Forum on risk management mulled challenges in finance sector
By Nigar Abbasova
Baku hosted the second Forum on Risk Management in the financial sector on May 26. Among the issues on agenda were specific challenges of risk management, economic uncertainty, and global instability.
Addressing the event, Rufat Mahmud, the chairman of the supervisory board of Azerbaijan Accountants & Risk Professionals Association (ARPA) said that the country seeks to make a good use of the vast experience of Russia in the sphere of risk management.
“Current situation actualize importance and need in the study of international experience. Processes occurring in the world and deepened crisis exert a negative influence on Azerbaijan and its financial market,” he said.
Risk management, which stands for the process of identification, analysis or mitigation of uncertainty in investment making, and occurs anytime an investor analyzes and attempts to quantify the potential for losses of an investment, is considered to be one of the most important issue in the current economic situation.
Given the fact that inadequate risk management can result in severe consequences for companies as well as individuals, the government takes measures and implements structural reforms to provide improvement in the financial sphere.
Mahmud was quoted as saying that discussions on the actions of risk-managers and applied methods are of utmost importance. “Banks and other financial institutions are currently engaged in the reconsideration of business models and risks, making attempts for the avoidance of income decrease in the altered situation,” he added
Elman Sadigov, director of Ata Bank's Risk Management Department and the head of the expert group on risk assessment of ARPA, in his turn stated that real sector of Azerbaijan’s economy is in need of 15-20 billion manats ($ 10.06 -13.42 billion) for the provision of smooth functioning.
He also noted that consumer crediting is not able to facilitate the growth of domestic production and leads to the outflow of the currency from the country, as approximately 80-90 percent of consumer credits are directed to the acquisition of foreign products, therefore it should be minimized.
Sadigov underlined that development of the country’s economy is closely connected with the level of real sector crediting while current volume of crediting of this sphere in the country is insufficient.
The risk manager underlined that consumer crediting in the majority of European countries gives an impetus for the development of real sector of the economy due to the fact that all credits are directed to the release of production on the domestic scene while consumer credits in Azerbaijan slow down the development as vast majority of credits is directed to the foreign countries. “Support of import into the country triggers decrease in domestic production,” he said
Addressing the participants Javanshir Abdullayev, director of Azerbaijan Bank Training Center, mentioned that Azerbaijan Banks Association has already worked out and submitted for the consideration of the government a package of measures for ensuring the banking sector's liquidity.
He mentioned that in order to provide liquidity the market should be opened for foreign investments. This will give a stimulus for banks capitalization and attraction of liquid assets.
Abdullayev noted that another method for the provision of liquidity refers to the use of the State Oil Fund (SOFAZ) assets. “We propose to invest 5 percent of SOFAZ actives in the national currency. The Fund may allocate assets to the companies holding the document of the investment incentives or direct them to the priority areas for the government”
Addressing the forum Maria Malukova, analyst of Moody’s rating agency said that ability of the government for rendering assistance to banks in case of need is sufficient. The fact is connected with the high level of the country’s total monetary reserves, which amount to 81 percent from the GDP and relatively small size of the banking system, which is 44 percent from GDP.
“In accordance with our forecast GDP in Azerbaijan for 2016 will be equal to SOFAZ reserves as of late 2015, which amounted to $ 33.6 billion”.
The analyst also touched upon the issue of refinancing risks noting that Moody’s refer to them as insignificant for the banking system of Azerbaijan due to the low level of borrowings in the market.
“International Bank of Azerbaijan has the highest portion of foreign borrowings while the rate of borrowings in other banks is not significant,” she added.
Moody’s assesses the factor of the state support for the banking industry of Azerbaijan as stable. “We are expecting that the government will firstly provide support for the large banks. The government has already taken certain actions to decrease the influence of devaluation to the national currency.”
Being established in May 2009 ARPA’s major direction is improvement of the level of knowledge of financial institutions and companies on risk management, sharing best practices and offering critical solutions for risk management. ARPA’s mission is to promote corporate culture ideas in the fields of Accounting and Risk Management in Azerbaijan thus contributing to the sustainable economic development of the country. The Association cooperates with the International Finance Corporation, Central Bank of Azerbaijan and Global Association of Risk Professionals.
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Nigar Abbasova is AzerNews’ staff journalist, follow her on Twitter: @nigyar_abbasova
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