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

Analysis Materials 14 October 2014 16:35 (UTC +04:00)

The Azerbaijani banking market is one of the most stable and dynamically developing. The growth of the banking sector hits 10 percent. The relatively stable exchange rates create favorable conditions for conducting banking business in Azerbaijan.

The Central Bank of Azerbaijan (CBA) states that in August its foreign exchange reserves lost steady growth.

According to the CBA, as of September 1, the CBA currency reserve volume totaled $15.190 billion compared to $15.193 billion (an absolute record) as of August 1, $14.152 billion as of January 1, 2014 and $11.694 billion as of January 1, 2013. A decrease in reserves in August was 0.02 percent ($ 2.5 million). However, they increased by 7.34 percent ($ 1.039 billion) in that period of 2014. As of 2014, foreign exchange reserves must reach $16 billion.

The CBA sharply accelerated the expansion of international reserves. In August they increased by 5.81 percent compared to a 1.09 percent growth in July and a 6.4 percent decrease in June.

According to the CBA, as of August 2014 its international reserves amounted to $17.782 billion (a record level) compared to $16.805 billion as of August 1.

For comparison, as of January, they were estimated at $14.787 billion.

Currency market and AZN rate

The AZN rate has shown its stability compared to the U.S. dollar since early 2014. The AZN rate compared to the U.S. dollar appreciated by 1 point in January-August 2014, amounting to 0.7844 AZN per dollar as of the end of the reporting period.

The euro rate decreased by 3.32 percent compared to the AZN in January-August 2014. Thus, in January-August the exchange rate dropped from 1.0691 AZN to 1.0336 AZN per euro.

A minimum rate for the reporting period - 1,0325 EUR / AZN was recorded on August 27, a maximum rate - 1,0932 EUR / AZN was reached on March 13. The fluctuations between maximum and minimum values ​​were 607 points.

However, it should be stressed that EUR / AZN exchange rate was characterized by strong volatility of dynamics as opposed to the dollar.

Foreign exchange market

According to the Baku Interbank Currency Exchange (BBVB), five participating banks held 8 transactions at 42 trading sessions in Bourse E-System of Trades (BEST) in August 2014. The total trading volume in the USD / AZN (spot) currency section in the reporting month was 23.508 million AZN or $29.973 million.

The trading volume in the currency section decreased by 30 percent or by 10.4 million AZN in August compared to July. The average daily turnover in e-trading USD / AZN system was approximately $1.427 million in August, while the average amount of each transaction - $3.747 million.

The national currency exchange rate in USD / AZN_TOD in the reporting month remained unchanged - 0.7829 AZN for $1. The average rate of dollar compared to AZN was 0,7843 AZN in August 2014.

There was no trading on the interbank credit market functioning as part of BEST system in May-August 2014. The only deal (worth 2 million AZN) was held in April as in February 2014. This increased the turnover of the organized interbank credit market up to four million AZN this year.

The average monthly interest rate calculated on the basis of banks-market makers' bids for BakiBOR loans for up to 90 days, amounted to 10.13 percent per annum in AZN and 10.63 percent per annum in dollars in August 2014. BakiBID rate up to 90 days was 4.86 percent per annum in AZN and 4.67 percent in dollars.

As of 2014, BBVB turnover on dollars hits 213.192 million AZN or $266.940 million (spot). As of 2013, it was 403.644 million AZN or $512.752 million (spot), and taking into account the swap - 414.987 million AZN 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.

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 physical entities) increased by 18.5 percent in January-August 2014 compared to the same period of 2013, the Azerbaijani Central Bank's statistics report said.

The money supply rate (M2) amounted to 17.452 billion AZN as of August 1, 2014 compared to 14.731 billion AZN as of August 2013, according to the report.

The amount of cash money supply (M0) increased by 10.2 percent and amounted to 10.488 billion AZN compared to 9.517 billion AZN as of early August 2013.

As of January-August 2014, Broad Money Supply (M3) totaled 21.306 billion AZN or 22.2 percent more compared to January-August 2013 (17.442 billion AZN).

The transaction money (M1) increased by 11 percent per year and amounted to 13.000 billion AZN compared to 11.715 billion AZN as of August 2013.

Parameters of monetary market, in billion AZN:

Volume as of Sept 1, 2014

Money mass in extensive understating (М3)

21.306.4

Money mass on AZN (М2)

17.452.4

Cash in AZN (М0)

10.488

Non-cash in AZN

6.964.4

The expanded monetary base in Azerbaijan amounted to 11.863 billion AZN as of September 1, 2014, according to the Azerbaijani Central Bank's statistics report.

The monetary base increased by 10.98 percent per annum, according to the report. For comparison, this figure amounted to 10.689 billion AZN as of August 2013.

As of September 1, 2014, the monetary base in AZN amounted to 11.744 billion AZN compared to 10.617 billion AZN as of September 1, 2013.

During the reporting period the volume of money in circulation amounted to 11.134 billion AZN, while as of September 1, 2013, this figure was 10.105 billion AZN.

The ratio of cash money mass in circulation to the monetary base amounted to 93.9 percent as of September 1, 2014 compared to 94.5 percent as of September 1, 2013.

In turn, bank reserves were equal to 716 million AZN which is 38.8 percent more than in August 2013 (516 million AZN).

Azerbaijan's loan market

Azerbaijani banks increased lending to the economy by 19.7 percent in January-August 2014, compared to the same period of 2013, the Azerbaijani Central Bank (CBA) said in its report.

The banks issued loans totaling 17.309 billion AZN, including over 12.691 billion AZN (73.3 percent) in national currency and 4.618 billion AZN (26.7 percent) in freely convertible currency as of Sept.1, according to the CBA report.

By comparison, the figure exceeded 14.455 billion AZN (around 10.261 billion AZN in national currency and over 4.194 billion AZN in freely convertible currency) in January-August 2013.

Of the total portfolio, loans worth 938.8 million AZN (5.4 percent) were overdue compared to 764.8 million AZN (5.3 percent) as of January-August 2013.

The statistics of overdue loans does not include similar loans of Aqrarkredit non-banking credit institution. Overdue loans increased by 22.8 percent over a year.

Short term loans amounted to about 3.586 billion AZN (including overdue loans worth 411.4 million AZN) compared to around 3.342 billion AZN (including overdue loans worth 355.6 million AZN) as of January-August 2013. The volume of short term loans in the economy increased by 7.3 percent over a year.

The volume of long term loans exceeded 13.723 billion AZN, including 527.3 million AZN in overdue loans compared to about 11.113 billion AZN, including 409.1 million AZN of overdue loans as of January-August 2013. The long term loans increased by 23.5 percent over a year.

The credit portfolio of the only state bank in the country, the International Bank of Azerbaijan, exceeded 5.977 billion AZN with the specific weight of 34.5 percent, while private banks issued loans worth around 10.830 billion AZN with a specific weight of 62.6 percent.

The remaining 2.9 percent fell to the share of non-bank credit organizations. They issued 502.1 million AZN, according to the CBA.

Azerbaijani banks increased the volume of consumer lending by 27.46 percent in January-August, 2014 compared to the same period last year.

The share of consumer loans in total share of the loan investments by the banks amounted to 41 percent or 7.103 billion AZN, according to the report of the Central Bank of Azerbaijan (CBA). For comparison: their share accounted for 38.55 percent and the amount of loans - 5.573 billion AZN with an annual growth of 41.4 percent in January-August last year.

The second highest proportion in the total loan portfolio of banks is the trade and services sphere (14.4 percent or 2.489 billion AZN). The third place is taken by the construction and real estate sector (13.7 percent or 2.364 billion AZN).

The industry and production sector received 11.6 percent from the total volume of lending to the real sector of Azerbaijan, which in nominal terms amounts to 2.008 billion AZN.

The banks also increased lending to this sector in connection with the announcement of 2014 as the Year of Industry. For comparison: in January-August 2013 the share of lending to the industrial sector accounted for 9.8 percent out of total bank deposits in the country's economy.

The share of transport and communication accounts for 3.4 percent (586.5 million AZN), agriculture and processing - 4.5 percent (786.4 million AZN), energy, chemistry, and natural resources - 1.3 percent (225.1 million AZN).

The loans given to the public in Azerbaijan's districts totalled 2.793 billion AZN as of August 2014, or 16.1 percent of the banks' total loan portfolio, according to Azerbaijani Central Bank's (CBA) report for Jan.-August, 2014.

This figure is 56.4 percent more than the indicators for the same period of 2013. In Azerbaijani capital of Baku the figure stood at 14.515 billion AZN. Here the loans in national currency (AZN) amounted to 10.498 billion AZN.

In August 2014, the average interest rate on loans throughout the country was 14.3 percent, while in Baku this indicator stood at 13 percent.

The volume of lending in the Absheron Economic district totalled 552.47 million AZN at an average rate of 18.7 percent.

In other economic districts the lending indicator was as follows: Aran - 975.4 million AZN at a rate of 21.1 percent, Mountainous Shirvan - 111.22 million AZN at a rate of 23.6 percent, Ganja-Gazakh - 376.91 million AZN at a rate of 21.5 percent, Guba-Khachmaz - 126.2 million AZN at a rate of 20.6 percent, Lankaran - 290.4 million AZN at a rate of 23.7 percent, Shaki-Zagatala - 157.11 million AZN at a rate of 20.5 percent, the Upper Karabakh - 70.71 million AZN at a rate of 20.1 percent, Kalbajar-Lachin - 27.04 million AZN at a rate of 25.3 percent, Nakhchivan - 106.22 million AZN at a rate of 13 percent.

The Azerbaijani banks increased interest rates on loans in local currency and reduced the rates in foreign currency.

The average rate on bank lending to the economy of Azerbaijan in national currency amounted to 14.31 percent for this period compared to 14.26 percent as of September 1, 2013, the Central Bank of Azerbaijan's report as of late August 2014 said.

The average rate on bank lending in freely convertible currency made up 14.54 percent compared to 14.56 percent as of early September 2013.

The average rate on bank lending to legal entities in national currency amounted to 10.96 percent compared to 11.45 percent as of September 1, 2013. The average rate on bank lending to corporate clients in freely convertible currency amounted to 10.12 percent compared to 10.89 percent.

As of September 1, 2014, the average rate on bank lending to physical entities in national currency amounted to 18.29 percent compared to 18.21 percent as of September 1, 2013.

The average rate on bank loans to individual customers in freely convertible currency was 21.10 percent compared to 21.20 percent as of early September 2013.

Mortgage lending

Loans on the line of the Azerbaijan Mortgage Fund (AMF) under the Central Bank was granted in the amount of 73.2 million AZN in January-August 2014, which is 8 percent less than the volume of financing compared to the same period last year, the statistics report of the Azerbaijani Central Bank said.

Since the beginning of the financing on the line of the Azerbaijan Mortgage Fund (AMF) mortgages worth 606.29 million AZN were issued, including 112.9 million AZN in 2013, 74.77 million AZN in 2012, 95.64 million AZN in 2011 , 97.08 million AZN in 2010, 76.9 million AZN in 2009, 70.2 million AZN in 2007, and 5.6 million AZN in 2006.

During the first eight months of 2014 the total amount of refinancing of loans allocated by the banks earlier made up 78.5 million AZN, the report said.

The average amount issued by authorized banks of the AMF is 39.978 AZN, the average loan size - 278 AZN, the interest rate - 6.82 percent, the average monthly payment - 318.7 AZN.

The maximum amount of a conventional mortgage through the AMF is 50,000 AZN at a rate of 8 percent and a maturity of 25 years. The size of a social mortgage is 50,000 AZN at an annual rate of 4 percent and the term of 30 years. The initial payment under the social mortgage is 15 percent, while for a conventional loans - 20 percent.

Mortgage terms are as follows: loans must be issued in national currency, AZN, and only to the citizens of Azerbaijan, the subject of the mortgage can only be an apartment or private house, the amount of the mortgage should not exceed 80 percent of the market value of the property, the monthly payment for a loan must not exceed 70 percent of monthly income of the borrower, the presence of an agreement on life insurance and other conditions.

Preferable conditions are granted to members of families of war victims, families of National Heroes of Azerbaijan, internally displaced persons, civil servants with at least a three years' experience, candidates and doctors of science, persons making special contributions to sport, as well as the military with at least a three-year service term. Each family having the right to such a mortgage loan can use the opportunity only once.

Today the authorized banks of the AMF are 28 banks [the country has 44 banks]. The participants of the mortgage market are also 21 insurance companies [28 in total] and 14 appraisal organizations.

Azerbaijan's banking sector

The economic cycles, seasonal factors and the attitude of investors, dictated by a variety of causes impact on the dynamics of deposits.

As of January-August 2014, the depositary base of Azerbaijani banks increased by 17.3 percent and 25.5 percent per annum, according to the Azerbaijani Central Bank's report.

As of September 1, 2014, the total amount of bank deposits and deposits of physical and legal entities totaled 14.640 billion AZN, compared to 11.661 billion AZN as of early September 2013, according to the CBA.

Around 7.393 billion AZN fell to cash, of which 2.560 billion AZN were demand deposits and 4.833 billion AZN - term deposits. The funds in foreign currency amounted to 7.247 billion AZN (1.867 billion AZN and 5.380 billion AZN, respectively).

The deposits of physical entities increased by 14.8 percent, while the volume of legal entities' deposits by 37.3 percent compared to January-August 2013. These indexes increased by 8.4 percent during January-August and by 22.7 percent respectively.

As of January-August 2014, the volume of physical entities' deposits in the banks amounted 6.993 billion AZN compared to 6.090 billion AZN in January-August 2013.

Around 4.447 billion AZN (63.59 percent) of the population's funds were placed in the national currency, while 2.546 billion AZN 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 deposits of the population, being one of the most important indices of confidence in the banking system, also play a significant role as a resource for the banks to normally work.

The population's deposits, attracted by Azerbaijani banking system from the country's districts (with the exception of Baku), stood at 551.72 million AZN ​​in Jan.-August 2014, or 7.9 percent of total bank deposits, according to a report from Azerbaijan's Central Bank (CBA).

This index increased by 20.7 percent compared to the same period of 2013.

In Baku, the deposits totalled 6.441 billion AZN, while some 4.017 billion AZN accounted for the deposits in national currency.

The average interest rate in the country and in Baku amounted to eight percent during the reporting period.

Thus, Baku remained a leader in terms of the deposits attracted by the banks.

Among districts, the Aran Economic district (169.9 million AZN, the average rate - 7.2 percent per annum) is leading in terms of attracting deposits from the population.

During this period, the volume of deposits in Mountainous Shirvan district totaled 16.3 million AZN at a rate of 5.9 percent, Ganja-Gazakh district - 65.38 million AZN at a rate 5.7 percent, Guba-Khachmaz district - 21.5 million AZN at a rate of 6.3 percent, Lankaran district - 45.5 million AZN at a rate of 7.3 percent, Shaki-Zagatala district - 23.4 million AZN at a rate of 5.5 percent, Upper Karabakh district - 13.7 million AZN at a rate of 3.9 percent, Kalbajar-Lachin district - 7.5 million AZN at a rate of 4.8 percent, Nakhchivan district - 20.65 million AZN at an average rate of 4.2 percent, Absheron economic district - 167.97 million AZN at a rate of 8.6 percent.

As of January-August 2014, the volume of deposits of financial organizations amounted to 4.023 billion AZN compared to 2.931 billion AZN as of January-August 2013. The volume of deposits of non-financial organizations totaled 3.624 billion AZN compared to 2.640 billion AZN as of January-August 2013.

The total volume of deposits of legal entities totaled 7.647 billion AZN compared to 5.571 billion AZN as of January-August 2013.

As of September 1, 2014, the Azerbaijani banks reduced rates on deposits in freely convertible currency as opposed to those in the national currency, according to the Azerbaijani Central Bank (CBA) report on the results of eight months of 2014.

The average rate on deposits in AZN as of September 1, 2014 made up 8.92 percent compared to 9.45 percent as of September 1, 2013, the report said. The average rate on deposits in foreign currency amounted to 9.39 percent compared to 10.01 percent in early September 2013.

As of September 1, 2014, the average rate on deposits of physical entities in AZN made up 9.43 percent, while as of September 1, 2013, it was 9.94 percent. The average rate on deposits of individual customers in foreign currencies amounted to 9.96 percent compared to 10.43 percent as of early September 2013.

The average rate on deposits of legal entities in AZN made up 5.47 percent at the beginning of September this year compared to 5.2 percent as of September 1, 2013, the report said. The average rate on deposits of corporate clients in foreign currency amounted to 3.53 percent compared to 4.41 percent as of early September 2013.

Banks' financial activity

There were 44 banks in Azerbaijan: 43 commercial banks and one state-owned bank. There are 22 banks with foreign capital. The share of foreign capital ranges from 50 to 100 percent in seven of them, while up to 50 percent in 13 banks. There are also two local branches of foreign banks.

The total profit of Azerbaijan's lucrative banks exceeds the total loss of unprofitable banks by 8 times as of August 2014, Central Bank of Azerbaijan (CBA) said in its report.

The profit of 36 banks was 340.05 million AZN, while the loss of eight banks stood at 42.44 million AZN, according to the report. This allowed the banking system to earn 297.61 million AZN of net profit.

The number of profitable banks remained unchanged in July 2014, compared to June, while the total profit of the sector fell by 16.1 percent. The number of unprofitable banks also remained unchanged and their total loss increased by 10.3 percent.

The number of profitable banks has decreased by four units in August 2014, compared to the same month of 2013, while the total profit of this sector grew by 42.8 percent. The number of unprofitable banks has increased from three to eight, while their total loss grew by 3.2 times.

Periods

Number of profitable banks

The total profit of the banking system (profitable banks)

Number of unprofitable banks

The total loss of the banking system (unprofitable banks)

Total profit (+) or loss (-) obtained by banks

September 1, 2013

40

238.12

3

-13.15

224.97

September 1, 2014

36

340.05

8

-42.44

297.61

The capitalization of Azerbaijan's banking sector increased by 22.11 percent in August 2014 compared to August 2013 and amounted to 3.749 billion AZN as of September 1, 2014, according to the Central Bank of Azerbaijan's report for the first eight months of 2014.

There were 42 banks with capital worth over 10 million AZN as of the reporting period, according to the Central Bank of Azerbaijan's statistics report. This increased by 1 unit compared to late August 2013. The specific weight of this category in the total volume of capital of all the country's banks amounted to 99.7 percent as of the reporting period.

The capital of one bank ranged from 5 million AZN to 10 million AZN, the capital of other bank ranged from 3.5 million AZN to 5 million AZN. The specific weight of this category in the total volume of capital of the country's all banks amounted to 0.2 percent and 0.1 percent as of the reporting period.

As of Sept. 1, 2014, the assets of the Azerbaijani banking sector amounted to 23.55 billion AZN compared to 18.92 billion AZN in August 2013, according to the Central Bank of Azerbaijan's report for the eight months of 2014.

The bank assets increased by 24.5 percent per year, according to the Central Bank of Azerbaijan.

The basis of the assets of the banking sector (67.9 percent) accounted for loans delivered to the clients in the amount of 15.99 billion AZN (21.22 percent growth per year), investments (2.02 billion AZN with 8.57 percent weight and 32.9 percent growth per year) and funds on correspondent accounts (1.58 billion AZN with 6.7 percent weight).

Loans and deposits delivered by the banks to the financial sector amounted to 1.11 billion AZN as of August 2014 (4.7 percent).

The lion share in the structure of liabilities accounts for deposits standing at 10.17 billion AZN (43.2 percent) as of September 1, 2014, showing an increase of 20.5 percent compared to the same period of 2013. Loans and deposits from the financial sector amounted to 7.98 billion AZN, increasing by 28.7 percent.

Payment card market

The number of payment cards in Azerbaijan has increased by 3.4 percent since early 2014 and hit 5.866 million units as of August 2014, according to the statistics report of the Central Bank of Azerbaijan.

Their number increased by 10.03 percent compared to the same period of 2013.

Some 4.685 million units of the total number of cards were debit cards, in particular, 2.544 million - social cards, 1.401 million - salary cards, 740,000 - other cards. The number of credit cards was 1.181 million units.

The total turnover on payment cards via ATMs and POS-terminals amounted to 7.674 billion AZN and the total number of transactions to 51.177 million units in January-August, according to the report.

The number of transactions on debit cards equaled 40.185 million units totaling 6.174 billion AZN.

Of the total number of transactions, around 32.321 million transactions amounting to 5.573 billion AZN were implemented on debit cards via ATMs within the country, and around 2.337 million transactions amounting to 386 million AZN via POS-terminals.

Some 10.992 million transactions worth of 1.499 billion AZN were made on credit cards in January-August 2014.

As many as 3.377 million transactions worth 782 million AZN, of the total number of transactions on credit cards, were implemented via ATMs and there were 4.9 million transactions worth of 331 million AZN via POS-terminals.

As of September 1, 2014, around 2,510 ATMs operated in the country of which 1,413 are located in Baku and 1,097 in other cities and regions of the country. Their total number increased by 135 units or 5.7 percent during a year (compared to early September 2013).

The number of POS-terminals amounted to 56,731 units of which 38,990 are installed in Baku and 17,741 units in other cities and regions as of September 1, 2014.

The number of POS-terminals increased by 21,016 units or 58.8 percent compared to January-August 2013.

Stock market

The turnover of the Baku Stock Exchange increases by almost 1.6 times every year.

The BSE turnover of 1.258 billion AZN in January-August 2014 compared to 2.023 billion for the second quarter and 3.888 billion AZN for the first quarter, according to BSE.

The best turnover was observed in February 2014 (1.759 billion AZN). The exchange reached a record level in the history of turnover in December 2011 (1.874 billion AZN) and the best level in July 2012 - 1.288 billion AZN.

The BSE turnover equal to 7.169 billion AZN on 4,161 deals in January-August 2014 has already made up 84.6 percent of its turnover for 2013 (8.476 billion AZN). The turnover was by 1.57 times more than in January-August 2013 (4.559 million AZN on 3,604 transactions).

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