CBA offers to restructure some banks into non-bank credit institutions

By AzerNews

The Central Bank of Azerbaijan (CBA) sees a need to amend the domestic legislation that would allow a number of commercial banks to undergo restructuring into non-bank credit organizations (NBCO).

CBA Chairman Elman Rustamov said that the bank has already developed legal framework to transform some banks into NBCOs if they fail to raise their total capital to new regulatory requirements.

Currently, Azerbaijani banks are required to have a total capital of no less than 10 million manats (over $12.7 million). However, the new requirements of the CBA will take effect from January 1, 2014, and from then onward the total capital should be at least 50 million manats.

According to the latest CBA report, growth was recorded in the capital of the Azerbaijani banks in Q1 2013, though there are still banks in the market that do not meet the minimum regulatory capital requirements.

During this period, the capitalization of the Azerbaijani banking sector increased by 23.3 percent to hit more than 2.667 billion manats as of April 1 compared to the first quarter of 2012.

Rustamov said that turning the banks into NBCOs was one of the ideas while launching the consolidation process on the local market.

"There is no legal basis for such a transformation now. We will continue working on its creation. Its aim is to maintain the assets of the organization and the rights of consumers having deposits in such a transformation. Legal basis is required for this and it is being prepared in accordance with international practice," Rustamov said.

CBA announced the start of the process of consolidation of the local banks in late 2012.

In general, the CBA has identified the following development options for the banks: capitalization, consolidation or conversion into NBCOs or going out of business.

The banking system of the country already has a successful practice of banks' consolidation with the assistance of the European Bank for Reconstruction and Development (EBRD).

For instance, the present UniBank was formed through a merger in 2002 of two commercial banks, MBank and Promtexbank, and the EBRD acquired a 15 percent stake. This was followed by a merger of the Bank of Baku with IlkBank in 2005.

International financial institutions may become involved in the current consolidation process. In particular, the EBRD, the International Finance Corporation, Asian Development Bank, which are interested in acquiring capital of possible new groups, earlier expressed their interest in joining this process.

Four or five banks on the Azerbaijani market have already started talks on merging their assets. By mid-2013 the first agreement on consolidation of bank assets is expected to be reached.

The number of banks operating in Azerbaijan with capital exceeding 10 million manats reached 41 in Q1 2013. Their number was 42 in the first quarter of last year.

Meanwhile, the share of banks with capital worth 3.5 million manats to 5 million manats in the total capital of all banks made up 0.3 percent.

The number of profitable banks increased by three and the total profit of the sector increased 58.3 percent compared to Q1 2012.

The number of unprofitable banks went down by four and the total loss was halved.

43 banks operate in Azerbaijan.