A SUPPLEMENT TO EUROMONEY – April 1997The banking sector of the Azerbaijan RepublicA banking system was established in Azerbaijan after the collapse of the soviet Union with the proclamation of independence of Azerbaijan in 1991. A legal framework for the banking sector was set up by presidential decree in February 1992 (which established the National Bank of Azerbaijan). In addition to this, consequent Laws on Banks and Banking Activity and the Law on the National Bank of Azerbaijan were passed in August 1992. These laws were amended in June 1996 to form an internationally acceptable and modern banking legislation. The banking system of Azerbaijan represents a classic two-tier banking system with the National Bank of Azerbaijan as the top tier and the commercial( both state- owned and private) as the second tier. Two-tier banking systemCentral Bank The Law on the National Bank gave the Azerbaijan National Bank (ANB) the authority of a central bank with powers to do the following: * issue the national currency (Azerbaijan Manat /Am); * promote the functioning of the payment system; * design and implement monetary credit policy to stabilize the currency; * licence and supervize the banks and other credit institutions; * serve as fiscal agent for the government; * hold and manage the official foreign exchange reserves. ANB is a full state-owned bank, subordinate only to the President of the Azerbaijan Republic. Commercial Banks The commercial banking sector of Azerbaijan has been characterized as overbanked and undercapitalized. The number of commercial banks has decreased from 230 and 180 respectively in 1995 and 1996 to only 136 at the beginning of 1997. Measures taken by ANB over the past two years has significantly reduced the number of commercial banks (from 230 and 180 respectively in 1995 and 1996 to only 136 at the beginning of 1997) and put very tight requirements to the capital base on existing banks. The programme of restructuring the banking sector aims at bringing the Azerbaijani banking system up to internationally-recognized banking standards. In particular it requires the following: * the minimum capitalization of a commercial bank to be the equivalent of $1 million by the end of 1997, $2 million by the end of 1998 and $5 million by the end of the century; * a switch to internationally accepted accounting by the end of 1997; * the introduction of internationally accepted prudential regulation; * the restructuring of four state-controlled banks with the ultimate goal of privatizing them; * upgrading the banking skills and banking technologies. ANB has created significant possibilities for foreign banks’ participation in Azerbaijan. As a result ANB has licensed 12 banks with foreign capital participation. Among them are six joint banks, four fully foreign-owned banks and two foreign banks branches. Economic Reforms and ANBANB has been playing a very important role in the economic reforms programme that the government launched in early 1994 after Heydar Aliyev was elected President of the Azerbaijan Republic. This programme has been designed in close collaboration with the IMF and the World Bank and is aimed at achieving microeconomic and financial stabilization as a prerequisite to free market reform. The programme assumes that economic progress and successful transition to a market economy is not possible without sound financial and a banking system that is responsive to market needs. Tangible progress was reached in 1995 and 1996 in attaining the targeted goals of financial stabilization. Annual inflation running at 1880% in 1994 declined to 84.6% in 1995 and 6.8% in 1996. As a result price stabilization in Azerbaijan has been faster than in other transitional economies, including the Baltics, Russia and other states of the former Soviet Union. The ANB’s foreign exchange reserves have been brought to the country’s three-month import level. GDP growth in 1996 was at 1.2%, which reflects the first signs of economic recovery. The exchange rate of the Manat remained stable during 1995 and appreciated against the dollar by 7.8% in 1996 and 1.3% in the first quarter of 1997. Money and the FX MarketsWithin the framework of the government’s overall economic liberalization policy, ANB has been undertaken cardinal steps to develop financial markets. In 1994 Baku Interbank Currency Exchange (BICEX) was established and started its regular weekly auctions. In 1996 BICEX introduced daily auctions on major international and CIS currencies. The volume of trade at BICEX reached $611 million in 1996 ( more than double the amount in 1995) and continues to grow. Foreign exchange operations at BICEX gave the commercial banks the opportunities to cater for foreign exchange needs of economic agents and diversify the scope of offered products and services. ANB used the foreign exchange auctions as a major domestic instrument to achieve targeted goals of monetary and price stabilization policy. Credit auctions of ANB, as a source for providing liquidity to the banking sector, became another instrument of the monetary-credit policy in 1995 to 1996. Money market instruments will be diversified in 1997 by introducing collateralized credit and deposit auctions. T-Bills AuctionsANB has also acted as the government’s main fiscal agent for the allocation and circulation of treasury bills issued by the ministry of finance of the Azerbaijan Republic. T-bill auctions are held in the securities section of BICEX. The best local commercial banks are qualified as primary dealers. In September 1996 the first T-bill auction took place.
During 1996 ANB allocated T-bills at a value of In January 1997 the secondary market for T-bills was launched. Repurchase operations will soon be introduced. Banking sector and Incentives for foreign investorsThe up-to-date banking system of Azerbaijan can offer to foreign investors sufficiently good banking services because of the following: * commercial banks in Azerbaijan have been enjoying stable correspondence with the leading international banks, successfully supporting foreign trade and other activities of their clients, and ensuring efficient capital flows. The number of SWIFT-member banks in Azerbaijan is increasing; * A foreign exchange regime has now been fully liberalized. ANB is finalizing the last preparations required to comply with Article VIII of the IMF Articles of Agreement; * The development of both money and stock markets is underway and will be substantially boosted by the progressive land reform and the cheque privatization process which is gaining momentum; * the commercial banks under the existing legislation ensure 100% repatriation of foreign investments and profit on investments after tax settlements; * support from the IMF, World Bank, EU and other bilateral donors, both intellectual and technical, will promote the upgrade of the banking system and result in the rapid acquisition of internationally-recognized banking practices. ANB doing all it can to improve and perfect the banking sector, to increase its credibility, in order to create a banking environment which provides favourable conditions for foreign investment and to capitalize on the economic upsurge of the Azerbaijan Republic. International Bank of the Azerbaijan republicThe International Bank of Azerbaijan (IBA) is the largest financial institution in Azerbaijan. Founded in 1992, with authorized capital of Rb250 million, on January 1 1993 the bank was transformed into a joint-stock commercial bank. The bank’s authorized capital was further increased to Am3 billion in 1995 and to Am20 billion in 1996. The International Bank of Azerbaijan is the first bank in the country to provide banking services in all foreign currencies. IBA has achieved strong results through its highly dynamic business approach .Economic indicators have improved continuously. IBA and its shareholders made impressive progress in consolidating its resource base. One of the priorities was the formation of strong reserves as a guarantee of the bank’s stability and strength. The bank’s profit has increased considerably, ensuring liquidity. IBA is now equipped to offer services related to international trade, extending credits to enterprises in both local and foreign currency. IBA conducts a full range of banking services, including current account services in foreign currencies, interest bearing deposit accounts, international payment systems, foreign trade consultancy services, international cash management services, granting of credits, personal banking, foreign exchange dealing, credit card transactions and many other banking transactions. The International Bank of Azerbaijan is one of the founders and major players on the Interbank Currency Exchange of Azerbaijan. In 1995, the bank began foreign exchange operations in hard currency using the Reuters network and can now participate in transactions on the international money markets, investing funds quickly and profitably. The bank fulfils the role of agent on behalf of the state in undersigning credit agreements with foreign states. Its clients are from diverse sectors such as oil processing and chemicals, trade, machine manufacturing, transport and agriculture. Since its foundation the bank has undertaken transactions with over 150 leading foreign banks. It has maintained correspondent accounts with the leading banks of the US, Great Britain, Germany, Italy, France, Switzerland, Turkey and other countries. The International Bank of Azerbaijan is the first bank in the country to join the SWIFT network, which allows international settlements and other financial transactions to take place in a more efficient manner. The bank now has advanced software in line with international standards, a system capable of providing clients with a vast array of international banking services. The basic hardware is IBM AS/400. The Midas system, a programme developed by British experts, was adapted to the specific conditions of the country by the bank’s specialized computer programmers. The number of employees at the bank has increased. The bank has focused its employment strategy on hiring young professionals with expertise in particular fields of banking. Furthermore, employees are given the opportunity to develop their levels of expertise through internships at leading institutes and banks abroad, in Europe and the US. Since 1994 the International Bank of Azerbaijan has been a principal member of Europay International and in 1997 became a principal member of VISA International. Credit card transactions have grown considerably and reached $2 million in 1996. The bank founded processing company Azericard and in the near future will begin issuing EUROCARD /Mastercard and VISA cards. RabitabankThe development of an efficient and modern system of telecommunications has been one of the priorities in Azerbaijan. For this reason it was considered important to introduce a new banking service for the communications sector. Hence, in June 1993 the joint-stock commercial bank “Rabitabank” was founded. At this time 100% of the registered capital of the bank was from state communications enterprises. Since then, however, registered capital has increased and 70% of total capital comes from non-state enterprises. The paid-up registered capital is Am2.523,billion. The bank’s main activities include internal and foreign currency crediting, trade and non-trade operations. At present all communication systems, postal services and information providers are customers of Rabitabank (46.66% of all our crediting operations have been made to the communications sector). However, the bank is not confined to serving only the telecommunications sector, and has begun to service other business areas of the economy as well. In this respect the bank has become universal.and has in fact become universal in this respect. Currently the bank has one branch, but based on the success it has achieved to date, is considering establishing a branch network throughout the Republic. AzerdemiryolbankJSB Azerdemiryolbank is playing an increasingly important role in the banking industry in Azerbaijan. It is the country’s largest private bank, offering a wide range of services to local businesses, and also plays a key role in the introduction of foreign banks to the Azeri economy. Azerdemiryolbank is a flexible multi-level structure with a wide network of foreign correspondents and domestic branches that enables the bank to carry out all customer orders in the most efficient way. Azerdemiryolbank provides a wide range of banking services to its customers, namely:domestic and international clearing services, issuants and confirmation of guarantees and letters of credit of behalf of its customers intermediate service for its clients on stock and foreign currency markets, attraction of deposits and issuance of loans, and a full range of cash with cash services. Today JSB Azerdemiryolbank is the biggest private bank in Azerbaijan and this fact determines our strategy. The bank has the biggest loan portfolio among all private banks. The profit of the bank in 1996 was some 7.1 billion azeri manats. Fifty six Azeri banks have accounts with our bank. The total number of correspondent accounts of the bank is more than 80. Among our main correspondents are the Bank of New York, Deutsche Bank, Dresdner Bank and Banque Nationale de Paris. Last year showed that Azerdemiryolbank made significant steps towards internationally acknowledged banking standards and principles. Orders of financial statements and performance of due operational diligence for the first half of 1996 was conducted by independent auditors Price Waterhouse and the audit of the second half is under way. Azerdemiryolbank was honoured to be chosen chosen as participant of “Financial support of small and medium private enterprises in Azerbaijan” project carried out by the European Bank for Reconstruction and Development and a project carried out by the European Union TACIS aimed at financial support of the agricultural sector of Azerbaijan. One of the strategic priorities of Azerdemiryolbank is the maintenance of a high level of capitalization. In 1996 the bank became the most capitalized private bank in Azerbaijan, as its capital base has increased four times. Azerdemiryolbank is an active participant on the Baku interbank stock exchange and one of the main participants in the government bond market, which began trading in Azerbaijan in 1996. Employment and working policies have been rearranged and today the key task in this area are attraction of knowledgeable specialists experienced in banking, improvement of the working environment and encouragement of teamwork. The combination of highly qualified personnel and sound management was and still is a key to stability and versatility of Azerdemiryolbank. About AzerdemiryolbankBelow are some of the key statistics about Azerdemiryolbank, which highlight its leading position in the Azerbaijan banking industry. * Year of foundation of Azerdemiryolbank 1989 * Actual nominal paid up capital at January 1 1997 is Am8.25 billion. * Number of branches of Azerdemiryolbank 12 * Number of employees 240 * Total amount of equity capital at January 1 1997 Am16.4 billion * Total assets of the bank at January 1 1997 Am51 billion * Current number of customer accounts more than 6,000 Azerdemiryolbank is a joint-stock bank. The shareholder structure is as follows: * Individuals: 64% * Private legal entities: 35.6% * State-owned organizations: 0.4% Thanks to its experience, professionalism, strong financial base and the wide range of services that it offers, Azerdemiryolbank is a natural choice as business partner to firms and enterprises looking to participate in Azerbaijan. AzerigazbankAzerigazbank, a joint stock investment bank, was established in 1992 in Baku, in the Azerbaijan Republic. The bank was included in the state register of joint stock companies and companies with limited liability by the ministry of finance on May 4 1993. Its registered number is 77. The authorized capital of the bank is Am3.404 billion. The bank’s client base has been formed mainly from enterprises and organizations from the gas industry, trade and services sectors, tourism and industrial production sectors. Various foreign firms feature on its client list. The bank builds its relations with its clients on the basis of trust and mutual benefit. It offers a wide spectrum of up-to-date services, including manat and foreign currency settlements, import/export operations, and attracting and distributing funds, either in manat or in freely convertible currency, in the form of deposits and contributions. The bank also conducts a large number of operations on the international and home currency markets, implements trust and guarantee operations, and provides non-commercial transactions in foreign currency and various consulting services. The financial policy of the bank is based not on the principle of quick rewards but on prudence advising stable and reliable clients how to minimize their risks. The bank’s profits in 1996 were Am2.184 billion and the payment of dividends on the stocks was 39.45%. The bank’s crediting operations are focused on numerous branches of the economy, including commerce and the service and production sectors. In most cases credit is granted for specific projects and each project is carefully considered on its own merits, taking into account the degree of credit risk and profitability levels. Since its priority is in deriving profits in the home currency market, the bank puts emphasis on, among other things, currency conversion, cash currency operations and home bank guarantees. Azerigazbank is one of the most active participants in the Baku interbank currency exchange and is also one of the leading financial institutions in the Republic in cash currency transactions. The bank is expanding its operations with foreign banks and banks of the CIS. Its main principle in the development of relations with foreign banks is a one of mutual benefit and equal partnership. Clients are guaranteed not only security and effective use of funds but also speed, quality and efficiency in accounting procedures, for transfers both inside and outside the Republic. The bank has proved itself to be a responsible partner for its clients and other banks and has built up an impressive reputation both in Azerbaijan and abroad. JSB ArkobankArkobank was established in October 1992 with authorized capital of Rb20 million and was registered by the National Bank of Azerbaijan in November 1992. In the last four years the bank has become one of the leading commercial banks in the now independent Azerbaijan Republic. In the last two years Arkobank has permanently ranked among the top 10 largest banks in the country. The principal shareholders have 93% of the shares, worth Am6.57 billion. Amongst our shareholders we have four state enterprises with a total share value of Am101 million. Non-state enterprises represent 45% of shareholders, with capital of Am396 million and 5.6% of the shares. Today Arkobank has correspondent relations with five other banks in Azerbaijan and six foreign banks. Since Arkobank’s client base has risen from its initial 28 in 1992 to over 558 which it currently serves . The volume of credits issued is also increasing. The dynamic of increased volume of credits is as follows: As of March 1 1997 overdue loans amounted to Am82.8 million, which is 0.5% of the total amount of credits issued. The bank is a dealer in the state short-term bond. Arkobank is on the point of completing a new office building in the centre of Baku. It is also installing up-to- date communication liaison and information services such as Reuters and the internet. The executive officers in charge of the bank are the chairman and the vice chairman of the board. The bank there are 31 employees with an average age of 35. The staff are highly specialized, with a strong background in the banking and finance sectors. Many of them have qualifications in economics and attended lectures at the International Bank of Azerbaijan in order to obtain a qualification. Many have also worked in banks in Russia, Turkey and Germany. |
