Moody’s says local banking system leading in capital adequacy in CIS

A“Azerbaijani banks have strongest capital adequacy as a result of government capital support for the International Bank of Azerbaijan (IBA),” Moody’s said.

The Azerbaijani Financial Market Supervision Authority (FIMSA) has approved a schedule for raising the minimum requirements for the ratio of the adequacy of total capital and the ratio of the adequacy of capital of the Tier I system banks. The new “Rules for the calculation of bank capital and its adequacy”, to come into effect on May 24, 2019, envisage this schedule.

The new rules envisage the concept of a backbone (system) bank, the criteria for determining such banks are set by FIMSA.

In particular, the minimum value of the coefficient of adequacy of the total capital of system banks from June 1, 2019 must reach 11 percent, while from January 1, 2020 - 12 percent (the adequacy ratio will remain at 10 percent for other banks).

The minimum value of the capital adequacy ratio of Tier I of system banks from June 1, 2019 must reach 5.5 percent, while from January 1, 2020 six percent (it will remain at five percent for other banks).

According to FIMSA, capitalization of the Azerbaijani banking sector in 2018 amounted to 4.071 billion manats, total assets of Azerbaijani banks reached 29.502 billion manats, total liabilities - up to 25.43 billion manats.

Net profit of the banking sector in 2018 amounted to 883.6 million manats.

The Central Bank of Azerbaijan is charged with regulating the money supply, circulating currency, and regulating the commercial banks of the country. However, the banking system in Azerbaijan is small relative to GDP.

In ranking of banks in Azerbaijan in terms of cash as of January 1, 2019, Kapital Bank is leading with significant gap, its cash reserves amounted to over 382 million manats. The next two places are taken by Access bank and Xalg bank whose cash reserves are 63.257 billion and 42.943 billion manats respectively.

Today, the banking sector of Azerbaijan faces such tasks as more efficient use of lending and reducing to a minimum the banks operating at a loss. In addition, it is necessary that the data provided in the audit reports correspond to reality. Currently, the banking sector of Azerbaijan is on its way to recovery after 2016 shocks.

The capitalization of the banking sector of Azerbaijan as of late December 2018 amounted to 4.071 billion manats, which is 9.78 percent more than the figure at the beginning of the year.

As the FIMSA report said, the total assets of banks since the beginning of the year increased by 5.66 percent, reaching 29.502 billion manats. In the reported period, the volume of cash at the disposal of banks amounted to almost 1.364 billion manats, the correspondent accounts at the Central Bank contained 2.333 billion manats and the funds on the nostro accounts (correspondent accounts with other banks) - almost 1.959 billion manats.

Bank investments in securities reached 3.587 billion manats (a 43.54 percent increase since the beginning of the year).

Since early 2018, banks increased lending by 11.38 percent and by the end of December, the total loan portfolio of banks amounted to 12.628 billion manats. Provisions for these loans were created for 1.479 billion manats.

The total liabilities of the country's banking sector increased by 5.03 percent to 25.431 billion manats. The largest share of liabilities fell on deposits - 73.6 percent, or 18.581 billion manats (9.98 percent growth since early 2018). The volume of deposits of individuals amounted to 8.27 billion manats, legal entities 10.31 billion manats.

The liabilities of banks to the Central Bank decreased from 507.6 million to 384.7 million manats.

The net profit of the banking sector over 2018 amounted to 883.6 million manats. Profit was formed at the expense of interest income at 1.775 billion (including 1.283 billion manats - income from interest on loans) and non-interest at 938.5 million manats.

The interest expenses of banks amounted to 824.9 million manats, including the payment of interest on deposits - 373.4 million manats, noninterest - 980.6 million manats.

As a result, operating income of 908.2 million manats was formed. During the reporting period, the banks paid 55.1 million manats as a profit tax.

As many as 30 banks, including two with state participation, are implementing their activities in Azerbaijan.