Banking sector of Azerbaijan is one of dynamically developing sectors of national economy. Annual rise of this sector exceeds 50-60%, which is the result of well considered and implemented state fiscal policy.
The banking sector of Azerbaijan was recognized by the European Union as the progressive sector. it attributed Azerbaijan as a reliable partner, which has never been in debt ether it, or the International Monetary Fund (IFC). The Azerbaijani government exactly repays its debts and the foreign banks are ready to give loans to Azerbaijan on favorable terms. All investors, who raise funds for the baking sector, take their profits.
As 1 July 44 banks, including 2 state-own banks, functioned in the country. Particularly, 2 banks have aggregate capital not exceeding 3.5 million manats, 5 banks from 3.5 to 5 million manats, 28 banks from 5 to 10 million manats and 8 banks over 10 million manats.
Perspectives of the development of commercial banks at the expense of consolidation of their resource base are related to increase of community deposits. The bank started feeling people's interests in deposits. Following the tendency of increase of the community incomes directed at banks, rise in deposits outstrips the rise of community incomes and goods turnover.
Since the beginning of the year the deposit base of Azerbaijani banks grew has made up 28.9%. As of 1 August the total amount of bank deposits and savings of legal and physical entities made up 1668.5m manats against 1625.4bn manats as of 1 July and 1294.4m manats as of 1 January 2006. 871.4m manats of the total sum fell on manat reserves, while the rest - on hard currency.
As of 1 August 130.8bn manats (+88.7% a month) of savings and deposits of physical entities was implemented in national currency, while 512.6m manats (+7.7%) in hard currency. 365.5m manats of deposits of legal entities (+44.3%) were implemented in manats, while 740.6bn manats (+20.9%) in hard currency
There are three factor affecting on the development of the sector of banking credits over the past few years, which were peculiar to the country. The first stability of the banking sector, which has functioned without serious shortcomings over the past 6 months. The second a tendency of the consolidation of consolidation of manat in respect to the USD. Nationwide, last year the most refused from reserving their deposits in the USD due its depreciation and even preferred to pass to deposit manats. And last third - rise in real incomes of population.
Undoubtedly, growth pace of community incomes in the banking sector could increase considerably unless the law on Insurance of Deposits was issued. The enactment of the Law on Obligatory Insurance of Baking Deposits provide the population in Russia with additional confidence the government and the banks are ready to defend their financial interests. The major factors for permit of the banks to the insurance system are financial stability of the bank, transparency of ownership structure, satisfactory quality of current management of risks and internal control system.
Since the very moment of entrance into the deposits insurance system the bank is committed to pay insurance fees, which will make it to seek ways for compensation of financial loss. Such ways can be three: cut in rates of deposits, cut in margin of the bank, or increase of credit rates. The way the bank chooses will depend on the sate of the market. Commissioning of the deposit insurance system should not affect the cut in rate of deposits, unless its obligatory, and cut in the re-financing rates at the initiative of the country monetary authorities.
As of 1 August 2006 the average rate of bank deposits in the national currency comprised 10.86% against 10.96% as of 1 July and 8.92% as of 1 January 2006. The real deposit rate made up 5.56% amid real inflation ratio was 5.3%. The average rate of banking deposit in hard currency was 11.15% against 11.02% as of 1 July and 10.19% as of 1 January 2006
Another factor attracting the people to banks is interests taken by the big foreign companies and banks in the Azerbaijani banking market. Azerbaijan's banking sector is attractive for foreign investors first of all thanks to liberal legislation and absence of limitations on investing. Consequently, 18 Azerbaijani banks have foreign capital, while 5 banks function with 100% foreign capital.
The International Financial Corporation (IFC), signing the agreement for joining the shareholders of JSIB Azerigazbank (AGBank), displayed such an interest. At the initial stage IFC is effecting a payment of 1,470 mln manat for purchased 17.5% stock. IFC earlier announced its intention to invest $2.3mln Total stock to be handed over to international financial institutions is 35 percent. National Bank of Azerbaijan has officially authorized this deal.
Perhaps, in future the banking community of the country might gain a player with colossal financial opportunities in the face of the Russian trade bank, which is considering the opportunities to encourage its presence in the country. The purchase of majority stock packet of one of the Azerbaijani banks is among them.
The IFC praises macroeconomic results of Azerbaijan from the aspect of banking achievements. IFC representatives note a definite progress in conduct of structural reforms and note further rise in the potential of economy requires strengthening of rivalry in the banking sector, including the privatization of two state-run banks. In accordance with the IMF's forecasts, rise in the banking crediting of economic of Azerbaijan will comprise 59.6%.