Top Azerbaijani bank rejects IMF suggestions

By AzerNews

Statements and recommendations of IMF missions that are declarative, not deep and do not change yearly, have lost topicality, Deputy Board Chairman of the International Bank of Azerbaijan (IBA) Rashad Hajiyev has said.

He was commenting on the International Monetary Fund recommendations made following an IMF mission's visit to Baku in early March.

"The standard and outdated approach to solving problems and tasks is not so effective under present conditions," he said.

Last week, the IBA made a statement opposing the recommendations of the IMF, terming them unreasonable and contrary to the common vision of the fund to strengthen and capitalize the financial and banking system.

In its report the IMF suggested embarking on an up-front fiscal consolidation to pursue a sustainable non-oil fiscal position and provide room for private sector activity; shifting to a more neutral monetary policy stance, ending the central bank's role in direct lending to the real sector, and preparing, in coordination with other government agencies, for greater exchange rate flexibility over the long term. The IMF also recommended capitalizing the banking system while strengthening supervisory safeguards.

The IMF mission believes that the restructuring of the IBA operations and its governance structure should follow internationally accepted principles to pave the way for the downsizing and transparent privatization of the bank in due course. Therefore, a diagnostic assessment of the IBA should be undertaken by a reputable international institution or company, and external borrowing by this bank should be contained until a viable business model is in place, it said.

Hajiyev noted that the bank regularly meets with IMF missions in past years and submits the necessary information about the country's banking system.

Citing the IMF recommendations about diversification of Azerbaijan's economy and capitalization of the banking system as an example, Hajiyev said that these recommendations have remained unchanged over several years.

Hajiyev stressed that the IMF recommends capitalization of the bank simultanenously necessitating its restructurization and reduction, which is contrary to the issue of strengthening the banking system.

The IMF also supposes that the IBA has an unviable business model and needs major restructuring to be able to support the real sector. It says the IBA faces heavy risks ranging from large projects under construction to agricultural development that are not properly assessed and cannot be funded by short-term deposits. "An unreformed IBA would undermine the stability and efficiency of the banking system and result in high costs for the shareholders, including the government," the IMF report reads.

In his comments, Hajiyev said that although the bank asks the reason for downsizing of the bank in every meeting, there is no evident result.

"We can only guess and suppose. For example, if we mean separation of unhealthy assets from the healthy ones, suggesting the creation of a new bank with the merger of healthy assets and liabilities of a number of banks, which has already taken place in the country's banking practice, this does not apply to the IBA, as the bank does not have unhealthy assets. Some have tried to prove the presence of an significant part of unhealthy assets, but it could not be done for the simple reason that there is a lack of them," Hajiyev said.

He says the depositors, customers and partners must know that bank has no unhealty assets and the bank's profitability, capitalization and quality of assets prove this.

"The mission offers restructurization and diminishing of the biggest bank of the country instead of consolidation processes. This would cause weakening of the banking system," Hajiyev said.

Hajiyev stressed that the IBA, which has huge experience in working with multinational and regional development banks such as the Asian Development Bank, Islamic Development Bank and the Black Sea Trade and Development Bank, as well as export credit agencies in many developed countries, in fact, serves as the Development Bank of Azerbaijan.

As is known, the most industrialized countries have established financial institutions whose role is to develop various sectors of the economy and promote exports of goods and services. Today, the development banks, which are financed by the state, successfully play this role. Taking advantage of government support, they are able to attract cheap financial resources from international financial institutions. The examples of such a structure include the leading countries of the former Soviet Union, such as Russia (Eximbank), Ukraine (Ukreximbank) and Kazakhstan (Kazakhstan Development Bank),

"Thus, the IBA helps to overcome the difficulties associated with not yet fully established mechanisms of financial intermediation, and assumes the risks of lending to key sectors of the national economy. Moreover, this cooperation allows the IBA to attract significant amounts of 'cheap' and long-term resources and direct them to the non-oil sector of the Azerbaijani economy," Hajiyev said.

Over the past 12 years, the IBA assets have grown 25-fold, while its credit portfolio -- by 30 times, customer deposits 58 times, and share capital 148 times.

Meanwhile, the Central Bank of Azerbaijan reported that assets of the country's banking system had a positive growth trend in 2012, amounting to 13.946 billion manats (over $17.765 billion) at the beginning of 2013.

According to a statistical report published in February, the banks' assets grew 26.5 percent since early 2012.

Over 2012, total liabilities of the banking sector increased by 27.56 percent to reach 15.088 billion manats.

43 banks operate in Azerbaijan.