Azerbaijan’s IBA to decrease interest on loans

/By AzerNews/

By Gulgiz Dadashova

The International Bank of Azerbaijan, the country’s largest lender, seeks to strengthen its financial stability in the coming years through a decrease in the volumes of borrowed capital and lower interests on loans.

IBA Board Chairman Elmar Mammadov discussed the decision in an interview with local media.

He further noted that it is too early to speak about the privatization of the bank, because in the next few years, its main purpose will be institutional development.

The preparation period for the privatization may take 3-5 years, according to the authorities, thus the bank is likely to remain state-owned for at least the medium term.

"Currently, the population is worried about the safety of their deposits in the IBA, which is caused by rumors on the imminent privatization of the state stake in the bank,” he said, stressing that there is no reason to worry at all.

“At this stage, it’s too early to talk about the privatization of the bank. The current measures cover pre-privatization rehabilitation of the bank. The main objectives of the new Board of the bank in the next four years are institutional development, strengthening of its financial stability, and greater control over the management of financial resources,” he said.

The IBA holds about a third of the assets and loans in the Azerbaijani banking system. Its financial situation has remained fragile for an extended period of time, despite receiving state support.

Restructuring the largely state-owned IBA so as to reduce its dominance in the sector was set as a priority for achieving a stronger banking system.

Azerbaijan's biggest bank will be privatized after undergoing a cleanup effort to get rid of distressed assets resulting from poor management, President Ilham Aliyev said in a decree on July 15.

Mammadov asserts that the transfer of IBA’s distressed assets to Aqrarkredit will help to restore the bank's financial position.

"The transfer of the Bank’s problem assets to the specialized body will help the IBA to restore its financial position and ensure its sustainability. This is because at the moment the bank needs healthy capital to raise additional funds. The withdrawal of problem assets of the Bank, with the support of the state and use of an effective mechanism for this will enable the IBA to attract real financial resources instead of distressed assets,” he noted.

The presidential order requires that the bank transfer its distressed assets to the state-owned non-banking credit organization Aqrarkredit CJSC.

Aqrarkredit has had prior experience in managing the troubled assets of banks. In the early 2000s, Aqrarkredit oversaw the troubled loans and liabilities of Azerbaijan’s three largest banks – Sberbank, Industrial-Investment Bank, and Agro-Industrial Bank – during a consolidation process to form the United Universal Joint Stock Bank [now Kapital Bank].

Mammadov further added that the IBA would analyze the activities of all its foreign subsidiaries and representative offices, and test the effectiveness of their work.

Following this analysis, it will be possible to make a decision on the efficiency of all IBA structures and further steps will be taken accordingly, according to him.

Currently, the IBA has two subsidiary banks in Russia and Georgia. IBA-Moscow began its activities in Russia in 2002. Today, it is already a financial institution with 14 offices and branches in Moscow, St. Petersburg, and Yekaterinburg. In November 2006, the IBA has established its second subsidiary bank outside Azerbaijan – IBA-Georgia. The bank was also preparing to open a subsidiary bank in Qatar’s international financial zone.

The IBA also has representative offices in London (operating since 2002), Frankfurt (2005), Luxembourg (2008), New York (2008) and Dubai (2008).

Mammadov also noted that the IBA is planning to optimize branch network, explaining that specific steps will be taken for the effective placement of branch locations.

"Creating the optimum service network is a very important factor for each bank. Our bank has a large branch network in Azerbaijan. The aim is to effectively place branches both from a geographical point of view and taking into account the real capacity of the client,” he said.

To date, there are a total of 36 IBA branches, 15 of which are located in Baku.

The bank, 50.2 percent owned by the Azerbaijani Ministry of Finance, was founded in January 1992. The IBA’s reported a consolidated total asset base of 8.8 billion manat, aggregate capital of 1.008 billion manat, and a net profit of 64.5 million under audited IFRS as at year-end 2014.

The bank’s loan portfolio rose by 16.6 percent, and in early 2015, it stood at 5.868 billion manat.

Fitch Ratings has recently placed IBA’s Long-term foreign currency Issuer Default Rating (IDR) and Viability Rating (VR) on Rating Watch Positive (RWP).

The bad assets transfer will result, at least initially, in a significant reduction in risk-weighted assets, which will boost IBA's capital ratios, Fitch announced in its August report.

“Additionally, in accordance with its recapitalization program the bank should receive a 200m manats equity injection by end-2015. Fitch estimates that as a result of these measures, and assuming only limited new lending in 2H15, IBA's Fitch Core Capital (FCC) ratio could increase to a reasonable 10%-12% (end-2014: 7.4%).”