Monetary sector

Major tendencies in different segments of monetary-credit system in 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 December 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 2006

Amount, in mln USD

Rise as compared to 2005

Total, (BEST)

$1,940

Over 2 times

Without consideration of the deals at the NBA, 48.45% of the currency turnover in November fell on IBA

Along with the IBA, the top five included Bank Standard (15.63%), Texnikabank (7.89%), Kocbank Azerbaijan (6.33%) and UniBank (6.19%).

As a result of August they were the International Bank of Azerbaijan (45.35%), Bank Standard (18.08%), Bank of Baku (11.51%), Azerigasbank (6.98%) and UniBank (6.25%).

Top 5 Leading banks in the exchange currency market in December in 2006

Banks

Share in total, %

IBA

48.45

Bank Standard

15.63

Texnikabank

7.89

Kocbank Azerbaijan

6.33

Unibank

6.19

*data do not include deals by he NBA

The rating was compiled in accordance to share of deals in aggregate turnover (sum of purchased and sold foreign currency) currency section of BBVB.

In 2006, BSEX (Baku Stock Exchange) managed to reach the biggest volume of stock transactions over the whole thirteen-year period of its activity. As Trend reports referring to a press-release being spread by BSEX today, in result of the last year, the Stock total turnover exceeded 1,715 bln. AZN ($1,940 bln.). The volume of stock exceeded the corresponding indicator of 2005 more than in two times or on $1,06 bln. (885,575 mln. AZN). The turnover of BSEX in USD turned to be more than the aggregate turnover of the transactions of Stock in 2004 and 2005.

Over 98% deals were registered in the Stock currency section вЂ" 1,224 deals. The average volume of each of them in USD exceeded $1,554 mln. This figure is on 2,83 times more versus the corresponding one of 2005. The daily average volume of currency transactions at BSEX first exceeded $7,83 mln., that is on 2,4 times more versus that one of the last year.

The aggregate volume of deals with USD in BEST (Bourse E-System of Trades) reached 1682,23 mln. AZN ($1,902 bln), deals with the instruments EUR/AZN and RUR/AZN reached 521,83 thousand manats in aggregate. On the whole, in 2006, totally 486 trade sessions were held in BEST. Totally 36 banks took part in the sessions.

Monetary market

In 2006 the amount of money mass in Azerbaijan rose 1341mln manats or 2.68%, including 16.7% in December.

In this period money mass (M2) made up 2137.7mln manats, against 1831.1mln manats as of 1 December and 796.7m manats as of 1 January 2005. Without consideration of seasonal factors rise of M2 comprised 2.7 times since the beginning of 2006 and as of November 2005.- 9.7%

In this period the amount of cash money (Рњ0) rose 2.4% (+763.9mln manats), including 17.7% (196.8mln manats) in December. As of 1 January 2006 M0 turned out at 1311.3mln manats against 1114.5mln manats fixed as of 1 December and 547.4m manats fixed as of 1 January 2006. Without seasonal factors rise of M0 made up 2.4 times since the beginning of the year and 9.1 times in November.

As of 1 January the amount of non-cash money made up 1826.4mln manats against 716.6mln as of 1 December and 249.3mln AZN as of beginning of the year.

As compared with the beginning of 2006, to the end of the year, the money base (reserve money in an extended interpretation) increased on 1158.8 mln. AZN or in 2,3 times and reached 2044,6 mln. AZN.

Money base in December 2006 increased 2.3 times as compared to the beginning of the year and 3% as compared to December, 2005. The pure (real) international assets increased on 1140.5 mln. AZN and pure domestic ones вЂ" on 18.3mln AZN against the beginning of the last year.

The National bank of Azerbaijan, the money supply in AZN increased on 911.7 mln. AZN or up 2.3 times and reached 1599.5 mln. AZN.

As of 1 January 2007 money mass in manats made up 1599.5mln manats against 687.8mln manats as of beginning of the year. Rise in expanded money basis in 2006 equaled 2.3% amid 30.4%-rise in December.

The National Bank of Azerbaijan (NBA) stated a drop in the level of dollar intervention to the country's economy in 2006, Trend reports.

As a result of 2006, the special weight of all deposits and savings in foreign currency dropped 19.5% in the general deposit portfolio and 18.8% in the money aggregate Рњ3. The processes are characterized by the consolidation of rate of the national currency, the manat, with respect to hard currency and increase of public confidence in the national currency as a result of the denomination.

As of January 1st 2007, the growth rate of deposits and savings in foreign currency was 24.8% as compared to last year. The growth rate of deposits of legal entities in the manat also exceeded the growth rate of deposits in foreign currency. Over the past 12 months, community deposits in manats rose 4.5 times and in foreign currency 29.7%.

As of 1 January 2007 special weight of deposits in foreign currency in the structure of deposits made up 69.5% against 88.7% as at January 1st 2006. Short-term deposits in foreign currency rose 39.1% as compared to the beginning of 2006 and long-term foreign deposits 22%. Short-term deposits in manats increased 1.7 times and long-term 6.9 times.

Manat deposits by physical entities exceeded the growth rate of manat deposits placed by legal entities. The special weight of deposits in the total amount of savings and deposits fell from 77.6% in the beginning of 2006 to 69.7% in the end of December 2006. Manat deposits by physical entities rose 4.5 times.

Long-term manat savings rose 4.8% as at the beginning of the year. NBA fixed increase in manat deposits in the banks by the non-residents. As of January 1st 2007, short-term manta savings by non-resident physical entities grew 3.2 times and long-term 7.4 times.

Parameters of the monetary market

Объем, 01.01.07

Money mass in extensive understating (Рњ3)

3440,5

Money mass on manat (Рњ2)

2137,7

Cash in manat (Рњ0)

1311,3

Non-cash in manat

826,4

In December the amount of the net international reserves (NIR) of the National Bank of Azerbaijan reduced 18.67%, while since the beginning of the year it has grown 88.95%.

As of 1 January 2006 NIR comprised 1957.3mln manats against 1649.3mln manats as of 1 December and 1035.9bn manats as of 1 January 2006. Net internal asserts constituted 2070.6mln manats against 1564.9mln manats as of 1 December and 930.76bn manats as of 1 January 2005, the NIR of commercial banks made up - 113.3mln AZN against 84.4mln AZN and 105.9m AZN respectively

As of 1 January the NBA has 2178.8mln AZN in aggregated international assets amid 117.7mln manats in international obligations, while commercial banks вЂ" 304.2mln and 408.1mln manats respectively.

Net internal assets constituted 1998.8mln AZN against 2356.1mln AZN as of 1 December and 805.9m AZN as of 1 January 2006.

Credit Market

As of 1 January 2007 the banks raised 2362.7mmln manats, 1170.5mln AZN in national currency and 1192.2mln in hard currency) against 2242mln (including 1038mln manats in national currency and 1240.1mln AZN in hard currency) as 1 December and 1441mln AZN (542.9mn manats and 898.1mln manats) as of 1 January 2006.

Overdue credits and loans comprised 77.7mln manats against 80.2m manats as of 1 December 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

In December the Azerbaijani banks increased crediting economy by 5.38%, while in 2006 вЂ" 63.9%.

Short-term credits were issued in the amount of 1,142mln AZN, including 53.3mln manats in overdue credits against 1,118,3mln manats (including 55.6mln manats in overdue credits) as of 1 December and 913.3mln manats (48.3mln manats) as of 1 January 2006. As of 1 January 47.7% of short-term crediting and 65.1% overdue debts fell on hard currency.

Long-term credits constituted 1,220,7mln manats (24.4mln manats) against 1,123,7mln manats (24.7mln manats) as of 1 December and 527.7mln manats (19.6mln manats) as of 1 January 2006. as of 1 January 53.1% of long-term credits and 81.6% of overdue loan fell on hard currency.

As of 1 January 2007 two public banks allocated credits of 1068.3mln manats (+6,8% in December and +42.3% in 2006), private banks вЂ" 1229.7mln manats (+4.4% in December and +88.3% in 2006). For the first time the amount of crediting by private banks in the country exceeded the amount of crediting by state-run banks.

As of 1 January 2007 credit portfolio of banks with foreign capital made up 545.8mln manats (+4.98% and +2.1 times respectively), including a 55.8mln AZN loan (+11.6% and +2.15% respectively) allocated by fully foreign banks.

The phenomenal rise in bank crediting with foreign participation was first of all inked with the sale of stake to foreigners in the country's private banks.

Over 12 months of 2006 all 44 commercial banks in Azerbaijan provided only guarantees by $13.15mln, or 0.56% of total amount of the credit portfolio (2362.7mln manats). In the December the amount of guarantees rose 19.65% (2.8 times a year), while share in credit portfolio by 0.05% (+0.24).

As of 1 January accredits was opened in the amount of 2.05mln manats (0.09% of the credit portfolio). In December 2006 their amount reduced 17.67% (+1.69 times), while share in the sum of credit portfolio dropped 0.03% (+0.01). The amount of factoring operations (crediting under security) rose to 20.36mln AZN (a rose of 0.9% in December and +1,04% in 2006) amid cut in the share of credit portfolio (0.86%) by 0.07% (вЂ" 0.54).

As of 1 January average annual rate of banking crediting in the economy comprised 16.5% in national currency against 16.32% as of 1 December and 15.14% as of 1 January 2005. With consideration of inflation rate of 11.4% in December 2006, real credit rate made up 5.1%. The average annual rate on banking crediting the economy made up 17.17% in foreign currency against 16.98% as of 1 December and 17.11% as of 1 January 2005.

As of 1 January the average annual rate of banking crediting of legal entities made up 14.89% in national currency against 14.75% as of 1 December and 14.36% as of 1 January 2005, while real rate was 3.49%. The average annual rate of banking credit of legal entities constituted 14.81% in foreign currency against 14.87% as of 1 December and 15.37% as of 1 January 2005

As of 1 January the average annual rate of banking crediting of physical entities made up 20.1% in national currency against 19.58% as of 1 December and 17.36% as of 1 January 2006, while real rate was 8.7%. The average annual rate of banking credit of legal entities constituted 21.82% in foreign currency against 21.4% as of 1 December and 21.31% as of 1 January 2006

Banking sector

In December the deposit base of 44 Azerbaijani banks rose 10.3%, while in 2006 it grew 64.49%while in January to October its growth has made up 43.6%.

As of 1 January 2007, the total amount of bank deposits and savings of legal and physical entities made up 2,129.2mln manats against 1930.3mln manats as of 1 December and 1294.4m manats as of 1 January 2006. 826.4mln manats of the total sum fell on manat reserves, while the rest - on hard currency.

In December the amount of savings and deposits of physical entities at banks comprised rose 12.86% amid a 8.7%-rise in the amount of deposits of legal persons. Since the beginning of the year the deposits of individual clients made up 65.7% amid 65.05% rise in deposits of corporate clients.

As of 1 January 2007 the amount of savings of legal entities made up 819.5m manats against 726.1mln manats as of 1 December and 494.5m manats as of 1 January 2006.

As of 1 January 2007 the amount of deposits of legal entities made up 1309.7mln manats against 1,204,1mln manats as of 1 December and 793.5mln manats as of 1 January 2006.

As of 1 January 2007, 250.3mln manats of savings and deposits of physical entities was implemented in national currency, while 569.2mln manats in hard currency. 576.1mln manats of deposits of legal entities were implemented in manats.

As of 1 January 2006 the average rate of bank deposits in the national currency comprised 10.39% against 10.44% as of 1 December and 8.92% as of 1 January 2006. The real deposit rate made up 2.09% amid real inflation ratio of 8.3%. The average rate of banking deposit in hard currency was 11.58% against 11.34% as of 1 December and 10.19% as of 1 January 2006

As of 1 January 2007 the average rate of bank deposits of legal entities in the national currency comprised 8.4% against 8.22% as of 1 December and 7.41% as of 1 January 2006 while real rate was 0.1%. The average rate of banking deposit of corporate client in hard currency is 8.5% against 6,74% as of 1 December 2006 and 6.83% as of 1 January 2006.

As of 1 January 2007 the average rate of bank deposits of physical entities in the national currency comprised 11.76% against 12.08% as of 1 December and 10.7% as of 1 January 2006, while real rate was 3.46%. The average rate of banking deposit of individual client in hard currency is 11.75% against 11.7% as of 1 December and 10.71% as of 1 January 2006.

As of 1 January some 138 credit organizations held a license for banking activities, including

94 non-bank credit organizations (77 credit unions and 17 credit organizations, financed by the international humanitarian organizations) and 44 banks

In 2006 the National Bank of Azerbaijan issued 11 licenses for the activities of credit unions and two licenses were recalled. The number of bank branches made up 420, including 125 branches of public banks, 295 commercial banks. The number of banks holding local branches is 41. There are also 69 bank units in the country.

The National Bank announced that on 1 November 2006 the capital of the banking system exceeded $612.06mln at exchange rate of 0,8723 AZN/USD.

As of 1 January 2006 the capital of banks made up 603.3mln manats against 533.9mln manats on 1 December and 388.26mln as compared to the beginning of previous year.

Amid normative requirement of 8.2mln manats, as of 1 January 3 banks held up to 5mln manats, 29 banks вЂ" from 5 to 10mln manats, 11 banks вЂ" over 10mln manats.

In his period 5 banks did not fulfill the NBA's requirements.

Stock market

In December 2006 the Ministry of Finances held 4 auctions on placement of T-bills were held at the secondary market in the amount of 34mln manats, of which 20,762mln manats, or (61.1% of entire issue) was placed. The average sustainable profitability on the results of shareholders was equal to 10.92% per annum. Two deals with T-bills was held at the secondary market with the total amount of 1,018,548mln manats.

The National Bank held 4 trading sessions on the placement of T-bills. The emitter succeeded to place 138,636 manats, or 99.8% of the entire emission in the amount of 138,893mln manats issued during 4 auctions. The average sustained profitability ratio on the results of auctions 13.77% per annum. In December 28 deals worth 23,027mln AZN were held at the secondary market.

In December 51,098,217 manats was placed at the corporate shares market, while at the secondary market on short-term notes the placement amounted to 291,725 manats. Initial placement of corporate bonds on 19 deals comprised $2,750 manats, while at the secondary market it was fixed at 1,065 manats. The deals with currency amounted to $12,575.

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