CBA says banking sector restructuring almost complete - UPDATE

By Aynur Karimova

The process of restructuring Azerbaijan’s banking sector, which started in January 2016 with an aim to revitalize the country’s banking system, is almost complete.

President of the Central Bank of Azerbaijan (CBA) Elman Rustamov announced about this while talking to reporters on February 26, adding that the licenses of six banks have been revoked so far.

“Weak banks were eliminated, as a result of which the banking sector sustainability strengthened even more,” he said.

Since early 2016, the CBA has terminated the licenses of Texnikabank, Caucasus Development Bank, Atrabank, Gandja Bank, Bank of Azerbaijan, United Credit Bank and NBCBank. Later, the license of NBCBank was restored due to the bank's plans to merge. Caucasus Development Bank and AtraBank also have such plans.

Rustamov further added that only one bank – AGBank – adopted a decision on capitalization. "The general meeting of the bank’s new shareholders is likely to be held soon and these issues will be reviewed there.”

In mid-February, AGBank and Bank Standard decided to combine their assets and signed a corresponding protocol of intentions.

Experts believe that the consolidation will allow stable banks, which have deliberately decided to merge, to increase their share in the market and to gain more revenues, experts say. This strategy would be more correct if targets growth of profit and market share.

The International Finance Corporation and the European Bank for Reconstruction and Development support the consolidation of the country’s banks, regarding it as a way leading to financial recovery of the banks.

Rustamov went on to add that the CBA will continue to assist banks to increase the liquidity after the establishment of the Financial Market Supervisory Body as well.

“I believe that the Central Bank will retain this function,” he said, adding that the establishment of the Financial Market Supervisory Body does not mean that the CBA will not participate in ensuring financial stability in the country. The CBA will cooperate with the new structure on these issues.

Payment of compensation

Rustamov also spoke about the payment of funds to depositors of the banks, licenses of which were revoked by the CBA.

He said the CBA will allocate the necessary funds for the needs of the Azerbaijan Deposit Insurance Fund (ADIF) in accordance with the legislation.

"There cannot be any fear in this regard. ADIF continues payment of compensations to the depositors of the bankrupt banks. The Fund has also used the funds invested in securities for these purposes. Currently, the Fund has no shortage of funds," he added.

Earlier, Azad Javadov, Executive Director of ADIF said in case of shortage of money, the Fund will attract a loan from the CBA.

The volume of insured deposits of Bank of Azerbaijan amounts to 24.2 million manats ($15.49 million), Gandja Bank - 1.5 million manats ($960,000), United Credit Bank – 2.7 million manats ($1.73 million), and Texnikabank – around 123.2 million manats ($78.85 million).

No devaluation

Rustamov, commenting on the possibility of third devaluation of Azerbaijan's national currency, said there are no grounds for it.

"Although the oil prices are low, they are stable,” he said. “Recently, the amendments to Azerbaijan’s state budget have been approved in which the real oil price was set."

Rustamov added that the volume of transfers from Azerbaijan's state oil fund SOFAZ was also defined.

The Parliament adopted amendments to the state budget of Azerbaijan for 2016 on February 23.

Under the amendments, the budget revenues are projected at 16.822 billion manats ($10.767 billion), while budget expenditures at 18.495 billion manats ($11.838 billion).

The parameters of the state budget were revised given the price of oil at $25 per barrel. Forecasts of the approved budget were based on oil prices of $50 per barrel.

Azerbaijan's national currency, the manat was devalued twice last year - in February by 34 percent and in December by 48 percent.

The CBA chair believes that the stabilization of the foreign trade balance will lead to stabilization of the currency market.

“Optimization of import is observed. There are primary customs statistics, and we will carefully study the statistics for January and February,” he said. “In general, Azerbaijan's foreign trade balance is also being stabilized. It gives us an opportunity to restore stability in the foreign exchange market and to maintain the stable exchange rate of the manat in the floating mode."

Interest rate on mortgage loans

Speaking about a change in interest rate on commercial mortgage loans issued through the Azerbaijan Mortgage Fund, Rustamov said the government is considering this issue.

"It is planned to increase the mortgage loan’s size," he said adding that the interest rate for the social mortgage will remain unchanged.

Rustamov believes that the AMF should not expect funds from government to finance the mortgages, and has to raise funds from market, as well as through placement of securities.

In Azerbaijan, the maximum amount for mortgage loans provided via the AMF is 50,000 manats ($32,000) with a rate of eight percent and maturity term of 25 years. The social mortgage loan, however, is issued in the amount of 50,000 manats ($32,000) with an annual rate of four percent and for a term of 30 years.

A 15-percent down payment is required to receive this type of loan, compared to 20 percent with a conventional loan.

The social mortgage loan is allocated in Azerbaijan’s national currency, the manat, and the beneficiaries should be Azerbaijani citizens.

Mortgages are only given for apartments or private housing and the amount should not exceed 80 percent of the market value of the property. The monthly payment for a loan must not exceed 70 percent of the monthly income of the borrower, who should also produce a copy of his/her life insurance agreement.

The family members of martyrs, families of National Heroes of Azerbaijan, internally displaced persons, civil servants with work experience of no less than three years, Ph.D. holders, persons who have achieved special merits in sports, as well as those who have a minimum of three years military service can enjoy these preferential rates.

This year, the state plans to send 50 million manats ($32 million) from its budget toward the issuance of social mortgages, 25 percent higher than the amount of funding for 2014.

By 2016, the total amount of funds allocated from the state budget to the AMF is expected to reach 266 million manats ($170.3 million).

The AMF was established in December 2005. It began issuing mortgage loans in March 2006. Twenty insurance companies, out of 25, and 16 valuation organizations are participants of the mortgage market.

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Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova

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