Azernews.Az

By Nigar Abbasova

Azerbaijan is experiencing fundamental changes in the sphere of economy, therefore it is reasonable to introduce a multilevel scale of requirements to the capital of banks and other financial institutes, expert Farkhad Amirbeyov told Trend.

“We are in captivity of a certain stereotype, which says that requirements to all banks, for example, aggregate capital, which stands at 50 million manats ($31.8 million), should be the same. In my opinion, it is much more appropriate to introduce a multilevel scale of requirements. Differentiated requirements will allow financial institutes to render services, range of which will mainly depend on the level of capital and quality of management,” he said.

Amirbeyov believes that it is reasonable to take into account not only quantitative indicators of banks, such as size of capital but also qualitative index.

“Capital increase in this mechanism does not lead to the instant increase of the status of bank, regulator analyses its operations and defines transition period. A bank acquires extended license should it improves its qualitative indicators, such as quality of management, readiness to render certain services, ability to manage risks. If not, it may be provided with additional time,” he said.

Expert mentioned that such notions as “systemically-important”, “structure-forming”, “very big” for being liquidated are relative and very doubtful.

“Structural and large banks is a very relative notion. As many as three banks (Agro-Investment Bank, Industrial-Investment Bank and Savings Bank) which were considered to be a backbone of the financial system of the country were liquidated in late 1999’s and early 2000’s. BUS bank was further established through merging three major state banks, which was subsequently privatized and renamed to Kapital Bank. The then decision also triggered many talks and doubts about its correctness. Such notions as “large” and “important” are used only when there is no wish to change something,” he said.

He also mentioned that the principle of differentiation of requirements to the capital and quality is not an innovation in the world practice. The method will allow the market to regulate the quantity of financial institutions and market share.

“In my opinion, currently, it is desirable to avoid such drastic decisions as cancellation of licenses, as the decision exerts pressure on the operation of the Deposit Insurance fund (ADIF), which is forced to attract credit once again to implement its statutory obligations (the fund attracted credit from the Central Bank of Azerbaijan (CBA) worth 22 million manats ($13.8 million) in March 2016. The use of the method of differentiation in regards to the financial institutes will be much more appropriate than the liquidation. In this case, majority of banks will be able to find their niche, but whether they are able to operate within the framework of high level of competition will be defined by the market itself, not by the government," expert said.

The licenses of DekaBank, KredoBank, Parabank and Zaminbank have been recently cancelled in Azerbaijan due to their failure to meet necessary requirements specified in the relevant legislation.

The Finance Ministry has recently approved the issuance of credit for payment of compensation of deposits in the four closed banks. Earlier, ADIF said that it will attract a two-year loan worth 100 million manats ($63.2 million) from the Central Bank (CBA) to pay compensations to depositors of the banks

ADIF has been appointed a liquidator of four banks on July 21. Temporary administrators were appointed to the banks on July 22. The depositors of the closed banks are able to apply for compensations starting August, 1.

Licences of EuroBank and Azerbaijan Credit Bank were abolished in 2015. Since the beginning of 2016, the Central Bank of Azerbaijan has terminated the licenses of the Caucasus Development Bank, Atrabank, Ganja Bank, Bank of Azerbaijan, United Credit Bank and NBCBank. Later, the license of NBCBank was restored due to the bank's plans to merge. The Caucasus Development Bank and AtraBank also have such plans.

Earlier Head of the FMSB Board of Directors Rufat Aslanli said that currently the country has no troubled banks except the International Bank of Azerbaijan and Bank Standard. Nevertheless, the closure of these banks is not currently on the agenda.

Currently, 33 banks have licenses for implementing banking activities in Azerbaijan.

Official exchange rate of the US dollar and euro to the Azerbaijani manat was set at 1.5883 manats and 1.7749 manats, respectively, on August 2.

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Nigar Abbasova is AzerNews’ staff journalist, follow her on Twitter: @nigyar_abbasova

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