What is happening in the banking market of Azerbaijan


Temporary administration was introduced in four Azerbaijan banks last week, then two of them lost their license


The banking crisis in Azerbaijan is gaining momentum. On 27 April, the country’s central bank introduced interim administration in four banks – Atabank, AGBank, NBCBank and Amrahbank. The next day, the regulator decided to cancel the licenses of Aitbank and Amarbank. The position of the other two banks is unclear.

According to several media reports, the denial of license from Atabank and Amarabank does not raise questions, as these banks have faced liquidity problems for almost a year. Surprisingly, this is most likely the case with AGBank and NBC Bank, which had no problems up to this point. The regulator does not provide complete information about these banks, so the current situation has caused protests between the population and employees of financial institutions.

The main claims of the Central Bank relate to negative capitalization. If we talk about AGBank, for example, the bank has a capital of 280 million manat (about $ 165 million) and is distributed as follows: 50 million manat – shareholders’ funds, ie, own funds, And 230 million manat – 140 million human beings were held by individuals (including clients’ funds, and 90 million – legal entities). The bank’s loan portfolio is 280 million MANET (5% trade credit, 15% consumer credit). Central Bank of Azerbaijan chairman Elman Rustamov said that bad debt comprises 54% of AjiBank’s loan portfolio. Therefore, the central bank is required to create a reserve for this portfolio. The provision should be deducted from the total capital. Therefore, based on the calculations of the Central Bank, AGBank has a total capital of minus 195 million.

But there is a caviate. In the methodology for calculating total capital, the Central Bank does not take into account the collateral issued by the AGBank loan, which exceeds 200 million. This means that after winning a lawsuit against the debtor and selling the property at auction, the bank will be able to return this money to customers. The central bank could also lend to AGBank, but did not give. In one of The interview Alman Rustamov noted: “I am surprised by the words of some experts, because they are professionals, they know banking law, but they say that the state should protect banks. The state has no such obligation. The state can fulfill its obligations to investors only. He also said: “Problem banks are not systematically important to protect the state. Their market share is less than 1% individually, only 3%, all of them private banks. The state has only one state bank. Can be attributed to, and then with a large state share. These are laws and traditions. “

It should be noted that AGBank deposits individuals in 140 million manat on the amount, and funds from legal entities – 90 million manat. This means that when the bank closes, entrepreneurs will lose 90 million manets, as the state can only return money to individuals. how They said Akram Hasanov, a well-known lawyer and economist in Azerbaijan, hereafter, not a single bank would afford to deal with business loans.

The expert also said that AGBank, unlike many other banks, is an independent corporate bank and is not associated with the elite. The bank had a high level of service. Therefore, if the situation is not resolved in favor of AGBank, Azerbaijan’s banking sector will “become even more monopolized, service levels will fall, and the observed crisis will worsen even more.”

Many local media outlets also term the personal struggles of central bank president Elman Rustamov as one of the reasons for introducing interim administration in banks. He has held the post for 20 years. Many in the market expected Rustamov’s close resignation, but were reelected for a new term. Bankers could have a personal conflict with the head of the Central Bank in anticipation of his departure. After that, Rustamov used the situation to resolve personal conflicts.

Recall that the “purge” of Azerbaijan’s banking system was already in 2016. Then 10 banks were lost in the first six months of the license, including one of the top 10 banks and two of the top 15. To date, there are 26 existing banks in the country. How long the banking crisis will continue is still unknown.

Read: New law on financial monitoring: for which bank accounts will freeze


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