BAKU, Azerbaijan, December 29. Trend News Agency presents an overview of Azerbaijan's financial sector in 2022.
Banking sector
One of the important events of the past year was the appointment of Taleh Kazimov as Chairman of the Central Bank of Azerbaijan (CBA). There also were other personnel appointments in the CBA. Thus, following the decree of President Ilham Aliyev, Rashad Orujev was appointed First Deputy Chairman and Aliyar Mammadyarov - Deputy Chairman of the CBA. In addition, following the order of Chairman of CBA Taleh Kazimov, Gular Pashayeva was appointed new General Director.
In terms of the discount rate, the Board of the CBA in December 2021 decided to raise the interest rate from 7 percent to 7.25 percent. The upper limit of the interest rate corridor was also raised from 8 percent to 8.25 percent, and the lower limit remained at 6 percent. At the first meeting of the CBA Board in the outgoing year, it was decided to raise the rate by 0.25 percentage points – from 7.25 to 7.5 percent. The upper limit of the interest rate corridor increased from 8 to 9, and the lower limit remained at 6 percent.
At the last meeting this year, the CBA decided to raise the rate by 0.25 percent – from 8 percent to 8.25 percent. The upper limit of the interest rate corridor remained at 9.25 percent, and the lower limit was raised by 1.25 percent to 6.25 percent.
Central Bank of Azerbaijan has set a task to gradually bring interbank interest rates closer to the interest corridor, preventing sharp fluctuations in interest rates in various segments of the financial market.
This year, Google Pay became available in Azerbaijan. In addition, the CBA has been discussing possibility of Russian 'Mir' payment system working in Azerbaijan. Also,the British Revolut fintech company has launched a simplified version of its application, 'Revolut Lite' in Azerbaijan.
Moreover, CBA approved amendments to the 'rules for calculating the bank's capital and its adequacy'. The amendment provides for new requirements to further strengthen the financial stability of the banking sector as a whole, including ensuring more responsible and healthy lending, preventing the occurrence of excessive debt of the population, protecting borrowers from potential currency risk, and stimulating the intrabank market. The new changes will contribute to ensuring and strengthening the financial stability of the banking sector against the background of gradually increasing economic activity in the post-pandemic period, as well as preventing the occurrence of excessive debt of the population, protecting borrowers from currency risk and developing the interbank market.
Also, the procedure for the purchase and sale of foreign currency between the CBA and commercial banks changed this year. The updated rule was developed in accordance with the 6th and 7th parts of the 3rd article of the law "On currency regulation" and article 22.0.4 of the law "On Central Bank of the Republic of Azerbaijan". The rules determine the methods, forms, and conditions of foreign exchange transactions in accordance with the current practice. The list of instruments that the CBA can use in the domestic foreign exchange market, along with instruments currently used, reflects other potential instruments which can be used if necessary in the foreign exchange market, including forward, swap, options transactions, and the methodology for calculating the price of these instruments.
Furthermore, Azerbaijan Microfinance Association jointly with the CBA is working on legislation in the field of microfinance.
In terms of digital manat [country’s national currency], it was reported that the CBA carries out work on development of digital manat in cooperation with international think tanks, financial organizations, and banks. The bank actively studies the role of digital currency in monetary policy and monetary transmission.
Regarding investments in Azerbaijan, it was noted that with one more deal to be signed by year-end, the investment of the European Bank for Reconstruction and Development (EBRD) in Azerbaijan this year will exceed 90 million euros.
The breakdown is as follows: 25 percent each for the sustainable infrastructure sector, and technology media and telecommunications, the remaining for agribusiness, manufacturing & services, and financial institutions.
In addition, the loan portfolio for the EBRD projects in Azerbaijan was estimated at 836 million euros as of December 1, 2022. The loan is for the implementation of 33 projects.
A total of 89 percent (748 million euros) of the portfolio targets investing in sustainable infrastructure projects, 7 percent (58 million euros) – in industry, trade, and agriculture, and 4 percent (30 million euros) – in financial institutions.
Also, it was noted that the EBRD is set to maintain its key strategic priorities for Azerbaijan in 2023. This means that the bank will continue to focus on the country’s non-oil sector, strengthening local lenders, as well as boosting investment in the green economy and regional connectivity.
In terms of innovations in the baking sector, it is planned to develop and integrate into ATMs a solution that will allow to process and issue loans through the ATMs. This service is provided within the framework of the memorandum of partnership signed between Azerbaijan's SINAM IT company and the Azerbaijani office of the Lithuanian BS/2 company.
In addition, it is planned to launch the 'green' bonds in Azerbaijan in 2023.
According to the S&P Global Ratings international
agency, Azerbaijan's Entrepreneurship Development Fund plans to
attract investment from international financial institutions, such
as the Asian Development Bank (ADB) and the European Bank for
Reconstruction and Development (EBRD), in few years.
Furthermore, the banking license of June 30, 2005, issued to the
Baku branch of the National Bank of Pakistan (NBP), was revoked in
2022 on a voluntary basis, following the decision of the Management
Board of the Central Bank of Azerbaijan dated October 11, 2022.
Mobile applications of banks
A total of 84 percent of Azerbaijani banks have their own mobile app, as of 2022. It is expected that the number of banks with a mobile app will reach 100 percent in the near future. Even though the banks are engaged in digitalization of their products and services, they continue to open their branches in districts, as well as in Azerbaijan's Nakhchivan. It's also scheduled to establish service centers in the liberated territories of Azerbaijan.
Insurance sector
One of the essential events this year was the establishment of the Turkic World Insurance Union. The primary goal is joining forces for strengthening the insurance sectors of Turkic-speaking countries, ensuring the exchange of personnel, experience, and information between insurance markets of member states, establishing a unified insurance pool, as well as the formation of reinsurance areas.
Also, amendments to the rules of receiving insurance payments upon the occurrence of an insured event for civil liability of vehicle owners were made.
The essence of the new changes is that the person injured in the insured event applies for compensation not to the insurance company (IC) of the party that caused the damage, but to his/her own insurance company. These changes are based on international practice, and before applying them, the bank carefully analyzed how this innovation could affect the market.
Moreover, the CBA published an index of complaints on its website to determine the criteria for choosing an insurance company. Index of complaints will allow determining the quality of client service of this or other insurance companies on CTP insurance. Publishing such ranking will make it easier for citizens to choose an insurance company, and for the companies, it will create an additional incentive to improve customer service
In addition, the bank has developed a new approach, law, and mechanisms for the regulation and management of compulsory motor liability insurance. To increase the quality of compulsory motor liability insurance services, the bank has developed new rules and management mechanisms based on risks - the age and experience of the driver, the age of the car, the number of persons allowed to drive the vehicle.
Also, the system of discounts (bonus-malus), allows calculating the cost of a compulsory motor liability insurance policy, taking into account the insurance history of the insured. If a driver manages the vehicle without accidents, the bonuses (discounts) are applied for subsequent insurance, and if an insured event occurs, then a malus is applied, that is, the cost of insurance will be higher. This system currently works in real-time, that is, when an insured event occurs, a malus is immediately applied to the guilty person. In addition, in areas where traffic is heavy, more stringent measures were applied on the malus system. All this work was carried out in order to minimize damage to third parties and ensure safety movement of vehicles.
It was also noted that the CBA is implementing a number of reforms in the insurance field.
The CBA jointly with the Azerbaijan Insurers Association, has launched an actuarial development program aiming at forming a new generation of actuaries in the country with modern knowledge and skills.
Also, the CBA and China Banking and Insurance Regulatory Commission (CBIRC) signed a Memorandum of Cooperation. The memorandum allows for creation of a legal basis for cooperation between the two institutions, strengthen relations, as well as enhance the information and expertise exchange in the financial sector.
Furthermore, the document provides for training, workshops, and consulting services between the CBA and the CBIRC.
Also, the Board of the CBA has decided to determine the amounts of a one-time cash payment paid by insurers wishing to operate under the "Green Card" insurance system and insurance premiums that will be applied by insurers entitled to operate under the mentioned system. In accordance with this decision, the amount of one-time payments within the "Green Card" system is set at 10,000 manat ($5,880).
Insurance premiums under "Green Card" agreements for vehicles registered in Azerbaijan and going to Türkiye and Iran range from 12 to 440 manat (from $7.06 to $258.8); those going to Belarus, Moldova, Russia, and Ukraine - from 10 to 400 manat (from $5.8 to $235.2); to other countries - from 30 to 1200 manat (from $17.6 to $705.8).
Insurance premiums for vehicles registered in Georgia and Kazakhstan and traveling to Türkiye, Iran, Belarus, Moldova, Russia, and Ukraine are determined in the amount of 15 to 1,630 manat ($8.82 to $960); for vehicles registered in Georgia and Kazakhstan and traveling to other countries - from 30 to 2,389 manat (from $17.6 to $1,140).
The decision enters into force on January 1, 2023.
Moreover, Azerbaijan's Compulsory Insurance Bureau has reached an agreement with the Council of Bureaux (CoB) on issuing "Green Cards" to car drivers registered in Georgia and Kazakhstan.
Capital market
This year, the CBA has launched the system for issuing securities. The provision of services to issuers in electronic form on the principle of a "single window" has begun in accordance with the state registration and placement through the system of investment securities of the Central Bank, the National Depository Center (NDC), and the Baku Stock Exchange (BSE).
The mentioned system envisages the following:
- state registration of the securities' issuance
- confirmation of the prospectuses and information memoranda
- state registration of stock issuance during consolidation
- stock split
- a rise or fall in the nominal value of stocks
- state registration of stock issuance during legal entity reorganization
- withdrawal of investment securities from circulation
- confirmation of the report on the results of the issuance
- state registration of the issuance of investment securities outside Azerbaijan's territory
- state registration of prospectus amendments and the release decision.
In addition, in 2022, the CBA started conducting one-day deposit operations as a permanent opportunity for the purpose of sterilization and one-day reverse REPO operations for the purpose of providing liquidity. The interest rate on one-day deposit operations for sterilization is equal to the lower limit of the interest corridor, and the interest rate on one-day reverse REPO operations for the purpose of providing liquidity is equal to the upper limit of the interest corridor.
In addition to all the above events, the outgoing year was remembered for the stability of the manat against the US dollar.
According to the Asian Development Bank, the rate of the Azerbaijani manat is expected to remain tied to the US dollar rate for at least until 2026. According to the report, this will be due to a significant decrease in pressure on the manat. The assets of the State Oil Fund of Azerbaijan (SOFAZ) will be sufficient to maintain the demand for foreign currency.