Meet the Standard

THE BASICS

Of the AZN13.95 billion in assets, some 60.5% was made up of customer loans (AZN10.68 billion) surging by 20.7% over the year, (investments were at AZN1.6 billion up 20.7%), while money lodged in correspondent accounts came to AZN1.44 billion, up a more modest 8.06%. Loans and deposits to the financial sector rose by 22.6% over the year to AZN696 million. According to CBAR statistics, some AZN10.46 billion (59.3%) of total banking system assets are accounted by the top five banks in the country. Banks rated from sixth until 15th in terms of size accounted for another AZN5.18 billion of total assets, or some 29.3%, leaving little on the table for the 28 other banks present in the industry.

In terms of liabilities, deposits formed the main portion at AZN7.71 billion (43.7% of the total), and showed an annual growth rate of 15.55%. Loans and deposits from the financial sector rose 18.8% to AZN5.17 billion. The total liabilities of the banking system rose a strong 27.56% over 2012, coming in at AZN15.09 billion. The country’s top five banks accounted for 61.9% of total market liabilities over 2012, or some AZN9.3 billion.

Overall, personal deposits rose 24.1% over the year to AZN5.11 billion, according to CBAR. Positive changes were noted in the structure of deposits, with time deposits up by AZN794.5 million and demand deposits up AZN199 million. Time deposits had an 80% share of total deposits, a figure unchanged since 2011. Deposits in local currency represented 58% of total deposits in 2012, up 30% in annual terms to AZN2.96 billion. All these figures would indicate that public confidence in the banking system as a whole, and with the manat, is on the rise.

Some 41 of 43 banks managed to meet the minimum capital requirement level of AZN10 million set by CBAR, though the higher AZN50 million figure to be brought in on January 1, 2014 will see a number of banks outside of the top 15 struggle to meet the threshold. David Kiguradze, Director of TBC Kredit, sees some positive signs emerging from the consolidation process, “Some of the banks will merge, while a small number of them will transform into non-banking credit institutions.” Others see the potential for a more drastic change, “10 to 15 banks will be forced to close down or merge with the larger banks,” said Emin Mammadov, CEO of Expressbank, which is number 15 in terms of assets. During 1Q2013, at least four banks are reported to be engaged in merger talks, with the first agreement set to emerge by the end of 2Q2013. Elman Rustamov, Governor of CBAR, described the changes to capital requirements as allowing “for the deeper capitalization of banks, increase their resilience to risks, [and] encourage a more efficient organization of the banking business.”

TOP 5

Azerbaijan’s largest bank by all relevant metrics is the International Bank of Azerbaijan (IBA). With a 35% market share of assets, 40% of loans, 40% of deposits, and 15% of the capital of the entire banking system, IBA stands far and away as the largest financial concern in the country, if not the Southern Caucasus region. IBA remains majority state owned, with the Ministry of Finance retaining a 50.2% shareholding, individual shareholders controlling another 39.17% of the stock, and legal entities having a 10.63% stake.

IBA has played a key role in the development of large-scale infrastructure and economic development projects across the country. With 36 branches and 1,200 staff across the country, it serves a customer base of 800,000 individual customers and 14,000 corporate clients. The bank accounts for 37.4% of the credit card market, working with Visa, MasterCard, Diners Club, and American Express. According to FY2012 unaudited financials, it reported assets of AZN5.72 billion, liabilities of AZN5.37 billion, and capital of AZN352.08 million. The bank reported a capital adequacy ratio of 12.04%. In September 2012, the bank decided to activate an Islamic banking window to take advantage of the growing interest in sharia-compliant products both locally and from overseas investors. According to Jahangir Hajiyev, IBA’s Chairman, over 1Q2013 IBA is planning to extend its Islamic banking operations to cover “SMEs, services, retail, real estate, and consumer purchases.”

Coming in second in terms of asset size is Kapital Bank. It reported unaudited assets of AZN3.24 billion for FY2012, with a return on assets (ROA) of 0.3% and a return on equity of 22.2%. In terms of its loans portfolio assessed at AZN1.73 billion, 93% were loans to corporate clients, with the rest handed out to individual customers. It reported an aggregate capital of AZN113.48 million, placing it fourth in terms of the top five for this metric. Kapital Bank is one of the largest private banks in the country, with some 99.76% of its shares owned by conglomerate Pasha Holding. The bank has a long-term foreign currency IDR rating of B+ with a stable outlook from Fitch. Kapital Bank reports a large individual client base of some 2 million, with 19,000 corporate clients. Of its AZN537 million in deposits during FY2012, some 70% was attributed to individual clients. The bank announced in July 2012 that it had launched a mobile banking service to better support its customer base.

Xalq Bank is the third largest bank by assets, coming in at AZN704 million for FY2011. More up-to-date figures were not at hand when this report went to press, though IBA estimates from 3Q2012 confirm this assessment. In 3Q2012, Moody’s lifted the bank’s B3 long-term foreign and local currency deposit outlook from stable to positive. Xalq Bank was estimated to have a capital base of AZN171.1 million as of 3Q2012. The bank has a network of 16 branches.

Bank Standard comes in fourth for assets, at AZN799.35 million, in its preliminary FY2012 figures. Total liabilities were estimated at AZN742 million. The bank has 477 employees spread across 14 branches and is fully owned by local holding company AB Standard. In terms of its deposit portfolio of AZN574 million, some AZN427 million was made up of long-term deposits, with nearly AZN420 million of that figure provided by individual investors. The bank has 146 points in its ATM network, and has sought to exploit the possibility of POS-based growth by installing 1,882 terminals in retail locations. It reported a customer base of some 175,000 clients, with individuals making up 171,500 of the total. The capital base of Standard bank is the smallest of the top five, coming in at AZN62.33 million in 3Q2012.

Pasha Bank rounds off the top five in the banking industry, reporting unaudited total assets of AZN732 million as of FY2012. Its total liabilities over the period were at AZN506 million, with deposits making up AZN417 million of the total. Its reported total capital of AZN187.96 million for FY2012, the second highest figure for the Azerbaijani banking sector after IBA. Farid Akhundov, Chairman of Pasha Bank, sees the target client base as being “60% SMEs and 40% corporates.” As he puts it, “the corporate sector, including SMEs as well as larger companies, has been at the center of our focus.”

The bank is mid-way through a seven-year strategy to increase its reach in the private banking market. The bank has looked to offer a more specialized offering to large corporates and SMEs, eschewing the use of branch expansion to deepen its reach, having just four business centers and a headquarters staffed by 180 employees. However, over 2013 Pasha Bank intends to open new business centers in Ganja and Zaqatala to improve its presence in the west and northwest of Azerbaijan, before looking to the other parts of the country as interest develops.

Pasha Bank has also seen the need to establish a regional foothold to assist its clients, opening Pasha Bank Georgia in December 2012. The potential for overseas branch expansion seems largely dependent on the success of its private banking initiative, with the UAE and Switzerland two likely targets.