Monetary sector

Major tendencies in different segments of monetary-credit system in October 2006:

• Money mass М2 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 October 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 October 2006

Amount, in mln USD

Rise in October 2006

In total, (BEST)

$181,949

8.7%

Without consideration of the deals at the NBA, 38.5% of the currency turnover in August fell on IBA

Along with the IBA, the top five included UniBank (10.87%), Bank of Baku (7.05%), AGBank (5.71%), and KocBank (3.4%).

As a result of August they were the International Bank of Azerbaijan (37.8%), UniBank (8.15%), Azerigasbank (2.65%), Bank of Baku (2.5%) and Kapital Bank (2%).

Bank

Share in total, %

IBA

38.5%

Unibank

10.87%

Bank of Baku

7.05%

Azerigsbank

5.71%

KocBank Azerbaijan

3.4%

In October some 19 member-banks of the currency section participated in the auctions. They concluded 119 deals at 38 trading sessions with the total amount of 158,919mln manats,.or $181,949mln.

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 amount of trading sessions in the cirency section increased 1.9 times as compared to 2005 and can be regarded as the biggest figure fixed over 13-year activities of BBVB. In January to October the turnopver of the Exchange on US dollar, EUR and Russian ruble made up 1155156090.3 AZN.

The exchange rate of the national currency rose 0.29%. The rate of US dollar dropped from 0,8747 manats to 0.8722 manats per 1 USD. In the end, the average sustained rate of AZM in regard to USD made up 0,8734 manats per 1 USD in October, whereas as of September it was 0,8774 AZN. In general, over the past year the exchange rate grew 4.94% in respect to manat.

Monetary market

In January to October 2006 the amount of money mass in Azerbaijan rose 918.8mln manats or 115.3%, including 12.08% in October.

In this period money mass (M2) made up 1715.5mln manats, against 1530.6bln manats of 1 October and 796.7m manats as of 1 January 2005. Withour consodertan of sesnal factors rse of M2 comprised 2.2 times since the beginning of 2006 and as of October 2005.

In this period the amount of cash money (Рњ0) rose 100.3% (548.9mln manats), including 10% in October. As of 1 November 2006 M0 turned out at 1096.3mln manats against 996.8mln manats fixed as of 1 October and 547.4m manats fixed as of 1 Janiary 2006. Without seasonal factors rise of M0 made up 2.1 times since the beginning of the year and 93.8% in October.

As of 1 November the amount of non-cash money rose 619.2% against 533.4mln as of 1 October and 249.3mln AZN as of beginning of the year.

NBA asserted monetization in the end of October and co-efficncy of monetization. As a result, the specil weight of the expanded money mas in the non-oil sector n GDP increased 10% as of the beginning of theyeara and reached 20%.

According to the NBA, in tjhis period money base rose 70% amid a 12.3%-rise in October.

In this period the reserve money rose 602.3mln AZN, comprising 1488.1mln AZN against 885.8m AZN as of early 2006. As compared to last year, manat base rose 87.5%, or 694.3mln AZN. Without consideration of seasonal factors, net rise of money base in October was 99.8% since the beginning of the year and 87.8% as compared to October 2005.

As of 1 November 2006 money base in manat made up 1356mln AZN against 668.2m AZN against the beginning of the year displaying 73.5%-growth (505.6mln AZN). As compared to last year the money mass rose 91.1%.

Parameters of the monetary market

Amunt, 01.11.06

Money mass in extensive understating (Рњ3)

2955,3

Money mass on manat (Рњ2)

1715,5

Cash in manat (Рњ0)

1096,3

Non-cash in manat

619,2

In October the amount of the net international reserves (NIR) of the National Bank of Azerbaijan grew 94.4%, while since the beginning of the year it has grown 94.4%.

As of 1 November 2006 NIR comprised 2014.1mln manats against 1638.6m manats as of 1 October and 1035.9bn manats as of 1 January 2006. Net internal asserts constituted 1882.3m manats against 1410.1mln manats as of 1 October and 930.76bn manats as of 1 January 2005, the NIR of commercial banks made up 131.8m AZN against 228.6mln AZN and 105.9m AZN respectively

As of 1 November the NBA has 1,992,4mln AZN in aggregated international assets amid 119.6mln manats in interbatinla obligations, while commercial banks 304.7mln and 167.1mln manats respectively.

Net internal assets constituted 2287.5mln AZN against 1164.1mln AZN as of 1 October and 805.9m AZN as of 1 January 2006. The expanded money mass (M3) as of 1 November was 2955.3m AZN against 28026.7mln AZN as of 1 October and 1841.8m as of 1 January 2006.

Credit Market

In October the Azerbaijani banks increased crediting economy by 7.19%, while in the first 10 months of 2006 it grew 49.9%.

As of 1 November 2006, 2159.9m manats of total credits were allocated (including 977.4m manats in national currency and 1182.5mln manats in hard currency) against 2015.2mln manats (including 883.3mln manats in national currency and 1131.9mln manats in hard currency) as of 1 October and 1441m as of 1 January 2005. Overdue credits and loans comprised 78.8m manats against 68.2m manats as of 1 October 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 1093mln manats (including 54.2mln manats of overdue loans) against 1005.1mln manats (including 51.5mln manats of overdue loan) as of 1 October and 913.3m manats (48.3mln manats) as of 1 January 2005. As 1 November 52.3% of short-term crediting and 65.3% of overdue credits fell on hard currency. The long-term credits constituted 1066mln manats (24.6mln manats) against 1010mln manats (16.7mln manats) as of 1 October and 527.7mln manats (19.6m manats) as of 1 January 2005. As of 1 November 57.2% of long-term credit and 82.5% of overdue debts fell on hard currency.

Over the first 10 months the country's banks issued credit in the amount of 2.1mln AZN for th period of over 10 years, which is linked with the mortagge crediting and 25.3mln AZN for the term of from 5 to 10 years.

In January to October 2006 the banks allocated credits of 2647.4mln manats (+40.5%). Net rise in crediting economy made up 848.3mln AZN, while the credit portfolio rose 1,311,6mln as of 1 November 2005 to 2,159,9mln AZN (+64.7%). New short-term credits were issued in the amount of 1,597,3mln AZN, long-term 1050.1mln AZN.

As of 1 Novmeber two public banks allocated credits of 1014.7mln manats (+7.6% in October and +35.6% over 10 months of 2006), private banks 1080.5mln manats (+6.7% in October and +65.44% over 10 months).

As of 1 November 2006 credit portfolio of banks with foreign capital made up 486mln manats (+9.02% and +84.4% respectively), including 45.3mln manats loaned by foreign banks (+9.2% and +74.9% respectively).

As of 1 November average annual rate of banking crediting in the economy comprised 16.45%
in national currency against 16.25% as of 1 October and 15.14% as of 1 January 2005. With consideration of inflation rate of 7.6% in first 10 months of 2006, real credit rate made up 8.85%. The average annual rate on banking crediting the economy made up 16.83% in foreign currency against 17.15% as of 1 October and 17.11% as of 1 January 2005.

As of 1 November the average annual rate of banking crediting of legal entities made up 15.06% in national currency against 14.76% as of 1 October and 14.36% as of 1 January 2005, while real rate was 7.46%. The average annual rate of banking credit of legal entities constituted 14.76% in foreign currency against 15.02% as of 1 October and 15.37% as of 1 January 2005

As of 1 November the average annual rate of banking crediting of physical entities made up 19.55% in national currency against 19.92% as of 1 October and 17.36% as of 1 January 2005, while real rate was 11.95%. The average annual rate of banking credit of legal entities constituted 21.29% in foreign currency against 21.67% as of 1 October and 21.31% as of 1 January 2005

Banking sector

In October the deposit base of Azerbaijani banks grew 2.95%, while in January to October its growth has made up 43.6%.

As of 1 November the total amount of bank deposits and savings of legal and physical entities made up 1859.1mln manats against 1805.8mln manats as of 1 October and 1294.4m manats as of 1 January 2006. 619.2mln manats of the total sum fell on manat reserves, while the rest - on hard currency.

In October the amount of savings and deposits of physical entities rose 1.67% amid 0.3%-rise in deposits of the legal entities. The savings and deposits of legal entities of individual clients increased 42.5%, while deposits of corporate clients grew 45.5%

As of 1 November the amount of savings and deposits of physical entities at banks comprised 704.9mln manats against 693.3mln AZN as of 1 October and 494.5m manats as of 1 January 2005. As of 1 November the amount of deposits of legal entities made up 1154.2m manats against 1168.6mln manats as of 1 October and 793.5m manats as of 1 January 2006.

As of 1 November 141.1mln manats of savings and deposits of physical entities was implemented in national currency, while 5631.8mln manats (-17%) in hard currency. 478.1mln manats of deposits of legal entities (+11.8%) were implemented in manats.

As of 1 November 2006 the average rate of bank deposits of physical entities in the national currency comprised 10.46% against 10.72% as of 1 October and 8.92% as of 1 January 2006. The real deposit rate made up 2.86% amid real inflation ratio of 7.6%. The average rate of banking deposit in hard currency was 11.3% against 11.47% as of 1 October and 10.19% as of 1 January 2006

As of 1 November the average rate of bank deposits of legal entities in the national currency comprised 8.28% against 8.57% as of 1 October and 7.41% as of 1 January 2006 while real rate was 0.68%. The average rate of banking deposit of corporate client in hard currency is 6.79% against 7.23% as of 1 October 2006 and 6.83% as of 1 January 2006.

As of 1 November the average rate of bank deposits of physical entities in the national currency comprised 12.09% against 11.96% as of 1 October and 10.7% as of 1 January 2006, while real rate was 4.49%. The average rate of banking deposit of individual client in hard currency is 11.57% against 11.82% as of 1 October and 10.71% as of 1 January 2006.

As of 1 October some 138 credit orgaztaions held a license for banking activities, including

94 non-bank credit orgnizations (76 credit unions and 17 credit organizations, financed by the international humanitarian organizations) and 44 banks.

The number of bank branches made up 408, including 125 branches of public banks, 283 comercial banks. The number of banks holding local branches is 40. There are also 60 bank units in the country.

The National Bank announced that on 1 November 2006 the capital of the banking system exceeded $525.6mln against 502.8mln AZN as of 1 October and 388.26mln AZN as of the beginning of 2006.

In January to October 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, which sets standard capital of banks in te amount of as minimum 6,400mln manats, as of 1 November 2006 one bank has capital up to 3.5mln AZN, 2 banks to 5 mln AZN, 30 banks from 5 to 10 mln AZN, 10 banks over 10mln AZN.

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