Weekly economic review (March 5-9)

FIMSA talks opening of currency exchange offices outside banks in Azerbaijan

The process of opening private currency exchange offices in Azerbaijan will begin after the necessary regulatory and legal acts enter into force, Azerbaijan's Financial Market Supervisory Authority (FIMSA) told Trend March 6.

Under the new order on holding currency exchange transactions, which was adopted Dec. 30, 2017, the currency exchange offices will be able to operate at a separate kiosk or building, including at railway stations, hotels, ports and airports.

Currency exchange in such offices is carried out only in cash.

The sale of currency equivalent to more than $500 or purchase of currency equivalent to more than $10,000 is possible only with the provision of an identity card.

Presently, currency exchange offices can only operate at banks. This ban was introduced in January 2016, when against the background of two devaluations of Azerbaijani national currency, manat, in 2015 [in February and December] the so-called black markets became active and the number of speculations with the currency increased.

The FIMSA also noted that the requirements for currency exchange offices in Baku and Azerbaijan's districts will be the same, and will not depend on the value of transactions.

AIA: Capital requirements for Azerbaijani insurance companies won’t grow

Currently, the issue of increasing the requirements for the authorized capital of Azerbaijani insurance companies is not topical, Head of Azerbaijan Insurers Association (AIA) Mustafa Abbasbayli told reporters in Baku March 6.

"This issue is not currently on the agenda, since the existing capital requirements for insurance companies were introduced relatively recently. Today, insurance companies are not facing the financial risks related to capitalization," Abbasbayli said.

Currently, the requirements of the Financial Market Supervisory Authority (FIMSA) of Azerbaijan to the authorized capital of insurance companies stand at five million manats for existing companies and 10 million manats for newly created ones.

Twenty-one insurance companies operate in Azerbaijan's insurance market.

Azerbaijan can expand volume of concessional lending

The National Entrepreneurship Support Fund of Azerbaijan (NFES) can expand the volume of concessional lending for 2018, the Fund's Executive Director Shirzad Abdullayev said on.

According to the 2018-state budget of Azerbaijan, it is planned to allocate soft loans of 170 million manats through the NFES this year.

"We have additional financing resources. That is, we, on our part, can expand financing up to 200 million manats in 2018. Everything depends on agreements between banks and entrepreneurs," Abdullayev said, adding that in case of necessity, the volume of concessional lending can be increased.

The NFES was established in 1992. During the period from 1992 to 2017, 34,600 entrepreneurs were granted 2.1 billion soft loans worth 4.5 billion manats.

FIMSA on merger process in Azerbaijani banking sector

Azerbaijan's Financial Market Supervisory Authority (FIMSA) welcomes any steps taken by banks to increase capital, FIMSA Executive Director Ibrahim Alishov told reporters in Baku on March 6.

He was commenting on the information on the continuation of consolidation process in the Azerbaijani banking sector.

Alishov said that banks can both increase their authorized capital through additional injections, and merge to create a more stable financial institution.

"Banks are the sector's private entities and are free to conduct any negotiations. We have not received concrete proposals so far, but if there are proposals, then we are ready to consider them," the executive director added.

Earlier, Head of Azerbaijan Banks Association Zakir Nuriyev told reporters that currently, at least two Azerbaijani banks are negotiating for merger, but did not disclose the names of those banks.

There is information in Azerbaijan's banking market on possible merger of Bank of Baku and AFB Bank, as well as AccessBank and Nikoil Bank.

The merger of AtaBank and Caspian Development Bank was completed in the first half of the last year. As a result, the Caspian Development Bank was liquidated and its assets were transferred to AtaBank.

Presently, 30 banks operate in Azerbaijan's banking market.

Azerbaijan’s Int’l Bank to close its subsidiary's branches in Russia

As part of the privatization strategy, the International Bank of Azerbaijan (IBA) has decided to close a number of branches of its subsidiary in Moscow, IBA-Moscow, the IBA said in a message March 6.

IBA-Moscow's branches in St. Petersburg and Yekaterinburg will be closed, according to the message.

"The decision to close IBA-Moscow's branches is based on the subsidiary's intention to focus on business development near Moscow," the message said.

The bank will keep fully and timely fulfilling its commitments to customers of branches in St. Petersburg and Yekaterinburg, according to the message.

Customer service in closed branches is operating as usual. Since March 5, branches in these cities have stopped accepting deposits and don't carry out money transfers through payment systems. Return of deposits and money transfer payments is carried out as usual, without restrictions.

It is planned to close the branches until April 27, 2018, inclusive.

The IBA is at the stage of recovery since July 2015, which is related to preparations for privatization of the bank's state-owned shares.

To restore the bank's financial position, the distressed assets of the bank were transferred to state-owned Aqrarkredit non-bank credit organization. Aqrarkredit provides IBA with liquid assets in exchange for distressed assets.

Restructuring of IBA's foreign liabilities has been recently completed.

FIMSA to adopt new regulative rules for Azerbaijani banks

Azerbaijan's Financial Market Supervisory Authority (FIMSA) will adopt new regulatory rules for the country's banks in the near future, FIMSA Executive Director Ibrahim Alishov told reporters March 6.

Alishov said the process of preparing and discussing changes in regulatory rules will be completed soon.

These are the new requirements for calculating the capital adequacy ratio of banks as well as for an open currency position, he said.

"We have already completed the preparation of amendments, and conducted public hearings jointly with the Azerbaijan Banks Association. I think the rules will enter into force in the near future," the executive director added.

He said that these rules are very important for the sector.

Alishov noted that after the rules' entry into force, banks will receive a certain period in order to bring their indicators in line with the rules.

"The application of the rules will begin six months after their adoption. This term is intended for banks to bring their indicators in line with the new rules," he added.

Currently, FIMSA requirements on the capital adequacy ratio stand at three percent, and the limit of the open currency position is 10 percent.

Azerbaijani entrepreneurs need to use alternative financial tools – FIMSA

Today Azerbaijani entrepreneurs need to use new financial tools, Executive Director of Azerbaijan's Financial Market Supervisory Authority (FIMSA) Ibrahim Alishov said at the conference on "Financing through capital markets, listing and investments" in Baku on March 6.

"In this regard the Azerbaijani financial sector is aimed at providing entrepreneurship with access to alternative financial tools," Alishov said.

"Today, Azerbaijani entrepreneurs resort only to a classic tool, such as bank lending, to expand production or increase working capital," he said. "It is time to think about alternative tools, moreover, we have the necessary infrastructure."

He said that presently, more attention should be paid to the development of the securities market for the market to meet the requirements of entrepreneurs.

"The problems of the securities market should be revealed and solved," he said. "Today, the participation of enterprises in the securities market is very limited. We should gradually change this tendency. For this purpose, the transparency of the companies, as well as corporate governance in the companies should be improved."

Alishov added that FIMSA is currently working to expand entrepreneurs' access to alternative financial tools.

"Derivatives can be cited as an example," he said. "Frankly speaking, the derivatives market in Azerbaijan is also limited. Only forex operations are conducted there."

"But there are other tools in the world, namely, futures, options, etc.," he said. "We think that they should be used and offered for business in Azerbaijan. We are working in this direction, but business should also help us in this issue."

Amount of overdue loans up in Azerbaijan's credit market

In January 2018, Azerbaijan's credit organizations reduced loan disbursements by 30 percent up to 11,656.1 million manats compared to January 2017, the Azerbaijani Central Bank said in a report.

According to the report, the amount of overdue loans increased by 3.8 percent up to 1,695.9 million manats for the year. The share of overdue loans increased from 9.8 percent to 14.5 percent for the same period.

In 2017, the loan portfolio of banks and non-banking credit organizations amounted to 11,656.1 million manats. As for overdue loans, the amount of overdue loans varied from 1.6 billion manats to 1.89 billion manats for 2017.

Lending in national currency amounted to 6,899.9 million manats in 2017 (a 17.9 percent decrease for the year) with a specific weight of 59.2 percent.

Lending in foreign currency amounted to 4,756.3 million manats (a 1.8-fold decrease for the year) with a specific weight of 40.8 percent.

The amount of short-term loans amounted to 2,156.2 million manats, long-term loans - 9.5 billion manats.

Distribution of the loan portfolio by economic sectors (in late January 2018):

Meanwhile, 16 percent (1,861.9 million manats) of all loans in the country accounted for state banks in Azerbaijan, 80.5 percent (9,380.3 million manats) - private banks, 3.6 percent (413.9 million manat) - non-bank credit organizations.

Thirty banks operate in Azerbaijan, including two state-owned banks and over 120 non-banking credit organizations.