit risks at a safe level, the CBA this year will once again restore the norm of "leverage", but in a more rigid form. The norm of "leverage" will limit the strong growth of banks.

The CBA decided to apply the new leverage regulations of eight percent in late 2010. According to it, the banks must bring a balanced capital in accordance with the assets and off-balance sheet assets. This measure is used to prevent rapid growth of banks.

A similar practice was used earlier in Azerbaijan's banking sector with a coefficient of six percent, but was suspended in 2003.

The Central Bank of Azerbaijan (CBA) plans to introduce a mechanism of compensation to bank managers in 2011 - the first in the world within the measures to improve the quality of bank management. Measures to improve the quality of bank management include issues of corporate management and risk management. On risk management the CBA has more detailed and qualitative rules. The rules for the development of corporate management in banks were adopted in 2004, after adopting the law On Banks. Under the new rules, banks will be putting more qualitative and detailed requirements on risk management
One of the innovations in this direction will be the adoption of rules on compensation to bank managers. This will change the philosophy of bank management and bank managers' conduct. Consultations with banks on issuance of bonuses to bank managers have already started.

Currency market and manat rate

In order to ensure the international competitiveness of Azerbaijan's economy, the CBA will try to prevent a sharp appreciation of the manat. Given the priorities of the Central Bank in 2011 on inflation and financial stability, the CBA will conduct a policy of maintaining a stable exchange rate of manat. To achieve these goals, if necessary, work will be conducted on the currency market of the country to establish balance between supply and demand.

In 2009, the national currency of Azerbaijan grew by 1.8 percent, in 2010 - by 0.6 percent, since the beginning of 2011 - by 1.4 percent.

The situation with the strengthening of manat will depend on the balance of payments, but in any case, the CBA will not allow strong strengthening. Thus, if the surplus of payments balance last year was $15 billion, this year a minimum of $13-14 billion is forecasted, but it is possible that it will exceed $15 billion.

The CBA has always focused on the real effective exchange rate, which is defined by two parameters - inflation in Azerbaijan and inflation in the countries - trade partners. The purpose of the Central Bank is to maintain inflation in the country at least at their level.

On results of trades in currency section on tool USD/AZN_TOD Baku Interbank Currency Exchange (Baki Banklararasi Valyuta Birjasi - BBVB) defined five banks - leading operators of exchange market of hard currency on July 2011, the BBVB reported. Azerbaijan Industry Bank (ASB Bank) has headed five bank-leaders of exchange currency market in accordance with shares of transactions concluded by it.

Bank Standard, Xalq Bank, Unibank and AGBank 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 July 2011.

BANKS IN % FROM TOTAL VOLUME
ASB 41,36%
Bank Standard 26,24%
Xalq Bank 17,12%
AGBank 5,73%
Unibank 4,60%

*In the data are not considered transactions of the Central Bank of Azerbaijan

In total 10 banks have taken part in the trades of currency section of the BBVB in July 2011. In accounting month in "Bourse E-System of Trades" (BEST) 42 trading sessions are conducted and 32 transactions are registered. The total amount of trades of currency section in accounting month on USD/AZN has made 45.943 million manat or 58.415 millions in dollar equivalent.

The turnover on EUR/AZN in the reporting month amounted to 1,940,590 manat. The average rate of euro to manat for this instrument was 1.1415 AZN.

In comparison with indicators of June in accounting month the total amount of trades in currency section has increased on 25.610 million manat or 35.8%. The average daily turnover in "Bourse E-System of Trades" on USD/AZN reached approximately $1.391 million, then that the average volume of each transaction has made $1.825 million.

The exchange rate of national currency on tool USD/AZN_TOD in accounting month has dropped by 0.4% from 0.7863 to 0,7866 for 1 USD. Thus, the US dollar average rate in consideration to manat has made in July was 0.7865 manat for 1 USD, compared to 0.7873 AZN following the June results of current year.

Loan market

Because of the absence of Central Bank's statistics on monetary sector of Azerbaijan, the analysis of credit and banking sectors in this bulletin is not available. After the release of statistics, these headings will be sent as attachments.

Stock market

The total turnover of transactions on all instruments at Baku Stock Exchange (BSE) for Jan.-July 2011 totaled 4.55 billion manat, increasing by 4.68 times compared to the same period of last year, a statement said.

The corporate securities market increased by 1.5 times compared to the same period of last year. The figure hits 347.2 million manat. This is stipulated by the increased volume of transactions in corporate bonds by 1.85 times.

The state securities market increased by 5.66 times up to 4.2 billion manat. This happened as a result of the sharp increase of operations by 4.06 times. The number of deals increased by 1.8 times.

Comparative table on the results of trades of Corporate Securities at BSE (January- July 2011)

Market segments July 3 1 , 2011 July 3 1 , 2010 Percentage ratio
Volume of transactions,
AZN Number of deals Number of deals, AZN Number of deals
Corporate bonds- (placement) 91 885 972,50 56 58 473 937,10 73 157,14 percent
Corporate bonds - (secondary market) 184 748 225,66 55 91 327 407,34 62 202,29 percent
CBs Total 276 634 198,16 111 149 801 344,44 135 184,67 percent
Stocks - (placement) 65 868 332,00 106 76 833 210,96 907 85,73 percent
Stocks -
(secondary market) 4 719 614,34 2 095 3 551 931,56 1 190 132,87 percent
Stocks Total 70 587 946,34 2 201 80 385 142,52 2 097 87,81 percent
CS Market Total 347 222 144,50 2 312 230 186 486,96 2 232 150,84 percent

Comparative table on the results of trades of Government Securities at BSE (January- July 2011)

Market segments July 3 1 , 2011 July 3 1 , 2010 Percentage ratio
Volume of transactions, AZN Number of deals Volume of transactions, AZN Number of deals
GB - (AR MF) (placement) 178 869 168,77 105 121 305 236,85 50 147,45 percent
GB - (AR MF) (secondary market) 26 616 863,09 25 82 132 035,24 42 32,41 percent
GB Total 205 486 031,86 130 203 437 272,09 92 101,01 percent
Notes (AR CB) - (placement) 502 122 741,33 184 120 479 633,79 105 416,77 percent
Notes (AR CB) - (secondary market) 9 555 687,77 5 5 564 936,87 2 171,71 percent
Notes Total 511 678 429,10 189 126 044 570,66 107 405,95 percent
Repo operations 3 486 717 782,68 727 412 284 720,64 421 845,71 percent
GS Market Total 4 203 882 243,64 1 046 741 766 563,39 620 566,74 percent
Abbreviations
GB - government bonds
GS - government securities
CB- corporate bonds
CS- corporate securities
The National Depository Center (NDC) at the Azerbaijani State Securities Committee registered 477 stock transactions for the sale of shares in the amount of 8.3 million manat at the contract price and in amount of 8.1 million manat - at par value in July.

The Depository Center registered 57 non-stock exchange transactions in amount of 4.19 million manat at a nominal price and 38 transactions on the additional issue in amount of 414.42 million manat at a nominal price. The volume of registered non-stock exchange transactions exceeded the stock ones by 1.9 times and the number of non-stock exchange transactions exceeded the stock ones by 8.4 times in July.

Securities in amount of 5.4 billion manat are deposited in the NDC.

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