"The decision of the Central Bank in relation to Gunay Bank is illegal"

By the decision of the Central Bank (CB) on May 16, another bank was closed – OJSC Gunay Bank ("Gunay Bank"). The Central Bank, referring to Articles 16.1.6, 16.1.7, 16.1.9 and 61.1 of the Law "On Banks" as the main ones, pointed out that the amount of the bank's total capital is less than the minimum amount established for banks, the total capital adequacy ratio is less than 3 percent, and also does not carry out its current activities reliably and prudentially.

The JSC "Gunay Bank " was established in 1992. The owners of the bank are Mahmud Mammadov and Yegana Shirinova. The central bank noted in its statement that the share of “Gunay Bank” OJSC in the assets of the country's banking system is 0.6%, in the loan portfolio -1%, and in the liabilities of the sector -only 0.5%. At the end of the first quarter of 2023, insured (compensated) deposits in the bank amounted to 38.5 million manats. Deposits of 99.9% of the bank's depositors will be reimbursed. The number of branches of the bank is 10, branches and currency exchange offices are 4.

On May 7, the owner of “Gunay Bank”, Mahmud Mammadov, said that the Central Bank did not allocate funds to “Gunay Bank, although the bank needed them. "There were banks that were given loans for 500-600 million manats, and they were ready to give us a loan for 1-2 million manats."

After that, on May 11, “Gunay Bank” OJSC announced the holding of a general meeting of shareholders, and the issue of increasing the authorized capital of the bank was included in the agenda (according to the report, the authorized capital was 64.9 million manats). But on May 16, the bank was closed by the Central Bank. Thus, the number of banks operating in the country has decreased to 24.

Experts note that this process will not be limited to this. There are several banks that are likely to close. This is an integral part of the banking policy pursued in the country. It lies in the fact that against the background of the reduction of oil money, the number of banks is too large for the economy of Azerbaijan. Over the past 10 years, the number of banks has decreased from 45 to 24. In the coming years, there will be less than 20 of them.

Experts also compare this step to "eating small fish by sharks."

Akram Hasanov, the expert on banking and finance, answers the questions of ASTNA on this topic.

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Question: By the decision of the Central Bank of May 16,  “unai Bank OJSC, was closed. The owner of the bank, Mahmud Mammadov, said on May 7 that the Central Bank had not allocated funds to Gunai Bank, although the bank needed them. Was the bank expected to close?

Answer: Currently, the closure of any bank is not expected according to objective criteria. In the worst case, Muğan Bank could be abolished, which would not be surprising. Because there are serious problems there. And Gunai Bank is perhaps the most trouble-free bank in the country. It's a small bank. He has no serious problems with either depositors or debt. Yes, he could not develop. Because the Central Bank did not give him a loan. Like most other small and medium-sized banks. The Central Bank provides loans and foreign currency mainly to large monopolistic banks. Discriminates.

Question: Will the liquidation of “Gunay Bank” pose a threat to the financial stability and stability of the banking sector?

Answer: The Central Bank's message says that it will not. Because it is a very small bank. But that is why its abolition is astonishing. The Central Bank says that it violated the requirement regarding the amount of capital. But, first of all, the need for a small bank to have a capital of 50 million manats raises the question. In the USA and Europe there are small banks with a capital of only a few million dollars. The capital requirements in Azerbaijan are excessive and unfair to small and medium-sized banks. The purpose of this requirement is precisely to reduce the number of banks.

On the other hand, the bank itself does not agree with the statement about the violation of capital requirements. The Central Bank's calculation is doubtful. Last year, the bank conducted an audit, according to the results of which the report was not submitted to the bank. Whereas according to the law, it should have been submitted immediately. How could the bank know how and what the Central Bank calculated?

Also last week, the bank announced to the press that it would hold a general meeting of shareholders on July 5. The issue of capital increase was on the agenda. The closure of the Central Bank of the bank after this announcement indicates that its intention is unhealthy. If the problem is in the capital, why did he not wait for the deadline of a month and a half. What's the rush?

Question: Will the process be stopped at this? Or will bank closures continue?

Answer: It will continue. Because the true goal is to reduce the number of banks.

Question: What is the reason that banks fail or fail one by one, and what does it serve?

Answer: Among the banks liquidated earlier, of course, there were those that were closed for objective reasons. Like, for example, “Texnikabank” and “Atabank.” But most of the banks were closed solely in order to reduce their number and for the monopolist banks to grow even more and completely capture the market. Gunai Bank was also closed for this reason. The management of large banks works for a bonus. And since they do not know a healthy way of development, they eliminate competitors. All of them and the current leadership of the Central Bank are a single team. So they do things. They are guided not by the law, but by personal gain.

As for the law, this decision of the Central Bank is illegal. First of all, according to the Law "On the Central Bank", its council should have 7 members. The quota is 4 members. Currently there are only 3 members. Therefore, the decision taken is illegitimate.

On the other hand, in 2019, the president issued an Order to amend the laws on the transfer of powers to supervise financial markets to the Central Bank. So far, these laws have not been adopted. Even the law "On the Central Bank" does not reflect these powers.

Question: What steps should be taken to keep banks afloat, to create a healthy competitive environment?

Answer: First of all, the laws must be improved. In 2004 and 2014, the President instructed the Central Bank to develop a Banking Code. This work  has not been  done yet. The adoption of the Competition Code is also important. They promised to accept it at the spring session, but there is no news yet.

Public control should be established over the activities of the Central Bank itself. According to the law, 2 members of its council must be third parties (for example, public figures). But these positions have been vacant for 27 years.

As long as the activities of the Central Bank itself are not based on the law, the expectation of anything positive is in vain. The fact that Taleh Kazimov has been appointed the chief banker did not change either the Central Bank or the fate of the banking system.