Weekly actual topics in Azerbaijan (June 25-30)
TANAP: prospects for Azerbaijan
Azerbaijan and Turkey signed an intergovernmental agreement on the Trans-Anatolian gas pipeline (TANAP) in Istanbul. The importance of this event for Azerbaijan is in a number of opening prospects.
First, another very heavy stone has been laid in the foundation of the Southern Gas Corridor, so much-anticipated and important for Europe and for Azerbaijan and Turkey, from the standpoint of ensuring energy security of the EU.
Second, unlike the Turkish pipeline system where it would be necessary to coordinate pumping schedules with the transportation of a gas of another origin, it will be its own pipe for pumping Azerbaijani gas and at least in the initial stage from the Shah Deniz field.
Given the share of the State Oil Company of Azerbaijan (SOCAR) in the Baku-Tbilisi-Erzurum gas pipeline (BTE) Azerbaijan will be able to control about two-thirds of the entire transport route to Europe. However I would like to raise a reminder about the future plans of the State Oil Company voiced last summer whereby according to which, it intends to buy a stake in the project which in 2013 will be selected by the Shah Deniz consortium to transport gas from the western border of Turkey to Europe.
The consortium is currently considering three competing projects - TAP (Trans Adriatic Pipeline), Nabucco West and SEEP (South East Europe Pipeline). If these intentions are put into practice, SOCAR will have equity participation through the entire transport chain, from the Caspian coast to European buyers. This will mean the opportunity to participate in the regulation of pricing of natural gas exports to Europe and sell it at the best prices for Azerbaijan.
Third, in a broader sense, this would also mean an increase in the role and status of Azerbaijan as a partner, ensuring part of the European continent with such a necessary source of energy which today is natural gas, to which Europe attaches particular importance during the transition to the massive use of renewable energy sources.
It is from these positions that signing of an intergovernmental agreement on the TANAP can safely apply importance for the country on a par with events such as the signing of agreements on the BTE gas pipeline and the Baku-Tbilisi-Ceyhan oil pipeline (BTC).
The Trans-Anatolian pipeline is expected to be laid across Turkey from the eastern borders to the west, to the border with Europe. The length is about 2000 kilometres. BOTAS has a 20 per cent stake in TANAP, while SOCAR holds 80 per cent in the project. The initial capacity of the pipeline will be 16 billion cubic meters. Some six billion cubic meters of the volume will be supplied to Turkey, while the rest will be transported to Europe. The project cost is about $7 billion.
Credit bureaus to help reduce bank risks in Azerbaijan
Accelerating the processes of establishing the first credit bureau in Azerbaijan was caused by the urgent needs of the growing banking sector to exchange the information on problem loans.
The International Finance Corporation (IFC) on the basis of the agreements with the Azerbaijani Central Bank has advanced with preparations for introducing the institute of the credit bureaus in the country. A memorandum of intent is expected to be signed with potential shareholders of the first credit bureau in Azerbaijan on July 5.
Increasing lending volumes for legal and physical entities in Azerbaijan led to the need to improve the reliability of credit operations, to reduce credit risk by establishing a system for collecting and sharing the reliable and accurate information about customers of banks. Indeed, the banks which decided to give loans to the population face the main problem. They have no idea who will appeal them to get loans. By reducing bank risks, it will be possible to make loans more affordable for consumers and small and medium-sized businesses. They will play a role in the country's economy.
According to the Central Bank, Azerbaijani banks increased the lending to the economy by 3.1 percent in the first quarter of 2012 and by 22.7 percent during the year. During the reporting period, the country's banks gave loans worth 10.263.2 billion manat. Most loans are given to households in Azerbaijan (34.3 percent), the sphere of trade and services (28.2 percent) ranks second, the construction sector (8.4 percent) ranks third.
Therefore, as far as the credit market develops and expands, the availability of information about borrowers in terms of their creditworthiness, solvency and experience in dealing with other banks becomes important for banks to prevent the growth of bad loans. The credit bureaus usually have a debtor's credit history, including information on all payments of this citizen. Thanks to this information, which the bank can obtain in credit bureaus in case of necessity, it can consider the reliability of the debtor.
According to the Central Bank, for the first quarter of 2012 the volume of overdue loans and advances amounted to 663.9 million manat (6.5 percent of total volume of loans), which is 23 percent more than in the first quarter of 2011. Despite the simultaneous increase in lending, the total profits of the banking system amounted to 49.31 million manat during this period, or 1.52 percent more than the corresponding figure for the first quarter of 2011. Consequently, the growth of bad loans reduces the profits of domestic banks.
Besides the negative information about clients (violations of the schedule of payments on the loan, delinquency, etc.), a credit bureau collects positive information, which reflects the client's payment discipline, timely fulfillment of credit obligations contained in the contract. Over time, depending on the level of risk of a borrower, the banks may establish differentiated interest rates, that is, lending rates for a borrower with a high level of risk will be substantially higher.