Tag Archives: Azerbaijan

More Azerbaijani banks rely on state support to survive

MAY 30 2017 (The Bulletin) — Five more Azerbaijani banks are currently failing to meet their capitalisation requirements, Rufat Aslani, head of the Financial Markets Supervisory Authority told media, suggesting more weakness in the sector.

In May, Azerbaijan’s biggest bank, the International Bank of Azerbaijan, which is 80% owned by the government and has a market share of around 60%, said that it needed to restructure its debt to stave off bankruptcy.

Now, after a series of small banks merged or went bankrupt in 2016, it has emerged that five mid-sized banks are still under the special supervision of Azerbaijan’s Financial Market Supervisory Authority.

“Today, under our supervision, there are five banks, capitalisation programs of which should be completed by mid-2017,” media quoted Mr Aslani as saying at a banking conference in Baku.

Mr Aslani did not name the banks but the Business New Europe magazine named three of them as Unibank, AtaBank and DemirBank — all mid-sized banks. None of the banks responded to requests for comment. The EBRD owns a 25% stake in DemirBank and Dutch development finance company FMO owns a 10% stake.

The Central Bank has imposed increased capitalisation rules to strengthen the sector. A recession in Russia and a collapse in oil prices since 2014 have halved the value of the Azerbaijani manat and heavily dented the banking sector.

Analysts had warned that Azerbaijani banks have been too relaxed about lending.

The currency devaluation and poor economic conditions have triggered a surge in bad debt which Moody’s, the rating agency, said stood at 30% of the banking sector’s loan portfolio.

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(News report from Issue No. 331, published on June 5 2017)

CoE investigates Azerbaijan bribe incident

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MAY 31 2017 (The Bulletin) — The Council of Europe launched an investigation into allegations that Azerbaijan bribed some members of the Parliamentary Assembly (PACE) into rejecting a report that was critical of it. Pressure has been building on the Council of Europe to launch an investigation after allegations surfaced that Italian Luca Volonte had taken a 2.5m euro bribe. Mr Volonta has denied the allegations.

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(News report from Issue No. 331, published on June 5 2017)

Azerbaijan closes Islamic Solidarity Games

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MAY 22 2017 (The Conway Bulletin) — Azerbaijan officially closed the fourth Islamic Solidarity Games that it has been hosting in Baku. Azerbaijan topped the medals table during the 11-day competition that featured a range of events from football to athletics. Azerbaijan has invested heavily in its sport facilities, using these set piece events to promote itself.

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(News report from Issue No. 330, published on May 28 2017)

Georgia and Azerbaijan agree for joint military exercises

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MAY 23 2017 (The Conway Bulletin) — At a meeting in Tbilisi, the defence ministers of Georgia, Azerbaijan and Turkey agreed to hold joint military exercises next month. The neighbours have been holding twice-yearly meetings of their defence ministers since 2014, with the aim of improving military relations.

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(News report from Issue No. 330, published on May 28 2017)

Kazakh CB chief orders IBA debt investigation

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MAY 24 2017 (The Conway Bulletin) — Kazakh Central Bank chief Daniyer Akishev said that he had ordered an investigation into why Kazakhstan’s state-run pension fund had bought $250m of debt from the International Bank of Azerbaijan (IBA) in October 2014, just as the price of oil started to collapse. Oil is Azerbaijan’s main export and its collapse triggered an economic downturn. This month IBA said that it was having to restructure its debt.

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(News report from Issue No. 330, published on May 28 2017)

IBA creditors criticise debt restructure deal in Azerbijan

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LONDON, MAY 23 2017 (The Conway Bulletin) — Azerbaijan’s reputation for economic competence was dealt another blow after creditors of the International Bank of Azerbaijan lined up to criticise a debt restructuring plan.

Senior officials unveiled the plan at a tense meeting with creditors in London, nearly two weeks after IBA failed to pay a scheduled repayment on a $100m loan. IBA now says that it has to restructure $3.3b of debt. This includes forcing creditors to take a 20% writedown.

In a statement after the meetings, Fitch the ratings agency said that the restructuring plan would effectively nationalise IBA’s debt without offering any essential structural reforms.

“The Negative Outlook reflects continued risks and uncertainty around the macroeconomic and financial sector adjustment under way,” it said.

IBA also said that it would sell off its subsidiaries in Russia and Georgia, IBA-Moscow and IBA-Georgia, as part of its restructuring plan.

IBA controls around 60% of Azerbaijan’s banking sector. The sector has been hit hard by the collapse in the price of oil which Azerbaijan relies on for income. This knocked around 50% off the value of the Azerbaijani manat in 2015/16 and forced the economy into a sharp recession.

Azerbaijani banks’ bad loans portfolios have grown forcing several to declare bankruptcy or merge.

The government has ploughed money into IBA to prevent it from defaulting, increasing its stake to 80% from 55%, and bought its bad debt.

Despite this state support, IBA still failed, embarrassing the government and its senior management.

Now, though, creditors have to decide whether to back the restructuring plan with a two-thirds majority needed to proceed. At its core the restructuring deal means that creditors will swap IBA debt for sovereign bonds, most at a 20% discount.

Many creditors were unimpressed.

Lutz Roehmeyer bonds at Landesbank Berlin Investment, including IBA debt, told Bloomberg News that he planned to vote against the deal.

Kazakhstan’s state pension fund is among the major creditors of IBA. Last week it emerged that it had bought $250m of IBA debt in 2014, shortly after the oil price had started to fall, drawing allegations of incompetence from MPs. The Kazakh Central Bank has opened an investigation into the purchase.

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(News report from Issue No. 330, published on May 28 2017)

Azerbaijan spends to prop up banking sector

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MAY 25 2017 (The Conway Bulletin) — Azerbaijan has spent the equivalent of 18% of its GDP propping up its banking sector in 2015/16, Peter Paklin, assistant vice president at Moody’s Investors Service, told a press conference. Despite the state support, Azerbaijan’s banking sector has been faltering, with its biggest bank — the International Bank of Azerbaijan — restructuring its debt and smaller banks going bankrupt.

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(News report from Issue No. 330, published on May 28 2017)

Azerbaijani banking crisis drags in neighbours

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MAY 16 2017 (The Conway Bulletin) — Ratings agencies downgraded debt issued by the International Bank of Azerbaijan, as the country’s biggest bank appeared to teeter towards a collapse.

There were fears too that the bad debt piling up at the IBA may damage finance systems across Central Asia and South Caucasus after it emerged that Kazakhstan’s Single Pension Fund had bought $250m of IBA debt over the past few years.

Kazakh MPs accused the Pension Fund of incompetence for investing in IBA in October 2014 shortly after the price of oil started to fall. At the time analysts warned that IBA was at risk of accumulating mountains of bad debt that could sink it.

Moody’s said it had downgraded IBA’s rating to Caa3 from B1, effectively shifting IBA debt from risky to extremely risky.

“Moody’s expects the announced foreign debt restructuring plan to result in credit losses for creditors in excess of 20%,” it said. Media reported that Cargill and Citibank are two of IBA’s biggest creditors.

Last week, IBA filed for Chapter 15 protection in the United States after it failed to make a $100m debt repayment to Netherlands-based Rubrika Finance on May 10. Chapter 15 prevents creditors going after IBA while it restructures its $3.33b debt. The Azerbaijani government is the bank’s biggest shareholder, now holding an 80% stake, and its fall is a major embarrassment to it. Not only has it bought equity in the bank, it increased its stake from 55% earlier this year, but it has also spent nearly $6b buying up its toxic debt.

Media quoted IBA chairman, Khalid Ahadov, as saying that its restructuring plan will be presented in London on May 23.

“Upon completion of these measures, the Bank’s capital position will return to regulatory frameworks,” he was quoted as saying. “As a result of all those measures long-term financial sustainability of IBA will be ensured that will increase its market value on the threshold of privatisation.”

But the reputational damage inflicted by the near-collapse of IBA will undermine Azerbaijan’s status in the financial markets. Last year several smaller banks collapsed or had their license withdrawn by the Central Bank. In 2015, the Azerbaijani manat was devalued twice, halving its worth. With many mortgages and personal loans given out in US dol- lars, consumers found it near-impossible to service their debt.

Azerbaijan has been particularly hard hit by the fall in oil prices. Its economy is reliant on oil exports. Despite repeated warnings, it has failed to diversify.

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(News report from Issue No. 329, published on May 20 2017)

Azerbaijan blocks RFE website

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MAY 14 2017 (The Conway Bulletin) — Azerbaijan blocked access to websites critical of the government, including the US-funded Radio Free Europe/Radio Free Europe and Meidan TV, because they were “a threat to the legitimate interests of the state and society”. Media freedom advocates have described the move as another attack on the press by a government that is considered increasingly autocratic. The authorities in Azerbaijan ejected RFE/RL from Baku in 2015. It has also arrested several of its journalists for various offensives.

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(News report from Issue No. 329, published on May 20 2017)

Logistics market grow in Azerbaijan

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MAY 17 2017 (The Conway Bulletin) — Pony Express, a Russian logistics company, said that it had opened up an office in Azerbaijan to take advantage of the opportunities that it expects major transport routes to generate. Media quoted regional development director Sergey Sergushev as saying that the development of a North-South transport corridor linking India, Iran, Azerbaijan and Russia, as well as the already established trans-Cas- pian Sea route, would boost demand for logistic services in Azerbaijan. Azerbaijan has been trying to position itself as a major link between Europe and Asia and companies such as Pony Express moving in will be a boost to its aspirations.

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(News report from Issue No. 329, published on May 20 2017)