Analysis

Analysis

Insurance of deposits will increase peopleâ€™s trust in bank system in Azerbaijan

29 August 2007 15:17 (UTC +04:00)

- As you know, Azerbaijan has recently taken a step to insure deposits in the country. This move was regarded as important for both depositors and banks. What changes do you think will come to the bank system of Azerbaijan?

- While drafting the bill on insurance of deposits, the National Bank of Azerbaijan studied foreign experience and did a deep research. Foreign experience showed that soon after the deposit insurance fund is established, the number of depositors jumped rapidly in the countries. We also expect he same uptrend in Azerbaijan. Banks will pump the deposits to the economy in the form of loan, and this will reduce long-term interest rates in the country. On the other hand, potential depositors will not sort out the reliability of banks because of existence of the deposit insurance fund, and all the banks will benefit from the upsurge.

- Membership fee payable to the Fund will increase banksâ€™ expenses for deposits. Is it expectable that the interest on deposits will decline in the future?

- Membership to the Fund is mandatory for all banks. The one-time annual membership duty is AZN 10,000 plus annually 0.6% of the left deposits (0.125% quarterly). The cost price of deposit went up 0.6% for the banks. True, interests may be cut in the long run. Also, the inflow of non-deposit funds to the banking sector has also increased and the competition for lending loan continues to intensify between banks. As a result, banks will be forced to cut interest rates. Banks will attempt to cut deposit interests in order to maintain the profit margin. It comes out that the decline in interest on deposits should be attributed to the increase of funds in Banks rather than insurance expenses.

- Will the limit on the amount of compensation for deposits decrease the number of big customers because they will have to divide the large deposit into pieces to put with various banks?

- Well, it is interesting that how the potential big customers will react to this process. However, there is a point. If a depositor used to entrust $50,000 to Rabitabank in deposit while there was no deposit insurance fund, it is obvious that our bank holds great trust. It is convincing that such customers will continue to cooperate with our bank. However, I donâ€™t rule out that they may diversify the deposits. In general, we hail establishment of the Fund and expect that insurance of deposits will increase the peopleâ€™s rust in banking sector of Azerbaijan.

- Rabitabank will celebrate its 15th anniversary next year. Of which achievements are you proud?

- Established in 1993, Rabitabank succeeded to be one of the top banks in Azerbaijan. Rabitabank has 14 branches, of which 5 are located in Baku. The branch coverage shows that we have achieved to reach all large cities and regions of Azerbaijan. Also, we have further achievements. Our bank has built strong relations with international financial institutions. So, we now have good cooperation with International Finance Corporation, European bank for Reconstruction and Development and Islamic Development Bank. This proves foreign investorsâ€™ trust in Rabitabank. This level of cooperation opens new opportunities for us in terms of both clientele and new products. Rabitabank provides business services, warranty and bank account services to corporate customers. We have a number of services, like deposit, money transfer, plastic card and other services, for individual customers. Rabitabankâ€™s customer base includes 3,000 corporate and 13,000 individual customers. We plan to establish a further 5 branches by the end of 2008, three in regions and two in Baku.

- On which principles does Rabitabank cooperate with International Finance Corporation?

- Rabitabank is one of the first banks in Azerbaijan to start cooperation with international financial institutions. Within the scope of cooperation since 1998, IFC opened credit lines of $3.2 million in total to our bank. Also, by an additional agreement, Rabitabank offered 20% stake to the Corporation. Financial Institutions also rendered some technical assistance to our bank. Technical assistance covered raining courses or improvement of efficiency of monetary and credit expenditures. International experts have been allotted for Rabitabank. IFC also funds one-year work of an international expert in Rabitabank. He is a consultant for management of risk.

- What about the cooperation with EBRD?

- We launched cooperation with EBRD last year. On November 15, 2006 Rabitabank and EBRD sealed a $4 million loan agreement. Of the loan, $3 million was on-lending to small and medium-sized enterprise in Azerbaijan and the rest was earmarked for Trade Finance Program. Like IFC, EBRD also rendered technical assistance to our bank. The amount of $1 million EBRD loan for trade finance is expected to increase in the future. We plan to complete use of the credit line by this year-end and apply to EBRD again. Moreover, Rabitabank is working on attraction of funds from foreign financial institutions and investment funds. We are likely to receive additional funs from a number of financial institutions in the nearest future. The funds will go to small and medium-sized enterprises.

- Rabitabank also negotiates with Islamic Development Bank for expansion of cooperation. What achievements have you gained?

- Islamic Development Bank and Rabitabank have long history of cooperation and we have received $1.1 million credit lines in total. A recent decision will increase the amount of credit lines to $2.1 million soon. We are preparing paperwork for a $1 million agreement. The signing ceremony has been scheduled for October-November this year. The funds will be spent on development of entrepreneurship in the country.

- Some bank organizations provide insurance and leasing services in various formats. Does Rabitabank have any plan?

- Today our customers take great interest in new credit products we offer. The interest in leasing is growing now because its preference to credit. Many applied for leasing services and we are now exploring the market. At the first stage, we can provide leasing services by establishing a separate department under the auspices of the bank. It is also possible to set up an independent leasing company in the future. The investment environment attracts foreign investors to Azerbaijan now. We expect the investment boom in Kazakhstan to arrive in Azerbaijan. Rabitabank plans to establish an investment company in order to maximally benefit from the economic growth and offer customers effective investment opportunities. Rabitabank is studying the prospects of this idea at present.

- Some banks are working on mortgage programs. Does Rabitabank have such a plan?

- Experience and reality show that interest in mortgage loans is increasing year by year. This tendency is more characteristic for transition economies. While mortgage loans through non-state funds are a bit expensive but there are good financing options. The mortgage loans through funding from Azerbaijan Mortgage Fund carry annual interest rate of 8% but the alternative mortgage will come at 12-16% annually. It is forecasted that the demand for mortgage loan will rise because of construction boom, improvement of living standards and increase of take-home earnings of young families in Azerbaijan. So, Rabitabank intends to take active part in this process. /APA-Economics/