Azernews.Az

The Azerbaijani Central Bank (CBA) is conducting an active dialogue with the banks for consolidation of the banking system and institutional development through the expansion of the branch network, chairman of the Central Bank Elman Rustamov told journalists, Trend news agency reported.

"We expect certain consolidation in the country's banking system," he said. "Today, nearly 87 per cent of the banks fulfill new regulatory requirements for capitalisation. Several banks cannot replenish their capital, so they must use the chance for consolidation to be competitive in the market, even with medium banks."

Today, the banks must strengthen the capital positions in terms of a new scale of the Azerbaijani economy which has increased three fold compared to 2003.

According to the CBA board's decision dated July 25, the minimum total capital of existing banks and authorised capital of newly established banks increased from the current 10 million manat ($12.7 million) to 50 million manat ($63.7 million). The new requirement for the capitalisation of the existing banks will come into force from January 1, 2014.

"GDP per capita in the country has increased 20 fold from $400 to $8000 for a short period," Rustamov said. "The banks must have the required capital to maintain a certain position in the market, to be competitive and render a wide range of banking services to the population."

Rustamov said that the consolidation and centralisation of the banking system is also a historical trend that started from the formation of the market economy. The larger the banks, the more they are competitive and profitable in the market.

"This trend is also characteristic for the Azerbaijani economy," he said. "The number of banks has been reduced from 250 to 43 for the last 15 years in the country's banking system. This confirms the five-stage centralisation and consolidation in the banking sector of the country."

However, the process of consolidation must be completed and this is not the way to create a mono-bank.

"If one considers the indices of neighbouring countries and those having an economy similar to that of Azerbaijan, including the number of banks, branches falling to every 100,000 people, the consolidation of the banking sector in these countries occurred by expanding the network of bank branches, rather than by increasing the number of banks," Rustamov said.

As an example, the head of the Central Bank cited establishing Postbank in Azerbaijan. This will allow the rendering of financial services to the population in the most remote villages of the country through its extensive network of 1200 branches.

"It is inappropriate to keep hundreds of banks, as it will be impossible to capitalise them," Rustamov said. "I think this is a positive trend. It will be continued."

As of November 1, the banks' assets in the country reached a new absolute record worth 16.309 million manat compared to 15.998 million manat as of October 1. The bank assets hit 14.259 million manat in early 2012.

As of October 1, the total number of branches reached 643 compared to 501 in 2008.

The official exchange rate is 0, 7849 AZN/USD on Dec. 17.