![August Marked Beginning of Absorption of Banks](https://turan.az/resized/750/500/resize/media/2012/main/092400012321.jpg)
From January to June 2012 Central Bank of Azerbaijan (CBA) took up $639.4 million at the market. In the first half of last year the bank was forced to sell only $323.9 million of its resources to maintain stability of AZN and during the same period in 2010 it sterilized $598.4 million. According to the CBA report about results of the monetary politics during two quarters in 2012, official rate of Azerbaijani manat (AZN) against US dollar (USD) increased by 0.01%.
In this situation it is hard to speak about floating rate of AZN. Even change of rates of the world biggest currencies hardly affected AZN rate. This all looks as a continuation of a careful conservative CBA politics in this direction. The similar processes occur in all oil producing countries. Russia has recently realized advantages of a floating ruble rate, especially after the crisis in 2008. The main subject of dispute is obvious: devaluation, which increases competitiveness of local entrepreneurship at the foreign markets, significantly increases probability of imported inflation. But in Russia the importers learned to hedge currency risks, which significantly smoothes a sharp growth of imported inflation. In addition, devaluation becomes important during sharp jumps in the movement of capital. In other words, floating rate demands constant monitoring of the reaction of the market to the exchange rate and this is a hard job. Azerbaijan most likely believes that many sectors of economy, except for oil industry, cannot be competitive at the foreign markets.
By August 1, 2012 currency reserves of CBA totaled $11122.7 million. In July 2012 currency reserves expanded by $76.4 million or 0.7% and since early year increased $641.2 million or 6.1%. During the past 12 months resources of CBA increased by $4048.9 million or 57.2%. This is a historical maximum of the currency resources of CBA.
In June 2012 the volume of money supply increased by 297.3 million AZN nor 2.6% and totaled 11,754 million AZN. During the past 12 months the volume of AZN resources in the economy increased by 3018.6 million AZN or 34.6%.
According to the CBA report about the results of the monetary policy during 6 months, in June 2012 the sum of cash outside the banks increased by 241.9 million AZN or 3.2% up to 7751.8 million AZN.
During this month a wide index of money mass dropped by 51.5 million AZN or 0.4% and during a year increased by 27.3% and reached 14528 million AZN.
During a month AZN money base increased by 249.8 million AZN or 3% and totaled 8622.9 million AZN by July 1, 2012.
In June 2012 aggregate assets of Azerbaijani banks dropped by 42.14 million AZN or 0.3% to 14,778.79 million AZN ($18.8 billion). Since early year the bank assets increase by 5.9% and during a year by 1638 million AZN or 12.5%. (But growth of assets resumed in July. According to the preliminary information, during a month aggregate assets of Azerbaijani banks increased by 199.8 million AZN or by 1.4% up to 14978.6 million AZN. Since early year the bank assets increased by 7.4% and during a year by 1701.6 million AZN or 12.8%.
According to CBA, by July 1, 2012 the sum of cash in the banks totaled 619.6 million AZN, resources at the correspondent accounts totaled 1062.4 million AZN, crediting of the financial sector – 647.2 million AZN, crediting of the clients – 9642.4 million AZN, volume of investments – 1294.6 million AZN and other assets – up to 1512.6 million AZN.
In June 2012 obligations of the banks decreased by 0.6% to 12555.58 million AZN, of which 6823.1 million AZN were deposits, 4539.9 million AZN – resources provided to the financial sector and 1192.5 million AZN – other obligations.
During a year total capital of the banks dropped by 46 million AZN or 2.1% and in June it increased by 36 million AZN or 1.6% up to 2223.2 million AZN ($2.83 billion).
In June 2012 residue volume of crediting of the economy increased by 223.3 million AZN or 2.1% up to 10834.8 million AZN. According to CBA, during the past 12 months crediting growth totaled 1878.9 million AZN or 21%. By July 1, 2012 specific weight of overdue credits in the total index exceeded 6.5% against 6.2% a year earlier.
During a year short-term credits increased by 62.9 million AZN or 2.1%, while long-term credits by 1816.2 million AZN or 30.3%. The residue of the latter totaled 7805 million AZN. A specific weight of long-term credits constituted 72% against 66.9% a year earlier.
Share of private banks in the total volume of credits reached 63.3%, while share of the biggest in the country International Bank of Azerbaijan (IBA) dropped to 34.1% during a year and the remaining 2.6% fell to the non-bank credit organizations.
According to CBA, by August 1, 2012 credits totaled 10515.3 million AZN, dropped by 0.4% during a month. During the past year crediting of economy grew by 18.4%. In July 2012 population’s deposits in the banks increased by 42.6 million AZN or 1% and totaled 4415.2 million AZN. Since early year this index increased by 7.2% and during 12 months by 25%.
In June 2012 average rates of AZN credits dropped by 0.34% to 15.65% and rates of foreign currency credits dropped by 0.87% to 15.44%. During a year the manat resources went down by 0.74% and the currency resources by 1.24%. By July 1, 2012 AZN credits were allotted to physical persons at 18.49% per annum and the foreign currency credits at 21.94%. This index constituted 13.74% and 12.62%, respectively, for the juridical persons. This shows a growth in the credit cost.
The important event in August was announcing increase in minimum authorized capital of the banks up to 50 million AZN from January 1, 2012. This radical measure shows that the banks should be ready to check-up. By July 1, 2012 average aggregate capital of the banks in the country totaled 47.94 million AZN with a rather low aggregate capital of the banks at 2109.4 million AZN. By early year aggregate capital of the banks totaled 1886.3 million AZN. These figures reflect weakness of the banks of the country, assets of which do not reach 20% of GDP.
Only 11 of 43 banks in the country (they control 70% of all assets of the banks) have a capital, which corresponds to the new CBA demands. The remaining banks need to catch up with them. 32 of those remaining banks have authorized capital, which is significantly below the new norms, and only 13 banks (21% of assets) have a potential chance to capitalize at the expense of funds of the shareholders or by means of consolidation.
19 small banks of Azerbaijan have accumulated only 6% of aggregate assets of the banks. One group of these banks will have to join bigger banks, while others will be able to find an agreement and unite. Part of such banks has a chance to turn into a non-bank credit organizations. In the end this is a choice between consolidation and shutdown.
There is a question where will the banks get the money to increase their authorized capital up to the required level.
The report about the monetary policy released by CBA after quarter 2, 2012 shows that local mobilization of resources ensures only 68.3% of active transactions of the banks. According to the report, by July 1, 2012 Azerbaijani banks had 6,823 billion AZN worth deposits and allotted credits worth 0,647 billion AZN. In the end internal mobilization of resources by the system totaled 7,470 billion AZN.
Active transactions of the banks reached 10,937 billion AZN – 9,642 billion AZN were clients’ credits and 1,294 billion AZN were investments. The internal mobilization of resources covers only 77.5% of crediting.
Azerbaijani banking system covers deficit of the internal resources at the expense of foreign borrowing. By July 1, 2012 credits and deposits of the financial sector totaled 4,539 billion AZN and 3,892 billion AZN was provided by CBA (it did not present the data of refinancing yet) and some foreign financial institutions.
In order to make money, one needs to widely expand crediting. For this purpose the banks need to collect a sufficient number of deposits. Central banks can change deposit interest rates or the volume of “safe” sum of deposits.
There is a chance to revive the stock market. The secondary banks are willing to place shares at the stock market.
Undeveloped mechanisms of obtaining population’s funds will present problem here. The mechanism include storage of cash, opening of bank account, investment into immovable property, purchasing of jewelry, investment into the pension and investment funds and purchase of shares of the enterprises. One can easily see that some of the mechanisms simply do not work in our country. We almost have no private investment funds, though law was passed year, there are almost no shares of the enterprises at the stock market and there is a campaign to get rid of all the minority shareholders. It can be easily explained – with high money liquidity in economy influential economic groups have no interest in such innovations, because they do not bring a lot of profit and they are labor-intensive. Small-size businessmen do not want to be involved in the risky adventures, especially as they have problems with the starting capital. Even if they invest starting capital, they are not sure that they will not lose it.
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