Review of monetary sector in Azerbaijan (January-February 2014)

The Central Bank of Azerbaijan (CBA) stressed that its foreign reserves continue growing in 2014.

So, as of March 1, the volume of the bank's currency reserves totaled $14.4 billion (an absolute record) compared to $14.2 billion as of Feb.1, 2014. The reserves increased by 1.59 percent ($225.5 million) in February. As of 2014, foreign exchange reserves must hit up to $ 16 billion.

The requirements for bank reserves have been softened in Azerbaijan from Feb.1, 2014. The relevant decision of the Central Bank to determine procedures for creation of special reserves to classify assets and cover possible losses on assets in banks has been published in the normative legal acts register of the country's Justice Ministry.

Assets are divided into standard and non-standard assets, according to the regulations. Standard assets include satisfactory and watch assets, non-standard assets include non-satisfactory, doubtful and loss assets.

If according to the current rules, commercial banks should create reserves to the sum of two percent of the loan cost belonging to the category of satisfactory assets, and 10 percent for controlled assets, the new rules envisage the reduction of requirements to one percent and five percent respectively.

Requirements on other categories remain unchanged with 30 percent for unsatisfactory assets, 60 percent for doubtful assets and 100 percent for loss assets.

Satisfactory assets include loans where the principal and interest payments are repaid in accordance with loan agreements, or with expiration of up to 30 days, watch assets with expiration of 31 to 60 days, non-satisfactory assets from 61 to 120 days, doubtful assets from 121 to 180 days and loss assets over 180 days

Currency market and manat rate

The manat rate has again showed its stability compared to the U.S. dollar since early 2014. The manat rate compared to the U.S. dollar appreciated by one point in Jan.-Feb. 2014, amounting to 0.7844 manat per dollar as of late February.

The euro rate appreciated compared to the manat by 0.5 percent as distinct from the U.S. dollar in Jan.-Feb. 2014. Thus, in Jan.-Feb. the euro rose from 1.0625 manat to 1.0745 manat per euro. However, it should be stressed that EUR / AZN exchange rate was characterized by strong volatility of dynamics compared to the dollar.

Foreign exchange market

The total trading volume in the currency section on USD / AZN totaled 21.13 million manat or $26.94 million in Bourse E-System of Trades (BEST) at Baku Interbank Currency Exchange (BBVB) in February 2014.

Five banks held nine transactions at 40 trading sessions in Bourse E-System of Trades (BEST).

The trading volume in the currency section decreased by 0.220 million manat or 19 percent in February compared to January. The average daily turnover in the exchange electronic trading system on USD / AZN in February 2014 reached about $1.347 million, while the average amount of each transaction was $2.993 million.

The exchange rate of national currency on USD / AZN_TOD in the reporting month remained unchanged: 0.7830 manat per USD. The average rate of the U.S. dollar compared to manat hit 0.7844 manat per $1 in February.

As in August-December 2013 and January 2014, there were no tradings in the Organized Interbank Credit Market functioning within the BEST system in February 2014. as of 2013, the trading volume in the Organized Interbank Credit Market amounted to 21 million manat in manat equivalent, including two milliion manat as of July compared to five million manat in May, five million manat in April, two million manat in March, two million manat in February and five million manat in January 2013.

The average monthly interest rate calculated on the basis of the applications of banks-market makers for BakIBOR loans up to 90 days in February amounted to 10.21 percent per annum in manat and 10.52 percent per annum in U.S. dollars. The rate on BakIBID up to 90 days was 5.18 percent per annum in manat and 5.04 percent in U.S. dollars.

BBVB turnover on the U.S. dollar is 42.48 million manat or $54.163 (spot) for the time being. Throughout 2013, it totaled 403.644 million manat or $512.752 million (spot), while including the swap - 414.987 million manat, or $527.752 million.

Azerbaijani monetary market

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

In Jan.-Feb. 2014, the money supply rate (M2) (cash in circulation (outside banks) and remainders in the domestic currency on accounts of non-financial organizations, financial (excluding credit) organizations and individuals) increased by 19.3 percent compared to Jan.-Feb. 2013.

The money supply rate (M2) amounted to 16.124.7 billion manat as of February 2014 compared to 13.513.1 billion manat as of February 2013, according to the data of the Azerbaijani Central Bank.

The amount of cash money supply (M0) increased by 12.41 percent and amounted to 9.956.1 billion manat compared to 8.856.6 billion manat as of early March 2013.

As of January-February 2014, Broad Money Supply (M3) totaled 19.273.6 billion manat or 19.2 percent more compared to January-February 2013 (16.160.5 billion manat).

The transaction money (M1) increased by 14.6 percent per year and amounted to 12.351.4 billion manat compared to 10.771.2 billion manat as of Febriary 2013.

Parameters of monetary market, in million manat:

The expanded monetary base in the country amounted to 11.244.6 billion manat as of March 1.

The monetary base increased by 11.1 percent per annum, according to the Central Bank of Azerbaijan (CBA). For comparison, this figure amounted to 10.116.8 billion manat as of February 2013.

As of March 1, 2014, the monetary base in manat amounted to 11.136.5 billion manat compared to 10.042.1 billion manat as of March 1, 2013.

During the reporting period the volume of money in circulation amounted to 10.617.8 billion manat, while as of March 1, 2013, this figure was 9.440.8 billion manat.

The ratio of cash money mass in circulation to the monetary base amounted to 94.4 percent as of March 1, 2014 compared to 93.3 percent as of March 1, 2013.

In turn, bank reserves were equal to 617.7 million manat which is six percent less than in February 2013 (656.6 million manat).

Azerbaijan's loan market

Azerbaijani banks increased lending to the economy by 28.34 percent in Jan.-Feb. 2014.

The banks delivered loans totaling 15.667.9 billion manat including 11.291.8 billion manat (72.1 percent) in national currency and 4.376.1 billion manat (27.9 percent) in freely convertible currency for the reporting period, according to the statistical report of Azerbaijani Central Bank.

For comparison, the figure was equal to 12.207.9 billion manat (8.366.2 billion manat in national currency and 3.841.7 billion manat in freely convertible currency) in Jan.-Feb. 2013.

Of the total portfolio, loans worth 831.6 million manat (5.31 percent) were overdue compared to 761 million manat as of Jan.-Feb. 2013. Statistics of overdue loans does not include similar loans of the non-banking credit institution Aqrarkredit. Overdue loans increased by 9.3 percent per year.

Short term loans amounted to 3.421.3 billion manat including overdue loans worth 377.2 million manat compared to 3.095.4 billion manat including overdue loans worth 381.3 million manat as of February 2013. The volume of short term loans in the economy increased by 10.53 percent per year.

As of Jan.-Feb. 2014, the volume of long term loans amounted to 12.246.6 billion manat including 454.4 million manat in overdue loans compared to 9.112.5 billion manat including 379.7 million manat of overdue loans as of February 2013. The long term loans increased by 34.4 percent per year.

The credit portfolio of the only state bank in the country, the International Bank of Azerbaijan, hit 5.274.2 billion manat with a specific weight of 33.7 percent, while private banks issued loans worth 9.879.6 billion manat with a specific weight of 63.1 percent. The remaining 3.3 percent fell to the share of non-bank credit organizations. They issued 514.2 million manat, according to the CBA.

Most of all loans are granted to households in Azerbaijan. As of Jan.-Feb. 2014, households received 41 percent or 6.431.4 billion manat, according to the CBA.

The trade and service sector (14.3 percent or 2.240.5 billion manat) ranks second, the construction and real estate sector (13.1 percent or 2.056.7 billion manat) ranks third.

The industrial and production sector received 11.5 percent of the total lending amount of the Azerbaijani real sector, which hits 1.801.5 billion manat in nominal terms. It should be stressed that this sector obtained a great volume of lending in connection with the announcement of 2014 as the Year of Industry. For comparison, as of 2013, the industrial sector received only 9.8 percent of the total volume of loans in the country's economy.

Some 3.4 percent (529.6 million manat) fall to the transport and communication, 4.7 percent (734.2 million manat) - agriculture and processing, 1.8 percent (285.5 million manat) - energy, chemistry, and natural resources, 10.2 percent or 1.598.13 billion manat loans - on the other spheres.

The loans, delivered to the population in Azerbaijan's regions, amounted to 2.324.80 billion manat in Jan.-Feb. 2014, or 14.83 percent of the total loan portfolio of banks.

In Baku this figure amounted to 13.343.1 billion manat, where the loans in the national currency accounted for 3.855.3 billion manat. As of February 2014, the average interest rate on loans in the country was 14.4 percent, and in Baku - 13.3 percent, according to the CBA.

The crediting volume in Absheron economic region amounted to 463.7 million manat at an average rate of 18.8 percent, in Aran - 817.9 million manat at a rate of 20.7 percent, Mountain-Shirvan - 89.7 million manat at a rate of 23.7 percent, Ganja-Gazakh - 311.7 million manat - 21.8 percent, Guba-Khachmaz - 96.1 million manat - 21.1 percent, Lankaran - 249.2 million manat - 23.4 percent, Sheki-Zagatala - 127.2 million manat - 20.4 percent, Upper Karabakh - 52.9 million manat - 18.3 percent , Kalbajar-Lachin - 20.3 million manat - 24.3 percent, Nakhchivan - 95.8 million manat - 16.5 percent.

As of March 1, 2014, the Azerbaijani banks reduced interest rates on loans in local and foreign currencies compared to March 1, 2013.

The average rate on bank lending to the economy in national currency totaled 14.47 percent, compared to 14.98 percent as of March 1, 2013, according to a statistical report from the Central Bank of Azerbaijan (CBA). The average rate on bank lending in freely convertible currency was 14.32 percent compared to 15.46 percent in early March 2013.

As of March 1, 2014, the average rate on bank lending to legal entities in national currency amounted to 11.46 percent compared to 12.46 percent as of March 1, 2013. The average rate on bank lending of corporate clients in freely convertible currency was 10.69 percent compared to 12.55 percent in early March 2013.

As of March 1, 2014, the average rate on bank lending to physical entities in national currency was 18.21 percent compared to 18.61 percent as of early March 1, 2013. The average rate on bank loans to individual customers in freely convertible currency was 20.38 percent compared to 21.89 percent in early March 2013.

Azerbaijan's banking sector

As of Jan.-Feb. 2014, the depositary base of Azerbaijani banks increased by 23.7 percent.

As of March 1, 2014, the total amount of bank deposits and deposits of physical and legal entities totalled 12.926.6 billion manat, compared to 10.446.9 billion manat as of early March 2013, according to the CBA.

Around 6.623.3 billion manat fell to cash in manats, of which 2.476.6 billion manat were demand deposits and 4.146.7 billion manat - term deposits. The funds in foreign currency amounted to 6.303.3 billion manat (1.505.3 billion manat and 4.798 billion manat, respectively).

The deposits of physical entities increased by 21.7 percent, while the volume of legal entities' deposits by 25.9 percent compared to Jan.-Feb. 2013.

As of Jan.-Feb. 2014, the volume of physical entities' deposits in the banks amounted 6.591.7 billion manat compared to 5.416.8 billion manat in Jan.-Feb. 2013.

Around 4.028.5 billion manat (61.1 percent) of the population's funds were placed in the national currency, the manat, while 2.563.2 billion manat in freely convertible currency, according to the Central Bank. The Azerbaijani population's deposits in the national currency in the banks have prevailed over those in foreign currency since 2012.

The population's deposits in Azerbaijan's banking system from regions (excluding Baku) amounted to 499.2 million manat or 7.5 percent of the total volume of bank deposits in Jan.-Feb. 2014.

The volume of deposits throughout Baku amounted to 6.092.4 billion manat, while some 3.642.0 billion manat fell to the deposits in national currency, according to the statistical report of Azerbaijani Central Bank. The average interest rate in the country and in particular, in Baku amounted to 8.2 percent during the reporting period.

Thus, Baku remains a leader for attraction of population's deposits by banks.

Absheron economic region is a leader among regions for attracting population's deposits (160.8 million manat, average rate - 9.1 percent per annum).

The volume of deposits in Aran economic region amounted to 148.9 million manat with the average rate of 7.3 percent, Mountain-Shirvan - 13.5 million manat, at the average rate of 6.2 percent, Ganja-Gazakh - 55 million manat, at a rate of 5.6 percent, Guba-Khachmaz - 20.1 million manat, at a rate of 6.4 percent, Lankaran - 41 9 million manat - the rate of 7.4 percent, Sheki-Zagatala - 21 million manat - the rate of 5.9 percent, Upper Karabakh - 11.6 million manat - 4.1 percent, Kalbajar-Lachin - 6.8 million manat - 5.0 percent, Nakhchivan - 19.2 million manat, at the average rate of 4.0 percent.

As of Jan.-Feb. 2014, the volume of deposits of financial organizations amounted to 3.520.4 billion manat compared to 2.613.6 billion manat as of Jan.-Feb. 2013. The volume of deposits of non-financial organizations totalled 2.814.6 billion manat compared to 2.416.5 billion manat as of Jan.-Feb. 2013. The deposits of legal entities totalled 6.335 billion manat compared to 5.030.1 billion manat as of Jan.-Feb. 2013.

As of March 1, 2014, Azerbaijani banks slightly reduced the rate on deposits in manat and in freely convertible currency.

The average rate on deposits in manat as of March 1, 2014 was 9.38 percent compared to 9.95 percent as of March 1, 2013, according to CBA data. The average rate on deposits in foreign currency amounted to 9.74 percent compared to 10.31 percent as of early March 2013.

As of March 1, 2014, the average rate on physical entities' deposits in manat was 9.81 percent compared to 10.33 percent as of March 1, 2013. The average rate on individual clients' deposits in foreign currency amounted to 10.24 percent compared to 10.70 percent as of early March 2013.

As of early March 2014, the average rate on legal entities' deposits in manat was 5.63 percent compared to 6.68 percent as of March 1, 2013, according to the CBA report. The average rate on corporate clients' deposits in foreign currency was 3.39 percent compared to 4.56 percent as of early March 2013.

Banks' financial activity

The Azerbaijani Central Bank (CBA) exceeded the total profits of lucrative banks over the total loss of unprofitable banks by almost 4.4 times as of February, 2014.

The profit of 34 banks was 115.55 million manat, while the loss of nine banks stood at 26.43 million manat, according to the report. This allowed the banking system to earn 89.12 million manat of net profit.

The number of profitable banks decreased by four in February, 2014, while the total profit of the sector increased by 44.4 percent. The number of unprofitable banks increased from five to nine and the total loss increased by almost 6.25 times.

The maximum level of total profits of the banking system obtained by the results of activities of 38 banks was recorded in November 2013 to the sum of 346.89 million manat. The maximum amount of net profit at the level of 334.16 million manat was gained in the same month.

Financial results of the banks' activity (after paying taxes) in million manat:

The capitalization of Azerbaijan's banking sector increased by 28.7 percent in February 2014 compared to February 2013 and amounted to 3.36 billion manat as of February 1, 2014.

There were 41 banks with the capital worth over 10 million manat as of the reporting period, according to the Central Bank of Azerbaijan's statistics report. This did not change compared to late February 2013. The specific weight of this category in the total volume of capital of all the country's banks amounted to 99.8 percent as of the reporting period.

There were no banks with the capital ranging from five million manat to ten million manat in February 2014 as in February 2013.

There were two banks with capital ranging from 3.5 million manat to five million manat as of the reporting period. The specific weight of this category in the total volume of capital of the country's all banks amounted to 0.2 percent as of the reporting period.

The Central Bank's requirement for the minimum amount of total capital of banks is set at 50 million manat by late 2014.

As of March 1, 2014, the assets of the Azerbaijani banking sector amounted to 20.818.49 billion manat compared to 16.701.06 billion manat in February 2013.

The bank assets increased by 24.65 percent per year, according to the Central Bank of Azerbaijan's report.

The basis of the assets of the banking sector (68.6 percent) accounted for loans delivered to the clients to the sum of 14.280.3 billion manat (28.9 percent growth per year), investments (1.717.9 billion manat with 8.3 percent growth) and funds on correspondent accounts (1.270.9 billion manat with 27.8 percent growth).

Loans and deposits to the financial sector amounted to 923.0 million manat with a growth of 29.5 percent.

The lion share in the structure of liabilities accounts for deposits standing at 9.374.2 billion manat (45.03 percent) as of March 1, 2014, showing an increase of 22.5 percent compared to February 2013. Loans and deposits from the financial sector amounted to 6.949.2 billion manat, increasing by 30.4 percent.

Payment card market

The number of payment cards in Azerbaijan has increased by 2.4 percent since early 2014 and hit 5.808 million in February 2014. Their number increased by 11.6 percent compared to February 2013.

Some 4,801 of the total number of cards fell to the social cards, 1,417 - salary cards, 833,000 - other cards. The number of credit cards was 1,007.

The total turnover on payment cards via ATMs and POS-terminals amounted to 941 million manat and the total number of transactions to 6.206 million units in January-February, according to CBA report.

The number of transactions on debit cards equaled 4,974 units to the amount of 767 million manat.

Of the total number of transactions, around 4,064 transactions amounting to 698 million manat were implemented on debit cards via ATMs within the country, and around 243,000 transactions amounting to 46 million manat via POS-terminals.

Some 1,232 transactions worth 174 million manat were implemented on credit cards in January-February 2014.

As many as 360,000 transactions amounting to 84 million manat of the total number of transactions on credit cards were implemented via ATMs and there were 558,000 transactions amounting to 37 million manat via POS-terminals.

As of March 1, 2014, around 2,427 ATMs operated in the country of which 1,363 are located in Baku and 1,064 in other cities and regions of the country. Their total number increased by 148 units or 6.5 percent per year (compared to early March 2013).

The number of POS-terminals amounted to 34,141 units of which 29,428 are installed in Baku and 4,713 units in other cities and regions as of March 1, 2014.

The number of POS-terminals decreased by 2,793 units or by 7.56 percent compared to January-February 2013.

Stock market

The best monthly turnover on the Baku Stock Exchange (BSE) since December 2011 was fixed in February 2014.

BSE turnover exceeded 1.759.5 billion manat in February 2014 compared to 1.483.15 billion manat in January 2014 and 1.434.7 billion manat in December 2013, according to the Baku Stock Exchange.

BSE achieved the record level of turnover in its history in December 2011 (1.873.9 billion manat), while the best turnover in 2012 was fixed in July (1.288 billion manat).

The BSE turnover as of Jan.-Feb. 2014, at the level of 3.242.6 billion manat, is already equivalent to 38.26 percent of its turnover as of 2013 (8.475.9 billion manat). If the BSE keeps the tendencies of the first months, then its turnover can hit 19.455.7 billion manat as of 2014. The best turnover throughout BSE's history was fixed in 2008 (9.519.5 billion manat).

The National Depository Center of Azerbaijan recorded that the stock market turnover has been kept at the figures standard for 2013. The turnover dropped by 40.1 percent as of 2013, compared to the increase of 26.5 percent in 2012 and increase of 4.69 times in 2011.

Some 523 transactions with securities with nominal value of 209.82 million manat were concluded in February 2014, compared to 454 transactions on 330.5 million manat in January, according to the National Depository Center. The market's turnover is estimated at the level of 540.295 million manat on 986 transactions for 2014 for the time being.

Some 210 transactions on placement of shares ensured the turnover of 140.550 million manat in February 2014, compared to 330 transactions on 294.494 million manat in the past period of 2014. The turnover on 270 exchange transactions was equal to 66.724 million manat last month, compared to 585 transactions on 243.111 million manat in 2014. The turnover on some 52 off-exchange transactions was estimated at 2.544 million manat in February, compared to 2.688 million manat on 71 transactions. 014, compared to 330 transactions 4 transactions 6.5 per013 ( cubic meters of gas. pril 11. al defi

As of March 1, 2014 the exchange rate of manat stood at 0.7844 manat for $1, and in accordance with it, the nominal volume of securities turnover in 2014 is estimated at $688.8 million for the time being, compared to $2.338.6 billion in 2013 and $3.899.6 billion for 2012. This turnover does not include the transactions with securities of the Ministry of Finance and the Central Bank of Azerbaijan.