CBA expects rise in surplus of balance of payments

The two-day 2nd Banking Forum aimed at the development and improvement of the banking sector, devoted to reforms, results and prospects, kicked off in Baku on November 23, with the participation of banking experts.

Addressing the Forum, Zakir Nuriyev, Chairman of Azerbaijan Banks Association (ABA) said that the association is proposing to create a new system of creditors’ protection.

Nuriyev said that in general, recovery is observed in the banking sector’s activity, and this is facilitated by various measures taken by the Azerbaijani government.

It is necessary to ensure uniform distribution of liquidity in Azerbaijan’s banking sector, said Nuriyev. He noted that at present, the banking sector’s liquidity reached 6.5 billion manats, and this was achieved due to stimulation of non-cash settlements.

In order to eliminate uneven distribution, it is necessary to develop an interbank foreign exchange market and appropriate decisions have already been made in this direction, he added.

“At present, small trends towards development are observed in the banking sector,”he noted.“This is also indicated by the restoration of capital and human resources potential in the sector. We think that these factors will allow us to further develop the banking sector in 2018-2020.”

He said that in order to achieve these goals, both the modernization of the legislative base and the acceleration of the implementation of previously adopted laws, in particular those relating to the register of movable property and the Credit Guarantee Fund, are needed.

“Both laws will allow us to increase lending volumes and lower interest rates on them,” Nuriyev said. “Their timely implementation will allow us to accelerate lending in the coming years.”

At present, a number of measures have already been taken in Azerbaijan to protect the rights of creditors and resolve disputes between banks and their clients. In particular, an institution of financial ombudsman, which helps to regulate disputes on contracts worth not more than $2,000, has been operating in Azerbaijan since September 2017, and a Credit Guarantee Fund will appear in the country in the near future.

Ibrahim Alishov, executive director of the Financial Market Supervisory Body (FMSB) noted that local banks will switch to the new international financial reporting standards – IFRS-9 starting from 2018.

The International Financial Reporting Standards, usually called the IFRS Standards, are standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB) to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries.

They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards.

Further, Alishov stressed that FMSB is completing work on creating the “Baku Approach” concept to support the development of the financial market.

He noted that the concept is being developed by analogy of the wellknown “Istanbul approach”, which helped Turkey to overcome the banking crisis in the early 2000s.

In turn, first Deputy Chairman of the Central Bank of Azerbaijan (CBA) Alim Guliyev stressed that the number of banks taking part in currency auctions in Azerbaijan has grown five times, to 20.

The currency auctions are organized by the CBA with the participation of the State Oil Fund of Azerbaijan (SOFAZ).

SOFAZ sold around $2.8 billion at the currency auctions in January-October 2017. In total, the Azerbaijani banks bought about $4.92 billion from SOFAZ in 2016. The currency is sold as part of SOFAZ’s transfers to the Azerbaijani state budget, which are envisaged in the volume of 6.1 billion manats ($3.59 billion) for 2017.

He went on to say that the volume of imports of goods to Azerbaijan is expected to hit $6.5 billion until the end of 2017.

“At present, a $1.1 billion surplus is observed in the balance of payments, and we expect this figure to grow by the end of the year,” he said. “Our expectations linked with the growth in oil prices, non-oil exports and the reduction of imports.”

Thanks to these measures, international currency reserves grew by 13 percent, to $42 billion for the year, he added.

“The surplus of the balance of payments supports the stability of the currency market and the exchange rate of the Azerbaijani manat,” he said. “Since the beginning of the year, the national currency has strengthened by four percent, and since February this year by more than 11 percent.”

Taking his turn, Vusal Gasimli, executive director of the Center for Analysis of Economic Reforms and Communication stated that today, reforms are the main driver of growth and development of the Azerbaijani economy, but not oil.

Gasimli said that if it were not the reforms carried out in the country, Azerbaijan would not have been able to ensure the growth of the non-oil sector, the progress in the Doing Business global ranking, and to increase exports and strategic foreign currency reserves.

“Despite the decline in oil prices and the reduction in oil revenues, our country has improved its position in the Doing Business and global competitiveness ratings. Moreover, over the past 10 months, non-oil GDP grew by 2.1 percent, exports increased by 23 percent, strategic foreign currency reserves – by $5 billion,” Gasimli explained.

He stressed that the financial and banking sector of the country needs to take advantage of the situation.

“Banks need to expand lending to the Azerbaijani economy by using the Credit Guarantee Fund and the agricultural insurance mechanism. At the same time, it is necessary to strengthen communications in the banking sector, develop a competitive environment and the interbank market, explore the possibilities of using blockchain and financial technologies, and strengthen risk management and the capitalization of banks,” added Gasimli.

The Banks Association of Turkey expects an increase in the number of country’s banks in Azerbaijan, Huseyin Aydin, chairman of the Banks Association of Turkey, director general of Turkey’s Ziraat Bank, told reporters.

“We know that great development awaits Azerbaijan in the next few years,” he said. “At present, there are two Turkish banks - Ziraat Bank and Yapi Kredi, in Azerbaijan. However, I can say that in the near future other banks of Turkey will also show interest in operating in Azerbaijan.”