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MONETARY SECTOR

Analysis Materials 7 November 2006 12:09 (UTC +04:00)

Major tendencies in different segments of monetary-credit system

Money mass Рњ2 grow

The banks of Azerbaijan increased crediting in economy;

Deposit base of the Azerbaijani banks grew;

Trading sessions on placement of T-bills were held in the stock market. The NBA continued the placement of short-term notes in the Baku Stock Exchange.

Currency market and rates of AZN

In September 2006 the International Bank of Azerbaijan became a leader at the Baku Interbank Currency Exchange. The IBA was a leader at the exchange currency market of Azerbaijan in 2003 (December, November, September, July, August) and 2004 (except October), in 2005 excluding December, and in January to July 2006 (except April and May).

Amount of currency trading sessions at BBVB in September 2006

Amount, in mln USD

Rise in September 2006

In total, (BEST)

$166,988

56,84%

Without consideration of the deals at the NBA, 37.8% of the currency turnover in August fell on IBA

Along with the IBA, the top five included UniBank (8.15%), Azerigasbank (2.65%), Bank of Baku (2.5%) and Kapitalbank (2%).

As a result of August they were the International Bank of Azerbaijan (48.31%), Bank Standard (25.23%), Khalgbank (5.41%), Technikabank (5.09%) and UniBank (2.62%).

Bank

Share in total, %

IBA

37,8

UniBank

8,15

Azerigasbank

2,65

Bank of Baku

2,5

Kapitalbank

2,0

In September some 22 member-banks of the currency section participated in the auctions. They concluded 120 deals at 42 trading sessions with the total amount of $166,988m.

Deals with EUR were carried out in the amount of 7,956 AZN. As compared to August 2006 the amount of trading sessions with the foreign currency at BBVB rose 56.84%. As a result of 9 months the turnover of the foreign currency section of the BBVB made up 996,238m manats, or 1.86% more than 2005.

The exchange rate of the national currency rose 0.59%. The rate of US dollar dropped from 0,8802 manats to 0.8750 manats per 1 USD. In the end, the average sustained rate of AZM in regard to USD made up 0,8774 manats per 1 USD in September, whereas as of August it was 0,8858 AZN and in January - 0,9156 AZN. In general, over the past year the exchange rate grew 4.38% in respect to manat.

Monetary market

In January to September 2006 the amount of money mass in Azerbaijan rose 92.1%, including 8.37% in September.

In this period money mass (M2) made up 1530.6m manats, against 1412.4bn manats of 1 September and 796.7m manats as of 1 September 2005.

In this period the amount of cash money (Рњ0) rose 82.1%, while as compared to the beginning of the year it grew 8.9%. As of 1 September 2006 M0 turned out at 996.8m manats against 915mln manats fixed as of 1 September and 547.4m manats fixed as of 1 September 2005.

Since the beginning of the year without consideration of seasonal factors rise of M2 made up 93%, while in September it was 62.7%.

As of 1 October the amount of non-cash money rose 533.8% against 497.5mln as of 1 September and 249.3mln AZN as of beginning of the year.

In August rise was equal to 15%. As of 1 September 2006 non-cash funds grew 99.6%.

As of 1 September 2006 non-cash funds grew to 497.5m manats against 249.3m manats fixed as of 1 January and 432.5m manats fixed as of 1 August 2005

According to the National Bank of Azerbaijan, in January to September 2006 the amount of the money base dropped 49.59% amid 4.04% rise in September.

In this period the reserve money rose 439.3m AZN, comprising 1325.1mln AZN against 885.8m AZN as of early 2006. As compared to last year, manat base rose 61%, or 502.3m AZN.

Without consideration of seasonal factors, net rise of money base in September was 73.4% since the beginning of the year and 62.1% as compared to September 2005.

As of 1 October 2006 money base in manat made up 1133mln AZN against 687.8m AZN against the beginning of the year displaying 73.5%-growth (505.6mln AZN). As compared to last year the money mass rose 62.6%.

Parameters of the monetary market

Объем, 01.07.06

Money mass in extensive understating (Рњ3)

2664,1

Money mass on manat (Рњ2)

1137,0

Cash in manat (Рњ0)

915

Non-cash in manat

497,5

Объем, 01.07.06

Money mass in extensive understating (Рњ3)

2664,1

Money mass on manat (Рњ2)

1137,0

Cash in manat (Рњ0)

915

Non-cash in manat

497,5

Объем, 01.07.06

Money mass in extensive understating (Рњ3)

2664,1

Money mass on manat (Рњ2)

1137,0

Cash in manat (Рњ0)

915

Non-cash in manat

497,5

In September the amount of the net international reserves (NIR) of the National Bank of Azerbaijan grew 3.17%, while since the beginning of the year it has grown 58.17%.

As of 1 October 2006 NIR comprised 1638.6m manats against 1588.2m manats as of 1 September and 1035.9bn manats as of 1 January 2006. Net internal asserts constituted 1410.8m manats against 1337.4m manats as of 1 September and 930.76bn manats as of 1 January 2005, the NIR of commercial banks made up 235.5m AZN against 257m AZN and 108.8m AZN respectively

Net internal assets constituted 1164.1mln AZN against 1075.9m AZN as of 1 September and 805.9m AZN as of 1 January 2006. The expanded money mass (M3) as of 1 October 2802.7m AZN against 2664.1mln AZN as of 1 September and 1841.8m as of 1 January 2006.

Credit Market

In September the Azerbaijani banks increased crediting economy by 7.36%, while in the first 9 months of 2006 it grew 39.84%.

As of 1 October 2006, 2015.2m manats of total credits were allocated (including 883.3m manats in national currency and 1131.9mln manats in hard currency) against 1876.9mln manats (including 799.4mln manats in national currency and 1077.5m manats in hard currency) as of 1 September and 1441m as of 1 January 2005. Overdue credits and loans comprised 68.3m manats against 63.5m manats as of 1 September and 68.2m as of 1 January 2006. The statistics of overdue credits does not include the similar loans allotted by non-bank credit organization Agrarkredit

The short-term credits comprised 1005.1mln manats (including 51.5mln manats of overdue loans) against 939.5mln manats (including 47.4m manats of overdue loan) as of 1 September and 913.3m manats (48.3bn manats) as of 1 January 2005. As 1 October 54.25% of short-term crediting and 66.4% of overdue credits fell on hard currency. The long-term credits constituted 1010mln manats (16.7m manats) against 937.3mln manats (16.1mln manats) as of 1 September and 527.7mln manats (19.6m manats) as of 1 January 2005. As of 1 October 58.1% of long-term credit and 72.5% of overdue debts fell on hard currency.

As of 1 October two public banks allocated credits of 943.3mln manats (+8.96% in September and +26.05% over 9 months of 2006), private banks 1012.7mln manats (+6.97% in September and +55.1% over 9 months).

As of 1 October 2006 credit portfolio of banks with foreign capital made up 445.8m manats (+7.29% and +69.2% respectively), including 45.1mln manats loaned by foreign banks (+7.2% and 60.23% respectively).

As of 1 October average annual rate of banking crediting in the economy comprised 16.25% in national currency against 16.31% as of 1 September and 15.14% as of 1 January 2005. With consideration of inflation rate of 6.2% in first 9 months of 2006, real credit rate made up 10.05%. The average annual rate on banking crediting the economy made up 17.15% in foreign currency against 17.15% as of 1 September and 17.11% as of 1 January 2005.

As of 1 October the average annual rate of banking crediting of legal entities made up 14.76% in national currency against 14.89% as of 1 September and 14.36% as of 1 January 2005, while real rate was 8.56%. The average annual rate of banking credit of legal entities constituted 15.02% in foreign currency against 15.05% as of 1 September and 15.37% as of 1 January 2005

As of 1 October the average annual rate of banking crediting of physical entities made up 19.92% in national currency against 19.95% as of 1 September and 17.36% as of 1 January 2005, while real rate was 13.72%. The average annual rate of banking credit of legal entities constituted 21.67% in foreign currency against 21.56% as of 1 September and 21.31% as of 1 January 2005

Banking sector

In September the deposit base of Azerbaijani banks grew 3.25%, while in January to September its growth has made up 39.5%.

As of 1 October the total amount of bank deposits and savings of legal and physical entities made up 1805.8mln manats against 1749.1mln manats as of 1 September and 1294.4m manats as of 1 January 2006. 841.6m manats of the total sum fell on manat reserves, while the rest - on hard currency.

In September the amount of savings and deposits of physical entities dropped 10.31% amid 5.1%-rise in deposits of the legal entities. The savings and deposits of legal entities of individual clients increased 21.6%, while deposits of corporate clients grew 47.3%

As of 1 October the amount of savings and deposits of physical entities at banks comprised 601.3m manats against 670.1mln AZN as of 1 September and 494.5m manats as of 1 January 2005. As of 1 October the amount of deposits of legal entities made up 1168.6m manats against 1112.1mln manats as of 1 September and 793.5m manats as of 1 January 2006.

As of 1 October 170.1mln manats (+5.7% a month) of savings and deposits of physical entities was implemented in national currency, while 431.2m manats (-17%) in hard currency. 371.5m manats of deposits of legal entities (+11.8%) were implemented in manats, while 797.1bn manats (+2.2%) in hard currency.

As of 1 October 2006 the average rate of bank deposits of physical entities in the national currency comprised 10.72% against 11.03% as of 1 August and 8.92% as of 1 January 2006. The real deposit rate made up 4.52% amid real inflation ratio was 6.2%. The average rate of banking deposit in hard currency was 11.47% against 11.06% as of 1 September and 10.19% as of 1 January 2006

As of 1 October the average rate of bank deposits of legal entities in the national currency comprised 8.57% against 8.99% as of 1 September and 7.41% as of 1 January 2006 while real rate was 2.39%. The average rate of banking deposit of corporate client in hard currency is 7.23% against 6.73% as of 1 September 2006 and 6.83% as of 1 January 2006.

As of 1 October the average rate of bank deposits of physical entities in the national currency comprised 11.96% against 12.11% as of 1 September and 10.70% as of 1 January 2006, while real rate was 5.76%. The average rate of banking deposit of individual client in hard currency is 11.82% against 11.47% as of 1 September and 10.71% as of 1 January 2006.

As of 1 October some 44 banks have a license for banking activities.

The National Bank announced that on 1 October 2006 the capital of the banking system exceeded $573.97mln on the exchange rate of 0,876 AZN/USD fixed by that time.

In January to September 2006 the capital of banks rose 29.5% as compared to the beginning of the year and made up 502.8mln manats, or 46.4% as compared to 2005.

In accordance with the adopted rules of the NBA, the following standard capital of banks was set up as of 1 July 1 2006 and was to comprise as minimum 6,400mln manats, as 1 January 2007 8,200mln manats, as 1 July 2007 10mln manats.

Group of banks on the amount of aggregated capital of banks is as follows:

Up to 3.5mln AZN

From 3.5mln AZN to 5mln AZN

From 5mln AZN to 10mln AZN

Over 10mln AZN

Number

Special weight in the total baking capital, in %

Number Рѕ

Special weight in the total banking capital, in %

Number

Special weight in the total baking capital, in %

Number

Special weight in the total baking capital, in %

2004

30-09-2005

19

7

24,5

7

10

13

17,2

18,4

10

16

27,7

33,1

4

6

30,6

41,5

31-12-2005

2

1,8

9

12,3

23

41,2

8

44,7

31-03-2006

2

1,5

4

4,8

29

49,9

8

43,8

30-06-2006

30-09-2006

2

1

1,4

0,3

3

2

3,4

1,8

29

3

49,9

50,4

9

9

45,3

Data for 30 June and 31 December 2005 does not include two banks, while in

2006 on every bank

As of 1 November the capital of Azerbaijani banks made up 502.8mln AZN) against 492.4mln AZN as of 1 September and 388.26mln AZN in the beginning of 2006.

According to NBA, amid the normative requirement for 6.4mln AZN, as of 1 October one bank held up to 3.5mln, 2 banks up to 5mln AZN, 31 banks from 5mln to 10mln AZN, 9 banks over 10mln AZN.

Stock market

In September 2006 the Ministry of Finances held 4 auctions on placement of T-bills were held at the secondary market in the amount of 22mln manats, of which 10,515mln manats, or (47.8% of entire issue) was placed. The average sustainable profitability on the results of shareholders was equal to 12.37% per annum. No deal with T-bills was held at the secondary market.

The National Bank held 4 trading sessions on the placement of T-bills. The emitter succeeded to place 80,230,600 manats (50.1% of the entire emission) of the total emission of 160m manats issued during 4 auctions. The average sustained profitability ratio on the results of auctions 14.95% per annum. In September 24 deals worth 19,516,785 AZN were held at the secondary market.

In September 9,560,298 manats was placed at the corporate shares market, while at the secondary market on short-term notes the placement amounted to 68,232 manats. Initial placement of corporate bonds on 1 deal comprised 2mln manats, while at the secondary market it was fixed at $105,042.

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