Our Analytics 12 march — 11:54

Banks are returning to life (After crisis)



Lately, more and more official figures are making statements about stabilisation of the macroeconomic situation happening in Azerbaijan at the present time. This time such a statement has been made by the Fitch Ratings agency's director on developing countries Amelie Roux. Azerbaijanis themselves feel this in everyday life, but  it is difficult to analyse the situation, to understand it thoroughly without assistance. The rating agency explains all this simply.

Thus, Ms Roux asserts that the main reasons for the observed stabilisation are the gradual decline in the level of dollarisation in the country, the stabilisation of the manat rate since April 2017 and, consequently, the growth of confidence in it. Of course, Fitch's representative could not but mention the International Bank of Azerbaijan (IBA), which had brought the banking system and the entire economy of the country to a critical situation. But today, according to her, the skillfully carried out process of restructuring the IBA corrected the situation not only in the bank itself, but also had a positive impact on the banking sector as a whole.

The discussion in Baku once again demonstrated that all talk about the state of the country's economy is ultimately stemmed from its banking system. And it's not accidental: the banking system serves as a reliable indicator of the economy, it reflects in the mirror all the pros and cons of the country's economic state. Suffice it to recall how the economic crisis that began in 2014 shook the entire banking system of the country. Many criticised banks for their reluctance or inability to lend to the economy. In reality, banks would be happy to lend to the economy and issue consumer loans. The banks had enough money for this. But the trouble is that the economy and the population did not want to take these loans themselves.

To convince the reader of this, we want to give a rather impressive example. During the meeting with employees of Azeri Daily last year, the country's chief banker Elman Rustamov exclaimed in his heart: 'We have the money! We have enough for lending to any project. But whom to give them to, if there are no one willing.'

Yes, one can argue a lot about high interest rates that frighten businesses, unwillingness of banks to over-risk, etc. But all this was demanded by the current situation on the market, that is, the economy itself brought banks to such a state. And the sharp decline in the lending process was dictated not by mere caprice of banks, but by the market itself, against whose laws even the highest political ambitions are powerless.

But when the economy began to revive a bit, changes in banks began. For example, Deputy Chief Executive Officer and Head of the Strategic Services Department of the Chamber for Supervision of Financial Markets, Asim Zulfugarov, said that by the end of the last year the process of reducing the aggregate loan portfolio of banks had gradually stopped. He even pointed out the main culprit of this process: 'The main reason for the sharp decline in the loan portfolio is the restructuring of the International Bank of Azerbaijan, but if we exclude the IBA, and already closed Demirbank, then we can see that by the end of 2017 the aggregate loan portfolio of Azerbaijani banks even rose slightly, by 0.1 per cent,' Zulfugarov said.

But if the representative of the Chamber says only about stopping the reduction of the loan portfolio, the rating agency Fitch already expects an increase in the aggregate loan portfolio of Azerbaijani banks. And not in the distant future, but this year. It is believed that this year the process of restructuring the IBA will have a significantly smaller impact on the loan portfolio of the banking sector, and by the end of the year it will, albeit slightly, grow. True, this growth will be achieved by increasing the loan portfolios of three or four banks, whose positions in the banking sector of the country are the most stable.

Fitch also worries about the fact that a number of Azerbaijani banks do not meet the minimum requirements of the regulator. Earlier, local regulators tried not to call them out loud, which can be explained by the reluctance to cause excessive excitement in the market. But, apparently, now they are not very worried about this, which also speaks about the revival of the banking sector of the country. Three banks -- AGBank, Bank of Baku and AccessBank -- appeared in the list of the last year. At the same time, the Chamber itself believes that this year the capitalisation of banks will continue to increase. And this is due to the infusion of capital by the banks themselves.

Since the beginning of this year, a number of Azerbaijani banks have already increased their authorised capital. In addition, at present, the market capitalisation is expected to grow further, as a number of banks are planning to inject capital in the total amount of AZN 400 million.

Of course, this impressive amount will not be evenly distributed among the three dozen banks of the country, but in any case it will help the banking system as a whole to consolidate the small achievements so far achieved. As for those banks that are struggling to solve even the minimum requirements of the regulator, then, as we have seen more than once during the past crisis years, they will simply stay overboard: our banks have not managed to unite. But this is their fault, banks should not live on everything ready. They themselves must move, develop tactical and strategic plans, road maps aimed at further strengthening their positions, resistant to any whims of the market.

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