EBRD proposes Azerbaijan to expand range of non-banking financial products, services
By Leman Mammadova
Azerbaijan’s collaboration with European Bank for Reconstruction and Development (EBRD) contributes to the further strengthening of the national economy.
The Bank has introduced its new country strategy covering 2019-2024 to help Azerbaijan develop its non-oil sector, strengthen local lenders and boost investment in the green economy.
EBRD offers Azerbaijan to promote economic diversification by supporting competitiveness and effective management, according to the strategy.
Moreover, the document states that it is important to increase the sustainability of the financial sector, including capitalization, and to create a sustainable financing structure and sound risk management practices in the banking sector.
EBRD experts believe that attention should also be paid to the provision of dedicated credit lines and risk sharing frameworks to partner banks to stimulate lending to underserved segments and areas (e.g. with special focus on women, energy efficiency, small-scale agribusiness), complemented by risk management and corporate governance assistance, as well as assistance in the development and implementation of a tool credit scoring for financial institutions.
As indicated in the strategy, Azerbaijani government should also advocate for the restructuring and improvement of the corporate governance of the International Bank of Azerbaijan, including potential (pre-) privatization financing and/or equity.
The EBRD strategy also pointed to the need to expand the range of non-banking financial products and services offered to support the development of an active and efficient money market and improvement of the regulatory framework for local currency financing (including issuing bonds) and hedging instruments.
Today, banks leave behind other financial intermediaries for overwhelmingly increase in the volume of their assets and capital, as well as regional coverage.
At present, the country has developed a two-tier banking system based on market principles (Central Bank of Azerbaijan in the first tier, while commercial banks and other non-bank credit organizations in the second one). There are 30 banks in Azerbaijan, including 2 state-owned ones.
In January 2019, the assets of Azerbaijani banks amounted to 29.6 billion manats ($17.4 billion). The loan portfolio of Azerbaijani banks amounted to 12.54 billion manats ($7.4 billion). Of this amount, the banks created reserves for 1.48 billion manats ($0.9 billion). Also, in the structure of assets, 1.19 billion manats ($0.7 billion) accounted for cash held by banks, while 3.9 billion manats ($2.3 billion) accounted for securities.
EBRD is a leading investor in Azerbaijan. The country has been cooperating with EBRD since 1992 to achieve further economic development. One of the main priorities of EBRD in Azerbaijan is to support the local corporate sector with direct financing.
In total, the Bank has allocated almost 3.3 billion euros for projects in various sectors in Azerbaijan. The largest share of investments account for the energy sector (50 percent), while 42 percent accounts for infrastructure projects. The rest is for financial, industrial and commercial projects.
The Bank continues working with the Azerbaijani government and the private sector to make further investments in the country. At the moment, the number of active EBRD projects in Azerbaijan is 45, and in total, the EBRD has implemented 167 projects in Azerbaijan. The current portfolio of projects is worth 1.4 billion euros. Major share of investments accounts for to the private sector.
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Leman Mammadova is AzerNews’ staff journalist, follow her on Twitter: @leman_888
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