Review of monetary sector in Azerbaijan (Jan.-May 2012)

As of June 1, 2012 foreign exchange reserves of the Central Bank of Azerbaijan (CBA) amounted to $10.891.9 billion compared $10.951.7 billion a month earlier and $10.4815 billion as of January 1, 2012. CBA announced for 2012 forecast of foreign exchange reserves growth to $12 billion.

Foreign exchange market and exchange rate of manat

In May, the official exchange rate of national currency compared to the U.S. dollar increased by five points. The U.S. dollar exchange rate decreased from 0.7862 manat per dollar in early May to 0.7857 manat by late May.

With the exception of one case, when the U.S. dollar exchange rate on May 23 increased by 2 points, decline of the U.S. dollar in May in Azerbaijan resembled going downstairs. The maximum rate was recorded in first days of May, while it declined to a minimum in the last day of May. The fluctuations between the maximum and minimum values ​​were 5 points.

The forecast of the average annual rate of national currency compared to the U.S. dollar until 2015 remains unchanged - at 0.79 manat as in 2011. As one can see, the country's government is stable with respect to the forecast of the dollar rate. According to the forecast, manat gradually strengthens compared to euro.

According to the forecasts of the Azerbaijani government, the rate of the manat compared to the euro in 2012 is expected to hit 1.0910 manat per one euro compared to 1.0939 manat expected in 2011 (according to the CBA, the exchange rate was 1.0178 manat in the end of the year). The exchange rate is projected to hit 1.0608 manat in 2013, in 2014 - 1.0430 manat and in 2015 - 1.0387 manat.

As of May, the exchange rate of euro in Azerbaijan fell by 692 points (from 1.0412 manat per euro to 0.972 manat per euro). Throughout the month the euro in Azerbaijan has been steadily falling, leaving behind a record bar of one manat for one euro.

In May 2012 about 13 banks-participants conducted 41 transactions at 42 trading sessions of exchange electronic trading system (BEST). Total trading volume in foreign currency on USD / AZN in the reporting month totaled 76.316 million, or $97.143 million.

In May, the trading volume in the currency section increased by 1.8 times, or 33.352 million manat compared to April 2012. The average daily turnover in exchange electronic trading system on USD / AZN in May was about $4.626 million, while the average amount of each transaction was $2.3695 million.

The exchange rate of national currency on USD / AZN_TOD in the reporting month rose by 0.09 percent - from 0.7855 to 0.7848 manat to $1. In this case, the average weighted U.S. dollar compared to manat was 0.7856 AZN per $1 in May 2012 compared to 0.7856 AZN as of April.

Azerbaijani monetary market in January-April 2012

The Central Bank's important task is to manage the money supply at an adequate level of macroeconomic and financial stability, in terms of continuous growth of foreign exchange reserves and high liquidity of the banking system.

The Azerbaijani Central Bank stressed the increase in all units of money supply in January-April 2012 compared to the same period of last year and according to all indices compared to early 2012. This is a result of the influence of two factors: the increase in the mass of money in circulation and speed of their turnover.

According to the CBA, 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 individuals) in January-April 2012 increased by 37 percent compared January-April 2011 and by 1.9 percent compared early 2012.

So, in January-April 2012, the rate of M2 was 12.202.4 billion manat compared to 8.176 billion manat as of January-April, 2011 and 10.997.2 billion manat as of early 2012.

Transaction money (M1) in January-April 2012 amounted to 8.972.4 billion manat compared to 6.660.4 billion manat in January-April 2011 and 8.824.8 billion manat as of early 2012. Compared to the same period of 2011, M1 increased by 34.7 percent and by 1.67 percent compared to as of early 2012.

The amount of cash money supply (M0) during the reporting period hit 7.312.8 billion manat compared to 5.457.8 billion manat in January-April 2011 and 7.158.2 billion manat as of early 2012. Compared to the same period 2011 M0 increased by 34 percent and compared to as of early 2012 by 2.2 percent.

During January-April Broad Money Supply (M3) totaled 14.346.2 billion manat compared to 10.760.6 billion manat in January-April 2011 and 13.903.2 billion manat as early 2012.

Compared to January-April 2011 M3 increased by 33.3 percent and by 3.2 percent compared to as of early 2012.

Parameters of monetary market, in mln manat

In January-April 2012, the expanded monetary base amounted to 8.223 billion manat in Azerbaijan. According to the CBA, the monetary base increased by 32.8 per cent during the year, and declined by 3.14 per cent compared to early 2012. In January-April 2011, the expanded monetary base was 6.191.6 billion manat and 8.489.4 billion manat as of Jan. 1, 2012. The reduction in the monetary base compared to early 2012 was mainly due to halving the amount of free reserves of commercial banks.

In January-April 2012 the monetary base in manat was 8.145.9 billion manat compared to 6.167.3 billion manat in the same period last year and 8.275.3 billion manat as of Jan. 1, 2012. This figure increased by 32 percent in annual calculation and decreased by 1.56 percent compared to early 2012.

In the reporting period, the volume of currency in circulation amounted to 7.710.8 billion manat.

In January-April 2011 this figure amounted to 5.769.5 billion manat, and as of Jan. 1, 2012 - 7.658.5 billion manat. This index increased by 33.6 percent in annual calculation and declined by 0.7 percent compared to early 2012.

The bank reserves hit 496.6 million manat, or 19.9 per cent more than in January-April 2011 (414.3 million manat), but by 40 per cent less compared to early 2012 (826.4 million manat).

The cash in circulation to monetary base ratio for the reporting period was 93.8 per cent compared to 93.2 per cent in January-April 2011, and 90.2 per cent as of Jan. 1, 2012.

It should be stressed that a large share of cash in circulation is one of the shortages of the Azerbaijani monetary system.

Credit market of Azerbaijan for the first quarter of 2012

Azerbaijani banks increased lending to the Azerbaijani economy by 5.1 percent January-April 2012 and by 21.1 percent during the year.

According to the CBA, in January-April 2012, the banks delivered loans totaling 10.463.3 billion manat, including 6.820.9 billion manat in national currency (65.2 percent) in national currency and 3.642.3 billion manat in hard currency (34.8 percent).

As of early Jan. 2012, the figure was equal to 9.950.3 billion manat (6.426.5 billion in national currency and 3.523.8 billion manat in hard currency), and as of May 1, 2011 - 8.639.6 billion manat (5.248.7 billion manat and 3.390.9 billion manat).

Of the total portfolio, loans worth 719.4 million manat (6.9 percent) were overdue compared to 633.8 million manat as of Jan.1, about 553.2 million manat as of May 1, 2011. Statistics of overdue loans does not include similar loans of non-bank credit institution Aqrarkredit. Overdue loans increased by 13.5 percent during the four months and by 30 percent in annual calculation.

Short-term loans in January-April 2012 amounted to 2.977.7 billion manat (including overdue loans worth 376.1 million manat) compared to 3.051.2 billion manat (including overdue loans worth 326.2 million manat) as of Jan. 1, about 2.822.7 billion manat (283.6 million) as of May 1, 2011.

The volume of short-term loans in the economy fell by 2.4 per cent during January-April and increased by 5.5 percent during the year. As of early May 2012, about 35.3 percent of short-term lending fell to freely convertible currency.

Long-term loans amounted to 7.485.7 billion manat (including 343.3 million manat overdue loans) compared to 6.899.1 billion manat (307.6 million overdue loans) as of Jan. 1, about 5.816.9 billion manat (269.5 million manat) as of May 1, 2011. The amount of long-term loans increased by 8.5 percent during January-April and by 28.7 percent per year. As of early May 2012, some 34.6 percent of long-term lending fell to freely convertible currency.

According to CBA, in January-April 2012, the only state bank of the country (the International Bank of Azerbaijan) granted loans totaling 3.560.6 billion manat with a specific weight of 34 percent and private banks - 6.624.5 billion manat with a specific weight of 63.3 percent. The remaining 2.7 percent fall to the share of non-bank credit organizations, which granted loans worth 278.1 million manat.

The loans given to the population in the Azerbaijani regions hit 1.328.5 billion manat in January-April 2012 or 12.7 percent of the total loan portfolio of banks.

In Baku, the figure was 9.134.8 billion manat, where the loans in national currency hit 5.807.3 billion manat.

The average interest rate in the country as of May 1 was 16.1 percent, Baku - 15.5 percent.

The lending volume on Absheron economic region totaled 297 million manat at an average rate of 18.3 percent, Aran - 296.7 million manat (22.4 percent), Mountain-Shirvan - 34 million manat (20.8 percent), Ganja -Gazakh - 293.1 million manat (21.2 percent), Guba-Khachmaz - 113.7 million manat (20.2 percent), Lankaran - 122.6 million manat (24.1 percent), Sheki-Zagatala - 81.8 million manat (23 percent), the Upper Karabakh - 13.4 million manat (22.3 percent), Kalbajar-Lachin - 2 million manat 17.3 percent, Nakhchivan - 74.1 million manat (11.5 percent)

Thus, Absheron, Aran and Ganja-Kazakh are three leading regions in terms of credit. Regarding the interest rates on loans, the highest interest rate is in the Lankaran region, the lowest one - in Nakhchivan.

Most of all loans are granted to households in Azerbaijan. According to the CBA, in January-April 2012 households received 34.6 percent or loans worth 3.623.4 billion manat.

The sphere of trade and services (28.2 percent or 2.895.2 billion manat) ranks second, the construction sector of real estate (8.4 percent or 858.7 million manat) ranks third.

About 5.8 percent or 616.6 million manat accounted for industry and production, 4.6 percent (482.3 million manat) - agriculture and processing, 4.1 percent or 426.1 million manat - transport and communications, 2.4 percent (249.8 million manat) - energy, chemical industry and natural resources and 0.4 percent or 44.4 million manat of loans - rest areas.

Azerbaijani banks reduced interest rates on loans in local and foreign currency in January-April 2012. As of May 1, 2012 the average interest rate on credits in national currency - manat in Azerbaijani banks was 16.05 percent compared to 16.27 percent as of Jan. 1, 2012, 16.54 percent as of May 1, 2011.

According to the CBA, the average rate on bank loans in freely convertible currency amounted to 16.05 percent compared to 16.79 percent and 16.55 percent.

The average rate on bank lending to legal entity in national currency amounted to 14.36 percent compared to 14.53 percent as of Jan. 1, 2012 and 14.61 percent as of May 1, 2011. The average rate on bank loans to corporate client in freely convertible currency was 13.56 percent compared to 14.3 percent and 13.24 percent respectively.

The average rate on bank lending to individual in national currency amounted to 18.57 percent compared to 19.06 percent as of Jan. 1, 2012 and 19.76 percent as of May 1, 2011.

The average rate on bank credit for a individual client in freely convertible currency amounted to 21.98 percent compared to 22.9 percent and 23.9 percent respectively.

Banking sector of Azerbaijan for January-April 2012

In January-April 2012, the total amount of deposits of individuals and legal entities in Azerbaijani banks amounted to 6.818.7 billion manat. Including deposits of non-residents and state agencies, the figure was 9.870 billion manat, which is 26.7 percent more compared to the same period of 2011 (7.788.8 billion manat) and by 4.47 percent more compared to early 2012 (9.447 billion manat).

The growth of deposits in domestic banks confirms the growing confidence of the Azerbaijani population in the country's banking system.

Deposits in national currency - manat hit 4.333.9 billion manat as of the first four months of 2012, of which 1.788.6 billion manat - demand deposits, 2.545.3 billion manat - term deposits. The deposits in freely convertible currency were equal to 5.536.1 billion manat (1.918.6 billion manat and 3.617.5 billion manat, respectively).

As of May 1, 2012, the volume of individuals' deposits in banks in Azerbaijan amounted to 4.338.8 billion manat, which is 29.2 percent more compared to the same period of 2011 (3.358.7 billion manat) and by 5.3 percent as of early 2012 (4.119.8 billion manat).

According to the CBA, about 2.400.5 billion manat (55.3 percent) were placed by the population in the national currency - manat, 1.938.4 billion manat - in freely convertible currency. Consequently, there is a trend of prevailing Azerbaijani population's cash deposits in banks in national currency over cash deposits in foreign currency. It should be stressed that there was a similar situation in December, November and August last year.

As of 2011, 2.281.6 billion manat (55.4 percent) were placed by the population in the national currency - manat, 1.838.1 billion manat - in freely convertible currency.

Deposits of the population, drawn to the banking system from the Azerbaijani regions (areas of the country, except for Baku), as of May 1, 2012 amounted to 353.8 million manat or 8.15 percent of total volume of bank deposits.

The volume of deposits on Baku amounted to 3.985 billion manat, while the deposits in national currency hit 2.137.8 billion manat, currency - 1.847.2 billion manat.

The average interest rate for the country and Baku during the reporting period amounted to 8.9 percent, for the country- 8.7 percent.

The amount of deposits on Absheron economic region amounted to 110.5 million manat, with an average rate of 9.4 percent, Ganja -Gazakh - 71.4 million manat, 7.1 percent, Aran - 54.6 million manat, 5.3 percent, Guba-Khachmaz - 26.9 million manat, 6.8 percent, Lankaran - 26.6 million manat, 7.2 percent.

In January-April 2012, the volume of legal entities' deposits amounted to 2.479.9 billion manat, of which 614 million manat were invested in the national currency, 1.865.9 billion manat - in foreign currency.

The volume of deposits of legal entities in January-April 2012 increased by 12.54 percent compared to January-April 2011 (2.203.5 billion manat) and decreased by 1.6 percent compared to as of early 2012(2.519.5 billion manat).

Azerbaijani banks reduced the rates on legal entities' deposits in manat and foreign currency as of May 1, 2012.

According to CBA, the average rate on deposits in manat as of May 1, 2012 was 10.19 percent compared to 10.26 percent as of Jan.1, 2012, and 10.96 percent as of May 1, 2011.

The average rate on deposits in foreign currency amounted to 10.97 percent compared to 11.11 percent and 11.20 percent respectively.

As of May 1, 2012, the average rate on individuals' deposits in manat was 10.71 percent compared to 10.76 percent as of Jan. 1, 2012 and 11.66 percent as of early May 2011. The average rate on individual clients' deposits in foreign currency amounted to 11.16 percent compared to 11.27 percent and 11.29 percent respectively.

As of early May, the average rate on legal entities' deposits in manat was 5.84 percent compared to 5.6 percent as of Jan. 1, 2012 and 6.35 percent as of May 1, 2011.

The average rate on corporate clients' deposits in foreign currency was 5.57 percent compared to 7.02 percent and 9.03 percent respectively

Financial activity of banks

The number of banks operating with a profit hit 36 units in Azerbaijan in April 2012, remaining unchanged compared to March 2012 and increasing by 4 units compared to April 2011. The number of

According to the CBA, the total profit of the banking system in April totaled 82.18 million manat or 66.66 percent more than the corresponding figure for March 2012 and 74.4 percent compared to April 2011.

The number of unprofitable banks didn't change compared to March 2012 and decreased by four units to 8 compared to April 2011. Despite this, the loss of eight banks amounted to 68.58 million manat, or 5 times more compared to March 2012 and 4.33 times compared to April 2011.

Financial outcome of the banks' activity (after paying taxes) mln manat:

The capitalization of the Azerbaijani banking sector decreased by 0.03 percent in April 2012, and by 2.63 per cent compared to April 2011. The figure hit 2.155 billion manat as of May 1.

According to the CBA, the number of banks with capital exceeding ten million manat hit 42 units as of April and remained unchanged compared to the previous month. The figure increased by one compared to April 2011. The share of this category of banks in the total capital of all banks in the country in April was 99.5 percent as in March and compared to 98.9 per cent as of May 1, 2011.

At present, two banks do not comply with the CBA requirements in terms of capitalization [minimum capital must hit 10 million manat]. The capital of one bank (with a share of 0.3 per cent) is formed in the range of 5-10 million manat, other (0.2 percent) - from 3.5 million manat to 5 million manat.

According to the Azerbaijani Central Bank, as of May 1, 2012 the assets of banks amounted to 14.74 billion manat compared to 12.75 billion manat compared to the same period of last year.

During the year the bank assets increased by 15.6 percent. The total liabilities of the banking sector hit 14.741.92 billion manat.

The basis of the banking sector's assets consisted of loans given to customers amounting to 9.260.4 billion manat (increased by 15.42 percent per year), investments (1.302.6 billion manat with growth of 6.28 per cent) and funds on correspondent accounts (1.505.8 billion manat with growth of 29.93 per cent). Loans and deposits given to financial sector amounted to 557.9 million manat (with growth of 5.07 per cent).

In the structure of liabilities the bulk is deposits (7.093.7 billion manat as of May 1, 2012), increasing by 30.17 percent over the same period last year. Loans and deposits received from the financial sector, amounted to 4.445.1 billion manat, increasing by 2.77 percent.

There are 44 banks in Azerbaijan.

Stock market

The total turnover of transactions on all trading areas of the Baku Stock Exchange (BSE) in January - May 2012 amounted to 4.764 billion manat, increasing by 48.23 percent compared to the same period in 2011.

The increase in the stock market is provided due to increase in the market of government securities by 58.5 percent, while corporate securities market decreased by 64.78 percent.

The government securities market reached 4.67 billion manat. It is due to increase in repo transactions by 73.35 percent and increase in transactions with Central Bank notes by 30.69 percent.

Reducing of the corporate securities market, which volume amounted to 94.23 million manat in January-May is due to decrease of transactions in corporate bonds by 70.58 percent.

Comparative table on the end of trading on the BSE in the corporate sector (January - May 2012):

Comparative table on the end of trading on the BSE on the government sector (Jan - May 2012)

Abbreviations:
- GB - government bonds,
- GS - government securities,
- CB - corporate bonds,
- CS - corporate securities.