Weekly actual topics in Azerbaijan (nov. 21-26)
Professionalism of Azerbaijani banks wins over customers
The bank system of Azerbaijan faces a difficult task in becoming the key component issuing credit to the economy and being the catalyst for the growth of the non-oil sector development.
Market competition has long demanded that Azerbaijani banks should expand the list of services they offer and improve their technology. Many of them are successful in carrying out leasing operations and issue mortgage credits and credits to consumers.
In an effort to keep the level of incomes relevant to credit activity, banks increased the volume of credits to production, trade and services and have intensified efforts to assist retail business.
According to the Central Bank of Azerbaijan (CBA), that of the total credit investments in the Azerbaijani economy during first nine months of this year, 29.8 per cent went to trade and services, 7.6 per cent to construction and real estates, 5.8 per cent to industrial production, 4.8 per cent to agriculture and refining; 4.4 per cent to transport and communications and 3.1 per cent to power engineering, chemistry and natural resources development. The dominant 32.5 per cent or 3146.2 million manat were assigned in loans to households.
The bank retail business has been growing rapidly as part of the development of the network of bank branches, exploration of new credit products and the increase of competition in the deposit market. The latter has become possible thanks to a growth of trust in banks from the consumer which as a result is helping the volume of Azerbaijani citizens' bank deposits to keep growing.
The CBA reports that customers' deposits to banks in Azerbaijan totalled 3622.4 million manat on October 1, 2011, an increase of 29.4 per cent against 2798.3 million manat on the respective date last year. People's trust in banks grew substantially after the law 'On Insurance of Bank Deposits' took effect.
In addition, banks tightened competition in the market of high-tech services such as plastic cards and immediate money transfer systems. This contributed essentially to development of such operations and, on top of that, caused technical modernisation and enhancement of all fields of banks' operations such as new technology, software and naturally, a logistics base.
The CBA continues to raise the improvement ceilings for local banks. It is not going to offer new minimum capital requirements but, works to promote further capitalisation of banks.
The capitalisation of the Azerbaijani bank sector reached to 2345 million manat on October 1, 2011, up 0.7 per cent and 8.1 per cent from September 1, 2011 and the beginning of the year, respectively.
As the CBA reported, the number of banks with capital exceeding 10 million manat reached to 42 following the results of September, an increase of one bank against August, but did not change compared to the end of 2010. The share of this category of banks in the consolidated bank capital was 99.4 per cent following the results of September versus 98.9 per cent in August and in the beginning of the year.
In September 2011, the number of Azerbaijani banks operating with profit was 32, up one from August and two from the respective month of 2010.
Following the results of September, total profit of the banking system reached 128.71 million manat, up 7.1 per cent from August, but down 4.5 per cent from the respective month of last year.
The growing economy of Azerbaijan produces corresponding needs and requires rapid development of retail operations and consolidation of bank capital to meet demand, so credit institutions as well as businesses can react to these requirements adequately and professionally.
What disturbs Azerbaijan on its path toward full financial transparency?
The problem of effective control of state expenditures has always been urgent for independent Azerbaijan. International organizations, since they came to the country, staked basically at the strengthening of institutional bases, revision of old legal provisions and adoption of new ones. It has to be recalled that the IMF from the very beginning expressed its deep concern over Government's rather "impudent treatment" of revenues accumulated at the State Oil Fund of Azerbaijan (SOFAZ). As then viewed by the IMF, oil export revenues should have served as a wealth for the next generations and never be spent for refugees and infrastructural businesses.
However, firmness of the Government, which thought problems of refugees were of paramount importance and so was the construction of oil pipeline Baku-Tbilisi-Ceyhan, led to that the IMF refused to assign another loan to Azerbaijan for struggle with poverty. Compromise was found after the IMF in a rather strict form demanded from the Government that the state budget should be inclusive of all expenditures of non-budgetary funds, including the SOFAZ.
The time when the Azerbaijani Government had to do something upon dictation of international organizations is now left behind. Certainly, following the inflow of oil export revenues to the country, the problem of state finances has become principally important for the community so the Government makes particular efforts to provide enough transparency in this issue.
An illustrative example is the annual growth of state budget and SOFAZ budget. The assets of the SOFAZ increased by 41.6 per cent against $22,766.8 million in the beginning of the year to $32,242.5 million on October 1, 2011. The assets of the SOFAZ, at the date of its establishment, were equivalent to $271 million.
Azerbaijan's state budget-2012 revenues and expenditures are forecasted as 16,436.4 million manat and 16,984.4 million manat, respectively. For comparison: state budget-2003 revenues and expenditures were equivalent to 1,226 million manat and 1,234 million manat, correspondingly.
At the moment, large-scale revenues really need to be controlled in a reliable way.
Having joined the Extractive Industry Transparency Initiative (EITI) in 2003, Azerbaijan made a big step toward the reputation of transparent country. Increase of the level of transparency and awareness of oil export revenues will allow citizens and organizations to control Government's actions. This will complicate abuses and use of money for purposes not relating to the provision of sustained development. As supposed, companies will only win from more equal economic relations, more predictable conditions of economic activity, and possibility of a more efficient provision of energy security. Inter alia, today, not all oil and gas companies operating in Azerbaijan issue their reports separately as they consider it a commercial secret, disclosure of which would violate contractual terms.
In 2009, the Central Bank of Azerbaijan established a Financial Monitoring Service, which is the central body in the field of struggle with the financing of terrorism and money laundering. The Service this year has become the full member of Egmont Group, an organization resembling Interpol but specialized in the field of financial relations. Egmont Group has established its news center under the name of "Egmont Security Network". Some 60 countries-members of the organization exchange information of suspicious financial operations and ways of legalization of criminal incomes, and counteract jointly their across-the-border trafficking. In October 2011, the Financial Monitoring Service received 21,398 data relating to suspicious and current operations.
A more important aspect of evolution of financial control system is bill entitled "On State Financial Control", which has not yet become the law. It is essential to pass this law to increase transparency of the system of state budget forecasting and performance, and tighten control of budgetary spending. Second, the bill specifies issues of state financial regulation and a stricter division of powers amongst state financial control bodies.
As is known, financial control in Azerbaijan is currently subdivided into internal control and external control with the Finance Ministry and the Accounting Chamber, an independent state financial control body, responsible for them, respectively. Their key task at the moment is to improve the efficiency of state financial control actions and avoid unnecessary dubbing of financial-control activities.
Worthy of a note is the operation of the Azerbaijani Accounting Chamber, which, as an independent financial control body, is specialized solely in checkup of state expenditures. The Chamber submits its annual report to the Parliament traditionally in May. As viewed by foreign consultants, the very practice of Chamber's report examination in the Parliament is legally not irreproachable and is not complied with the Rome Declaration's provisions on independency of high state audit body.
Efficient financial control of state expenditures is the most important factor of strengthening of public trust in state power, and consolidates power and the society in achievement of the common goal: the provision of wealth of citizens and stability of state power.
Caspian gas: Bulgaria first
Europeans better agree with its Eastern partners on a bilateral basis than on behalf of the whole EU. The example is Bulgaria, which really, as Bulgarian President Georgy Pyrvanov reported, showed Europe how it is possible to deal with Azerbaijan.
Following the results of Bulgarian President's visit to Baku on November 14-15, the sides actually completed transaction envisioning annual sale of 1 billion cubic meters of gas from Azerbaijan to Bulgaria by 2015, the supposed completion date of Greece-Bulgaria Interconnector. Other news was released several days later. Bulgarian news agencies reported that the Energy Ministers of Bulgaria and Turkey, at a recent meeting, signed a political agreement, which envisions construction of a 77-kilometer across-the-border gas pipeline with the annual throughput capacity of 1 billion to 3 billion cubic meters that can subsequently be doubled in future. The sides underscored the project's strategic importance for the two sides. In a report, the Energy Ministry of Bulgaria said this gas pipeline, along with the Greece-Bulgaria Interconnector and compressed natural gas supply to a gas terminal near Varna, Bulgaria, will pave the way for Caspian gas to Bulgaria and all neighboring countries. The new gas pipeline, which requires comparatively insignificant investments, will benefit greatly Bulgaria and the whole region, the Ministry reported.
Thus, Bulgaria, after having agreed with Azerbaijan and Turkey, probably will become the first European country to receive Azerbaijani gas directly before the Shah Deniz Phase 2 is over.
According to Western news reports, Energy Ministers of a series of Central and Eastern European countries, at a meeting in Brussels yesterday, should have signed a Plan of Actions on the North-South Gas Corridor at the sidelines of the European Commission-adopted investment plan of improvement of the EU transport and energy infrastructure. The document will specify gas projects to become a priority under the new Trans-European Energy Program valued at 9.1 billion euro. A group of experts led by EU Energy Commissar Gunther Oettinger made a special report on this occasion.
Officials of Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia think the priority gas import routes are gas pipeline Nabucco and Interconnectors Turkey-Bulgaria, Greece-Bulgaria, Greece-Italy, and Italy-Albania. There are also other priority projects, particularly, a new Interconnector leading from the Czech Republic to the Baumgarten gas station in Austria, gas terminal in Romania's Constanta, etc.
They are the very "missing links" in EU general gas infrastructure mentioned by European Commission Chief Jose Manuel Barroso, who announced that the European Commission adopted a 50 billion euro investment plan of improvement of transport and energy infrastructure.
Europeans understand that they need to refurbish and link together their internal gas infrastructure by a time when the South Gas Corridor is put into full operation.