Azernews.Az

PASHA Bank Chief Executive Officer Farid Akhundov spoke to Azernews about specific issues in Azerbaijani banking sector and PASHA Bank's goals and achievements.

By Araz Said

Farid Azer oglu Akhundov, 41, CEO of PASHA Bank since June 20, 2007. Prior joining PASHA Bank he worked as the Director of F.T.F LLC Company. Through October 2003 to June 2005 Mr. Akhundov was the CEO of Bank Standard.

Between 1996 to 2003 he held various managerial positions such as Head of Financial Control Depart­ment, Head of Customer Services Department and Deputy CEO at the British Bank of the Middle East (subsidiary of HSBC Bank).

Obtained his higher education degree from the Faculty for economy planning at the Azerbaijan Institute of National Economy in 1987-1992. In 1993 took Management Course of Nottingham Trent University in Baku. In 1995 obtained his MBA degree from Salford University, Manchester, UK.

Question: In its latest report "Prospects for Azerbaijan's banking system Moody's Investors Service agency noted the low level of banking penetration, providing the banks with long-term growth opportunities. How could the financial system intensify its role in diversifying the economy?

Farid Akhundov: The level of penetration of banking services in Azerbaijan is still not high. If I'm not mistaken, the share of bank assets in the total GDP is about 25 percent, which is very low, even compared to economically less developed countries. This is a very significant problem, which is related to various reasons like preferences to cash payments over bank circulation.

In my opinion, business community needs to be broadly encouraged to circulate money turnovers within the banking system and to achieve greater penetration of banking services. The essence of such a program could be inducements by the tax authorities or the full tax exemptions, introduction of various benefits. It is necessary to ensure that entrepreneurs do not feel a difference between conducting their deals through banking services and by cash turnover. There is a complex solution to this problem, involving not only of the financial system but the state bodies as well. The banks would not be able to reach the desired goal -on their own-. Therefore, I strongly believe that the banking sector is ready to work with government agencies to achieve an increase in turnover and the level of bank penetration in Azerbaijan.

Q. What is PASHA Bank's role in this process?

F.A. We are ready to participate directly in the processes that one way or another affect the positive development of the sector, and to come up with certain ideas - whether it is various local events or "roundtables" with the participation of experts. Thus, as a bank which is eager to move to non-cash economy we have sponsored a range of events including the Tax Conference - dedicated to the new tax culture. At the conference which was initiated by AMCHAM, leading practitioners and experts from Azerbaijan, USA and CIS analised various aspects of tax policy and administration and engaging in the discussion with the high ranking representatives of the Ministry of Taxes with participation of the Big Four.

Our top managers are in consultations with the state and business community through various organizations like Azerbaijan Banks Association, AMCHAM, etc.

In addition, we try to draw the attention of the world's economic elite to our country, and it turns out very well. Thus, in April, together with The Economist Group, we held an international forum in Baku - Buttonwood Breakfast: Global Economics. The main objective of the forum was to mull prospects of development for the world economy and hold discussions between experts and 35 investors and managers of regional business organizations (BP, Chevron, Societe Generale, Commerz Bank, Ernst & Young, etc.) over possibility of realization of a number of economic scenarios and their potential impact. Representatives of the world business held an exchange of views in Baku on the economic situation in the post-crisis period, the probability of the potential impact of a range of economic scenarios, and emergence of new challenges to the world economy, the prospects of investing and doing business in Azerbaijan, as a country, whose economy was not affected much by the financial crisis, etc.

Q. What are the major directions of PASHA Bank's new strategic plan? Which sectors of the economy will the bank focus in future?

F.A. Despite the successful examples of servicing subcontractors of oil companies, since the beginning of its activity PASHA Bank directly contributes to the process of diversification, by predominantly servicing companies that represent non-oil sector of the economy - telecommunications, agriculture, trade and services, food manufacturing and others.

In our new strategy designed for 2012-2014 we will mainly focus on the further development of three areas of activity: corporate banking, treasury operations, wholesale and on private banking. We also plan to establish closer contacts with small and medium enterprises (SME), while still keeping large corporate entities in our business focus. We also plan to remain active in the securities market. We will try to gain a foothold as the leading corporate bank in Azerbaijan.

As for the prospects of the Bank, participation in international summits, undertaking extensive road-shows in the Old World has enabled us to quickly establish relations with leading financial institutions and open up new horizons for further development. The prerequisites for this are strong, competitive offerings for customers, competent and well-delivered services, as well as the development and introduction of new services. We are moving towards our goals slowly but steadily, rooting in the local banking market and winning the trust of consumers of banking services.

We achieve our goals gradually and they yield results. Correctness of the chosen directions is confirmed by the outside observers. For example, a reputable international financial magazine EMEA Finance announced the list of holders of the Europe Banking Awards for 2011: PASHA Bank has been awarded as the "Best Investment Bank in Azerbaijan".

Another achievement of the first half of 2012, which deserves mentioning, was PASHA Bank acting as a co-manager of Baghlan Group in issuing Eurobonds worth $150 million in total. Up to this point, no private bank of Azerbaijan had become a co-manager of such a major international bond issuing. This is only the beginning and I'm confident that by the end of the year our accomplishments will be even more impressive.

Q. What is the current market share of PASHA Bank in Azerbaijan's banking market and which financial indicators does PASHA Bank pursue on the market to lead?

F.A. Our share in the total assets of the sector is about 5%, and, I think, by the end of this year we will be able to increase the figure up. As for expanding the client base, in the near future we will be able to gain a foothold in this direction through launching work with small and medium-scale enterprises. Despite the fact that we have very serious rivals in this sector, who have been conducting business for a long time by using a well-designed work model, we expect an increase in this SME sector by the end of the strategy period.

Traditionally, the absolute indicators of a bank's activity - liabilities, assets, profitability, capital - are always important, but for us the main internal parameters are the quality of business, "health indicator of the organization" and competent management of our own resources. For example, the staff of the Bank numbers only 172 people for now, but the revenue per employee in our bank is one of the highest. We also have the lowest cost to income ratio among the banks in the market. Hence it appears that the work of our Bank is set correctly and it offers us a ground to be optimistic about our future.

Q. What are PASHA Bank's plans for expanding out?

F.A. We have been working with the Georgian partners and clients for a long time, which is why the decision to open a subsidiary in this country has been made. Georgian market is also interesting for us for other reasons, like, the competition in this market is very tough, because local banks, such as Bank of Georgia, TBC Bank, Procredit Bank, etc., have great institutional strength . In addition, some Azerbaijani and foreign banks are operating there, while some Georgian banks have strong foreign "parents." Recruitment and other administrative matters have been completed and we are preparing for the official opening of PASHA Bank Georgia in the near future. We also plan to open a representative office in Switzerland and we continue working on it.

Q. PASHA Bank has been assigned 'BB-/B' credit ratings by Standard & Poor's. Will this international credit rating promote the bank's plans of active penetration into international capital markets?

F.A. In September PASHA Bank has been assigned 'BB-' long-term and 'B' short-term counterparty credit ratings with stable outlook by Standard & Poor's - International Rating Services Organisation. This is the highest rating assigned to Azerbaijani commercial Bank with 100% local capital and second highest for a private bank in Azerbaijan.

PASHA Bank has an adequate business position, strong capital and earnings, moderate risk position, below average funding, and adequate liquidity.

The long-term rating on the bank reflects the bank's high systemic importance in the country and Standard and Poor's assessment of the Azerbaijan government as supportive.

The stable outlook reflects Standard & Poor's expectation that PASHA Bank will expand its franchise and loan book quickly in the next two years, at least by 30% per year, while maintaining strong capitalization and adequate liquidity.

I would say that getting international ratings is not entirely related to plans of active entering the international capital markets. However, there are issues of diversification of financing and we will strive to increase the amount of funds raised from a variety of new sources.

Q. What is your bank's role in increasing the volume of cashless payments in the country?

F.A. Traditionally, turnover on our POS-terminals is very high, as it is noted by international payment systems VISA and Master Card. In this direction, we prefer to work with POSs, where business demands cards to be accepted. However, we should keep in mind that our strategy targets not the retail sector, but the demand of corporate customers.

As it concerns increasing the volume of cashless payments in the country in general, I believe here the banking sector can only act as a tool with the state bodies setting the tone. The banks do not have their own instruments to initiate drastic changes in this regard. Neither the bankers on their own have the power to change the psychology of doing business in the country by themsleves. I am confident that large scale initiatives of the relevant state agencies supporting the banking community can further improve the situation.

Q. PASHA Bank is actively involved in supporting social projects in Azerbaijan. Do you plan to continue this course of action in the future?

F.A. Social projects conducted by PASHA Bank, are always ambitious and popular - no matter whether holding major sporting events such as the International Rating Tennis Tournament PASHA Bank Cup, or cultural projects whose primary purpose is to promote the heritage of the Azerbaijani nation both locally and internationally. However, in corporate social responsibility program we pay special attention to education.

Back in the late 1980's - early 1990's schoolchildren and students everywhere were looking for opportunities to find some funding programs related to education, to be able to go study and to do an internship abroad, but there were very few opportunities for that and for a limited number of people. Now the situation has changed. We certainly are not the only organization that provides support to young people. However, implementing and sponsoring a variety of educational projects and programs for the youth, we, as one of the main players of the banking market, understand how important it is to invest in the education of young people, who in the future will contribute to Azerbaijani economy.