Azernews.Az

By Aynur Karimova

The Central Bank of Azerbaijan has started restructuring the banking sector and implementing measures to strengthen its financial stability and risk management.

CBA's Chairman Elman Rustamov said that the countercyclical approach applied by the CBA and supporting measures made it possible to manage risks at an adequate level, and banks have shown resilience to shocks thanks to the formed capital and institutional buffer.

"Using a proactive approach to the banking supervision and prudential regulation, not having allowed accumulation of additional risks in the sector, regulatory frameworks have been adapted to the new situation and countercyclical mode has been applied regarding the requirements to banks," he said at the expanded board meeting dedicated to the results of 2015.

The assets of banks as of late 2015 amounted to 35 billion manats ($21.47 billion), credit investments in the economy of the country - 21 billion manats ($12.88 billion), 75 percent of which fall to the share of business loans.

In 2015, Azerbaijan's foreign trade position was formed under the influence of the situation on the global consumer markets and trading partners, he stressed.

“The decline of the current account surplus to $241 million in January-September 2015 compared to the same period of 2014 is mainly due to a decrease in oil prices,” Rustamov said. “The consumer balance and balance of services in non-oil sector were influenced by the economic processes occurring in partner countries.”

The CBA, using the stabilizing possibilities of monetary policy adequately to the economic cycle, has directed its policy to ensure macroeconomic and financial stability.

“In order to create conditions for increasing investment activity of non-oil sector, lower interest rates on loans, the CBA has lowered the mandatory reservation requirements and parameters of the percentage corridor,” the CBA chairman stressed.

The CBA took real steps to revitalize its banking system by consolidating two banks and terminating licenses of six banks operating in the market.

Since early 2016, the Central Bank of Azerbaijan has terminated the licenses of the Caucasus Development Bank, Atrabank, Gandja Bank, Bank of Azerbaijan, United Credit Bank and NBCBank.

Last week, two other Azerbaijani banks - AGBank and DemirBank - have signed a protocol of intent about merging.

Thus, the number of banks operating in Azerbaijan fell to 37 from 43.

Rustamov went on to add that the CBA will increase efforts to improve stability of banks against risks in conditions of volatile economic environment in 2016.

The CBA plans to focus on stress tests, which will be carried out to preserve financial stability and effective governance in the banking sector.

“The CBA will continue measures that will strengthen the role of the financial and banking sector in supporting economic growth, and improve access of economic agents to loans,” he noted. “The development of cashless payments, extension of the introduction of electronic payments and innovative payment technologies will be among the priorities of the bank.”

In 2016, the CBA will also be pursuing a policy that allows increasing flexibility of monetary policy, and ensuring financial stability of the national economy and its international competitiveness.

“Exchange rate policy in accordance with the new [floating rate] regime will aim to mitigate exchange rate fluctuations,” Rustamov said. “At the same time, it is planned to take additional measures together with the government to balance the foreign exchange market.”

No appeal to merge insurance companies

Although Azerbaijan’s banking sector witnessed the consolidation of banks and termination of several licenses since early 2016, none of insurance companies operating in the country have made an appeal on merging to the State Insurance Supervision Service under the Finance Ministry.

"At the moment, the insurance companies have not appealed us with plans on consolidation, but it is not excluded in the future," Namig Khalilov, the Head of the service, told Trend.

Touching upon the possibility of withdrawal of insurance companies from the market due to the financial problems, he stated that he does not expect the companies leave the market through the termination of their licenses.

"Insurance is a commercial activity; therefore, it is normal that the financial performance of some companies may be adversely worsened, while of others - improved," he noted. "Given that an insurance company takes the obligations for at least one year, while for life insurance - an even longer period, its last year's activity affects the results of the current year. We can say that there is certain inertia. But in general, we do not expect the companies leave the market through the termination of their licenses."

Last year two insurance companies - Qarant Insurance and Era-Trans left Azerbaijan's insurance market. Currently, some 26 insurance companies are operating in this market.

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

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