The process of privatizing State share in Kapital Bank JSC was fully completed, for which already in 2005-2006 the Government of Azerbaijan undertook intentions to privatize state banks of the country as one of the conditions of strengthening the structural reforms in the country. For a long time and persistently the International Monetary Fund (IMF) insisted on the privatization of Azerbaijan state banks. On 1 March 2005 the President of Azerbaijan signed an order on additional measureson deepening of processes in the financial-banking system of Azerbaijan, directed toward larger deepening of contemporary market relations in the financial-bank sector of the country, an increase in the competitive ability of the banking system and attraction of investments into the state economy.
Kapital Bank is the oldest bank in Azerbaijan, it has been existing since the 19th century, it has large branch network in Azerbaijan (90 branches and departments). Bank (previously known as United Universal Joint-Stock Bank) was established in 2000 by merging the companies of three state banks - Saving Bank (successor of the Azerbaijan branch of Saving Bank of the USSR), Industrial-Investment and Agro-Industrial Banks. In January 2005 bank was renamed from the United Universal Joint-Stock Bank to Kapital Bank
The process of bank's privatization took place in two stages. The first stage of the privatization of State share in Kapital Bank brought $28.236mln. As a result gain from sale of 1.2mln shares with the rating of AZN 10 each and the total amount of AZN 12mln made up AZN 24mln. Sale of the shares within the framework of the second stage of privatization still began in March this year. The closed subscription to the share for the employees of the bank and persons legally equated to them commenced on 4 April.The subject of auction were shares totaling AZN 600,000: 60,000 shares with the rating of AZN 10 per each, which makes up 5% of the State share in the bank, equaling to 1.2mln shares with the total amount of AZN 2mln (1 share - AZN 10). Aspirants for acquisition of 5% of state share in Kapital Bank could become the employees of the bank, working in the bank for more than 7 years and retiring on pension, those that received status of unemployed as a result changes in the working staff since 1 January 1995.
According to the decision of the privatization commission, 85% of state-owned shares were obtained by Ata Holding OJSC and Pasha Holding limited company 30% each, Xalq Siqorta company limited - 15% and Azersun Holding limited company - 10%. It should be noted that the first stage of competition on privatization took place last year, when in two lots of competition, winner became Xalq Bank, which purchased 20% of shares, and in other two lots, winner became Ata Holding (20% of shares) and Azersun Holding (10%).
In general, Kapital Bank managed into AZN 120mln. Any investor, who invests 120mln in this bank, will be able to return these monies over the next 10-14 years. This is very profitable purchase, unprecedented in the worldwide banking business.
Full privatization of Kaptal Bank did not affect its capitalization, and the authorized capital of the bank was preserved at the level of AZN 24mln. The shares of the bank were sold on nominal, but as the first stage of privatization (sale of 50% of state share) was accompanied by the additional issuance of shares, this led to the doubling of authorized capital of the bank. In the second stage (on sale of remained 50%), the State sold its shares in acting capital. It means that gain from sale of the state participation in the bank with nominal cost of each share at AZN 10 totaled AZN 24mln.
However, the complete privatization of Azerbaijan bank imperils reduction in its international rating. According to special assessment formula by international rating agencies - Fitch Ratings and Moody`s, the participation of State decreased the risk of default because as the basic shareholder, it could at any moment provide support Kapital Bank.
Bank presented all confirmatory facts on the fact that State supports the expansion of banking business in the country and will continue co-operation with Kapital Bank on important general national scale-state projects that will provide an opportunity for wide branch network. Besides, the bank has large experience in serving State projects and the State repeatedly expressed interest in continuing of collaboration with Kapital Bank. Meanwhile rating agencies desire to take less responsibility before the international investors. Therefore, they want to reduce rating indices.
At present the long-term rating of bank through the version of Fitch, declared already in September 2007, is at the level "BB". Forecast of rating is stable. Furthermore, bank appropriated short term rating "B", the individual rating "D/E" and 3% approval rating. Moody's Investors Service provided Kapital Bank the ratings "Ва2/NP" on long-term and short term deposits in the foreign currency, "Baa2/P- 2" on the deposits in AZN and the rating of financial sustainability "E+".
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In any case, privatization of the bank is a positive step both for the bank itself and for the economy as a whole. It is necessary for bank to leave for new markets, and privatization will only help this and the experience of the countries of East Europe testifies the fact that precisely after the privatization of State banks, these countries could formulate the policy of State support for small and medium business and mortgage, which made it possible to achieve rapid growth in these segments.
Kapital Bank's access to the stock market will transform the bank into transparent and attractive bank for the new investors and shareholders. According to world practice, more than half of bank shares in many countries - Poland, Czech Republic, Hungary, Bulgaria, Estonia, Lithuania - burn under the control of the foreign banks precisely within the framework of the privatization process. And it is no secret that opening their representations, the foreign banks bring new technologies, new products, new ideas and professionals that Azerbaijan market needs.
To clear the economies of the developing countries from "surplus" government control in order to ensure free movement of international capital, there is sense of the policy the IMF (International Monetary Fund), which insists on the privatization of state banks. According to the IMF, privatization of Kapital Bank and later State International Bank will lead to attraction of huge finance into the banking sector, in which the low level of crediting is connected with the high interest rates, the low competition between participants in the market, high operating expenditures of banks themselves.
