CBA suggests banks to look through business strategy

By AzerNews

The Central Bank of Azerbaijan (CBA) has recommended that local banks review their business strategies in the post-crisis period.

CBA Director General Rashad Orujov said that currently the banking sector in the world, including in Azerbaijan, is undergoing a period of transformation and banks should better review their business strategies.

"Under these circumstances, the shareholders and managers of banks should review their strategies, because optimization of the ratio of income and risks is very important. Violation of this optimum can lead to negative consequences for the banks," Orujov said at the 2013 Baku financial summit organized by Yap? Kredi Bank Azerbaijan, ABTC and the Azerbaijan Diplomatic Academy on Monday.

He said that the financial state of banks depends on how efficiently business is done. The banks must use new technologies and innovations and increase the effectiveness of their operations.

Orujov believes the banks should not only open new sales channels, but also actively use these channels.

"It is necessary to expand the use of mobile and internet banking. In these areas, the banks face many challenges. Much should be done here," he said.

Online banking has a number of advantages that benefit both the bank and its customers. It frees the client from the necessity of visiting the bank branches and offices to make the required transactions. The bank allows saving on the costs of customer service. Also, Internet banking is cheap or even free in some cases, and is functional wherever Internet connection is available, which makes it even more attractive.

Mobile banking services allow users to check their account online around the clock, draw reports on account transactions, pay electricity, mobile, fixed communications, and Internet service bills, transfer money from one card to another, pay and purchase electronic tickets, and receive SMS notifications for each transaction.

However, customers of Azerbaijani banks do not always trust the Internet technologies and often prefer making banking operations through a bank clerk. Local online banking and the number of users of Internet banking in Azerbaijan are considerably below the indicators of large commercial European or Russian banks.

Orujov said the banks must consider how to make their products more available to the public.

"The matter rests not only in cost reduction, but also in simplifying access and increasing the quality of services. The banks must rethink their role in financing the economy and its social functions. Investment products must be developed for the public," Orujov said.

Fourty-three banks operate in Azerbaijan.

In February, the CBA reported that Azerbaijan's economy and banking system retained their attractiveness for foreign investors in 2012.

According to the CBA report on financial stability in 2012, deposits of non-resident individuals placed in Azerbaijani banks within a year and funds raised from international financial institutions rose by around 22 percent (2011 saw growth at 6.7 percent), totaling 2.269 billion manats.

The deposits placed in banks by non-residents rose 58 percent, reaching 12 percent of the total amount of deposits, while in 2011 the growth was at 34.6 percent.

In general, reducing the dependence of banks on foreign resources and replacing them with domestic resources increased the resistance of banks to external shocks, which made it possible to finance their lending through sustainable resources.

Credit register requests to jump

A 50-percent growth is expected in the number of requests to Azerbaijan's Central Credit Register in 2013.

Rashad Orujov said that in order to support infrastructural development of the banking sector, the CBA used to perform tasks that are not characteristic for a regulatory agency.

"In particular, it was engaged in the creation of a processing center, credit registry and the introduction of mortgage lending mechanisms. The creation of the Credit Registry has become a very important risk management tool for banks. Whereas the number of requests to the register exceeded one million in 2012, we expect that in 2013 their number will reach 1.5 million," Orujov said.

Orujov said the CBA will soon complete the work on a bill aimed at regulating the activity of a private credit bureau in the country.

He said banks are already working on the creation of a private credit bureau and the CBA supports these initiatives. Such bureaus will allow banks to receive additional services from them.

"Private bureaus will allow the CBA to stop performing non-standard functions in this field," Orujov added.

In December, coordinator of an IFC project on strengthening the financial infrastructure in Central Asia and Azerbaijan, Teymur Eybatov, said that the bill on setting up a private credit bureau in Azerbaijan has been submitted to the Presidential Administration.

Later, in March, Eybatov said seven international companies seeking to be involved in the bureau as technical partners had applied to the executive committee of the first Azerbaijani private credit bureau.

"These companies have experience in governing the private credit bureaus in Korea, the U.S., Italy, etc.," Eybatov said.

An international partner will supply software for the bureaus.

Based on its experience, the International Finance Corporation also offers to grant a majority stake in the credit bureau to those capable of managing it. This will reduce the risks in the credit bureau's operation, in particular, prevent disputes between banks on certain issues.

Meanwhile, a list of potential shareholders of the future credit bureau including local banks - Access Bank, AGBank, Azerbaycan Senaye Bank?, Bank Respublika, Demir Bank, Muganbank, PASHA Bank, Turan Bank, Yap? Kredit Bank Azerbaijan and UniBank, which are part of the executive committee, has been compiled.

Eybatov said the main task is to prepare to establish the first private credit bureau when the law regulating the activity of credit bureaus goes into effect in Azerbaijan. Therefore, the preparation process is being conducted simultaneously with the procedures of coordinating the bill on "Credit bureaus".

The process of creating the credit history of borrowers started in Azerbaijan from 2005 after the Central Credit Register Service was established under the CBA. The register covers the entire range of personal information about banks, non-bank credit institutions, borrowers, loans, etc.

The credit bureau will be able to collect credit information from other financial institutions such as leasing companies, organizations involved in micro-credit lending, non-financial entities, including telecommunication companies, trade outlets selling goods on credit, etc.