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Standard & Poor’s: Azerbaijanâ€™s ailing banks are under the threat of closure

12 June 2009 16:05 (UTC +04:00)

Baku. Vahab Rzayev - APA-Economics. Standard & Poor’s Ratings Services considers Azerbaijan to be "supportive" of its banking system, according to its first full report on Azerbaijan banking system titled "Bank Industry Risk Analysis: Azerbaijan’s Young, Fragmented Banking System Increasingly Affected By Global Crisis".

Under this approach, we give no ratings uplift to private-sector banks for potential government support. During times of financial stress, the authorities are likely to increase supervision and regulation of troubled entities, but, in our opinion, would provide only limited extraordinary financial support to privately owned banks.

According to the document, the credit ratings of financial institutions in Azerbaijan to take account of current indirect support from the state, including such as privileged access to liquidity, prudential regulation and effective supervision.

The report said the Central Bank of Azerbaijan adequately and timely responded to the crisis by slashing refinancing rate and mandatory reserve requirements for liabilities which infused AZN 350 million to liquidity.

In addition, the central bank provided direct support to commercial banks faced with certain liquidity problems.

In November, the central bank gave AZN 50 million to privately owned Unibank and $250 million to other commercial banks in short-term loans.

Because of tense situation on liquidity persists in the world, Standard & Poor’s believe that other banks will also seek assistance from the CBA.

It is estimated that the CBA might allow AZN 400 million to the bank sector.

According to the report, during times of financial stress, the authorities are likely to increase supervision and regulation of troubled entities.

The Government has shown willingness to provide support to avoid the growing problems in the banking system, as evidenced by the recent measures.

The report said the authorities are likely to provide only limited extraordinary financial support to privately owned banks.

The most likely scenario may be the closure of ailing banks that have no strategic importance for the banking sector, said the report.