"The problems of the International Bank are more serious than they seem"

The International Bank of Azerbaijan Open Joint Stock Company (IBA OJSC) was transferred to the management of the Azerbaijan Investment Holding (AIH). In this regard, President Ilham Aliyev signed a relevant decree.

In addition, the president signed a decree on transferring Azer-Turk Bank and the State Insurance Commercial Company “Azersigorta” to the management of the AIH and regulating a number of issues arising from this. In accordance with these documents, IBA, Azer-Turk Bank were transferred to the management of an investment holding.

But, will this decision contribute to the revival of the International Bank, which has figured for many years in corruption scandals, and for its recovery, funds from the state budget have been allocated repeatedly, but to no avail? Will investors deal with a bank whose name has been mentioned more than once in corruption scandals?

Akram Hasanov, an expert on banking issues, answered ASTNA's questions regarding this topic.

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Question: By the decree of the President of the International Bank of Azerbaijan OJSC, it was transferred to the management of the AIH. What does it mean?

Answer: AIH was created for the management of state-owned commercial organizations from a single center on the basis of uniform standards. The main goal is to achieve the work of these organizations with a profit. Otherwise, they all behave like a state body or a public legal entity. Allegedly, they are engaged in socially significant activities and therefore make unjustified costs and work ineffectively. Although in reality, their main task is to make a profit. Gradually, all such commercial organizations will be transferred or are already being transferred to the management of the aforementioned Holding. So, SOCAR is the largest of them, has long been transferred to the AIH. Now, it's the turn of financial institutions. And if the correct management system is created in these organizations, then in the future, their privatization will be put on the agenda.

Question: For many years, the Azerbaijani government has been making efforts to improve the IBA's health. For this, funds have been allocated from the state budget. But these efforts were unsuccessful. What were the main problems that hindered the revival of the bank?

Answer: Yes, the state did everything in its power to save the bank from bankruptcy. Several years ago, it even made commitments in the amount of more than $ 3 billion. But the bank has not yet come to its senses. Because the problems there are deeper and more serious than they seem. The bank was robbed for years. There was no normal management system, personnel selection, etc. Now the situation is better, but most of the problems have not yet been resolved. The main problem is the problem of selection and placement of personnel.

Question: Do you think this decision will serve to improve the bank's health?

Answer: It all depends on how effective the control system in the AIH itself is. It depends on the holding team. To be honest, I don’t see such a strong team and staff potential there. Quite frankly, this is a bunch of people who, after reading a couple of books and using popular English phrases, are determined to imitate foreign experience. It also needs professionals with a scientific and systematic approach, deep knowledge of local conditions, the ability to build a creative strategy and other adequate qualities. In principle, this is the main problem of both the public and the private sector in general. For example, from experience in my field - jurisprudence, I can say that there are almost no strong lawyers in large holdings and companies of the country. Few people know about this, because there is no top management who could determine their real level. The same picture is with representatives of other professions.

Question: Do you think any investor would want to deal with a bank in which an unhealthy situation and whose name was mentioned in corruption scandals?

Answer: It depends on the conditions. Of course, now it cannot be bought at a price favorable to the state. But if the appropriate work is done over the course of several years, the situation may improve.

Question: Azer Turk Bank and “Azerigorta” have been transferred to the management of an investment holding. How correct is the decision to transfer the private bank and the company to the management of a government investment holding?

Answer: They, like the IBA, are wholly owned by the state. From this point of view, everything is correct.

Question: What steps should be taken to rehabilitate the banking system?

Answer: First of all, the banking legislation must be radically changed. The President instructed to develop the Banking Code in 2004 and 2014, but this work was never completed. A new, progressive control system must be created. The responsibility of all participants must be increased. Then, finally, there should be personnel changes at the Central Bank. As in other state organizations, a Supervisory Board should be created there so that the board cannot be arbitrary. The competitive environment must be strengthened, monopolization stopped, transparency increased. It is necessary to expand the activities of non-bank credit institutions so that they can carry out operations (except for depository ones). Azerpocht's financial services also need to be expanded. 

Kamran Mahmudov