AccessBank, a leading player in the banking sector of Azerbaijan, a leader in the lending market of micro, small and medium-sized enterprises, ended 2023 with successful results and achieved a net profit of AZN 39.8 million according to the results of the year. The Bank's capital stability indicator has strengthened and its total capital has increased by 41.9% or AZN 42.3 million and reached AZN 143.5 million, which is 2.9 times higher than the regulatory requirement.
APA-Economics presents an exclusive interview with Davit Tsiklauri, Chairman of the Management Board of AccessBank:
- Mr. Davit, as far as we know, you worked in financial organizations in London and Tbilisi. What similarities and differences have you observed in the financial and banking sectors of these three countries? How do these experiences affect your current activities?
- Basic principals of banking are the same in all countries,hencethe basis of financial products are similar too - you receive money as a deposit and provide it in the form of loans to customers that need it, which in its essence is an intermediary business. If you do it right, both parties will be satisfied and you'll make a profit margin. This simple rule is the same in all countries. Of course, there may be differencies arising from the variety of financial products, capital markets environment, regulatory effect and so on.
The banking market of Azerbaijan is developing, albiet for the last 10 years the pace of development has been slower than in the region and there are very valid reasons for that. If we look at the years 2015-2016, after the devaluation and economic decline, the banks went into the self-recovery process, there were multiple restructurings, closures of banks and etc. Once that process was over, the COVID virus pandemic started, and we all know very well what impact it had not only on the banking sector, but on all areas of economy. If you look at the post-pandemic performance of the banks, i.e. after 2021, the whole sector started to grow again, and the economic conditions for the last two years have been very favorable for the banking sector. I hope that the sector will grow further in the near-term as I think that the conditions to achieve that will remain favorable.
I also think that the growth will stem further on the back of low-penetration (bank debt to GDP) numbers in Azerbaijan. The same indicate in the nearby-countries (such as Türkiye, Kazakhstan or Georgia) is much higher than in Azerbiajan, allowing for quite some potential.
- You have been the head of AccessBank for two years now, and the bank finished 2022 and 2023 with profit. Are you satisfied with the results of these two years? How do you evaluate the past year?
- Yes, I have been with AccessBank for two years now, and we are very satisfied with the performance of these past two years, including the favorable economic environment. Overall, the results are very satisfactory and we predict that our financial indicators will improve further under the current economic conditions. According to the financial statements of other banks that are published on the back of regulatory requirements, AccessBank ranked first in the country in terms of return on equity (ROE) last year at 29.1%. We hope that we can continue this success in the coming period.
- In recent days, the reduction of deposit rates by the Bank has become a topic of discussions. And we know that AccessBank's deposit portfolio exceeded AZN 1 in 2023. Is this the saturation point or what?
- I would like to inform you that our Bank has grown by 20%+, and our deposit portfolio has grown in tandem with the business growth. As AccessBank, we approach our deposits very responsibly. Always having in mind our liquidity position and perspective; basically very high liquidity is not always good, as it erodes the margin significantly, so it is important to maintain the balance.. With regards to reduction of interest rates, I would like to note that nothing has changed on our term deposits, we only lowered interest rates on current accounts and savings deposits, by following the market.
Besides, be advised that, as AccessBank, we are constantly working on new products, products are also created with the aim of supporting our customers in formation of “saving” behavior and adoption of solutions that ensure near or long-term financial benefit for them.
One of such solutions is "Convenient deposit", a unique product that we offer to our customers along with term deposits. This product also allows customers to get income from the interest earned and at the same time not be tied to any fixed term period. It basically alows customers to be flexible and accumulate savings at the same time.
- Mr. Davit, the volume of non-cash payments, including bank card transactions, has been rapidly expanding in Azerbaijan for the last few years. How are the latest related numbers at AccessBank?
- As you know, AccessBank mainly specializes in microfinancing, we have a lot of non-cash payment users, but the share of cash payments is still high in the regions.
As per the retail banking, important work is being done in the field of non-cash payments and the infrastructure is being improved. On February 22, AccessBank temporarily suspended all card transactions and migrated to the Azericard processing center. The main reason for the successful implementation of the migration process was a well-developed warning and communication plan with our customers and partners. The migration was carried out with the aim of ensuring the reliability and security of bank customer payments, speeding up operations, risk management and service improvement overall.
- What kind of opportunities and at the same time risks does the increase in bank card transactions bring to you? How is the security of bank card transactions implemented?
- I would like to note that non-cash payments are significantly safer than cash payments, as there is transparency throughout the entire transaction. There are some risks, but mainly of phishing nature, but as soon as such a problem arises, the Bank immediately detects them and helps its customers. Deception or fraud involving card transactions usually occurs due to customer error. Such cases are very few in AccessBank and in the banking sector as a whole. The regulation by the Central Bank and work done by the Banks in the field of cyber security and information security has been large and had very positive effect on the awareness of bank customers.
Tehre are many security features that the cards have such as PIN-code, 3D security code, SMS notifications, limits to name the few. Even if the customer does not use these tools in connection with the card, there are restrictions that we may apply in place. If any unexpected activity is observed in card transactions, we immediately block it and notify the customer. That is, there are different levels of protection tools. In general, there is always a risk, and this also refers to the funds you keep in your wallet. You may lose your wallet or your cash may be stolen. If the same thing happens to your card, a simple phone call to the bank and we will block the lost card and issue a new one.
- Mr. Davit, customers complain about the high business loan interest rates in Azerbaijan. Banks think otherwise. What is your view on the matter?
- Well, look at the cost-income ratio of the banks. The costs of banks in Azerbaijan are quite high, which, of course, affects the interest rates of loans. In costs I also mean interest rates on deposits – 1 year deposits are within 10-11% for manats.
Usually, entrepreneurs compare loan interest rates in Azerbaijan with those in Europe, and 2 or 3-years ago stating starting point there was at around 2%. But more recently even there interest rates increased significantly . Currently, the European Central Bank's discount rate is almost 5%, and the FED's discount rate is higher than 5%. Discount rates are currently high globally. In Azerbaijan, for example, consumer loans are offered between 11-22%. That is, one client could get a loan at 11%, another one with 22%. The question is, what causes this difference? This difference usually depends on the customer's risk profile. A high-risk customer is offered a loan at a high interest rate, and vice versa. If you offer a standard one loan rate to everyone, it will mean that a low-risk customer compensates for the risks of a high-risk customer. So if the Loan interest will be low, let’s say at 11%and at the same time deposits remain at current interest rates of around 10% then the whole rationale of banking will breakdown as costs will exceed revenue.
- The Central Bank of Azerbaijan recently adopted a new strategy for the financial sector covering the years of 2024-2026. How do you think this will affect the banking sector?
- My observations in the two years I have been working in Azerbaijan show that the laws or decisions adopted by the Central Bank serve to protect the stability of the financial sector. As for the new strategy, one of the important issues is the transition to Basel III principles. It should be. Many other countries have already transitioned to it and I think it will ensure transparency and comparability. Basically, Basel III principles allow if adopted will allow better comparison of capital positions of financial institutions and should ease the burden of assesment fromt he investors perspective. Some other very valid points within the strategy were asessment and possible transition to IFRS provisioning for possible credit losses. The main issue is that Central Bank of Azerbaijan does not stand still, instead continuous steps are taken for the development of the financial sector.
- What are the Bank's main goals regarding the development strategy and financial indicators for 2024? What innovations are expected?
- We have a very simple strategy, which is to satisfy our customers. All the work done is to ensure this. Customer requirements are different from customer to customer, some are looking for profitable interest income on deposits, some are reliable bank cards, others favorable terms on loans and etc. We try to cover all requirementsand expand our customers base. This year, we aim for the bank's annual growth of around 15%, and return on equity (ROE) at around 20%. We track many other indicators of performance and client satisfaction but these two remain the main ones we focus. Because if the bank is growing, and at the same time ensures growth of its equity it means that the bank will be able to support further growth, which in turn means more bsuiness done with and for our clients..
As for the innovations, as I mentioned, in accordance with our strategy, new products, new campaigns will be introduced during the year, and due to the migration to a new processing center, the introduction of modern means of payment in the field of non-cash payments, expansion of the branch network and other measures are also envisaged
Mr. David, thank you for the interesting interview and we wish you success in the implementation of the new development strategy.
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