BAKU, Azerbaijan, December 29. Trend News Agency presents an overview of the main events in the financial sector of Azerbaijan for 2024.
Banking sector
One of the important events of the current year was the approval of the "Green" Taxonomy. It includes a classification system for defining types of "green" activities, their subtypes, and the criteria for their technical classification across economic sectors. Primarily intended for use by financial institutions, the "Green" Taxonomy can also be utilized by the private sector to ensure that business activities align with the criteria and principles established in the taxonomy. It can aid in the development of "green" and sustainable transition strategies, disclosure of relevant information, attraction of "green" investments, and other similar directions.
The "Green" Taxonomy will help build a stable financial system in the country by directing both domestic and foreign resources toward projects that are good for the environment and will last. It will also help control the risks that come with climate change, take advantage of opportunities that come with switching to a low-carbon economy, and support companies that export goods and services. In this way, it will play a vital role in adapting the country's economy to the imperatives of sustainable development and strengthening the role of the financial sector in the transition to a sustainable economy. The "Green" Taxonomy was developed by an expert group on sustainable finance, established under the initiative of the Central Bank of Azerbaijan (CBA) and with the participation of relevant government bodies, supported by World Bank experts. In the process of preparation, alongside international best practices, the specific characteristics of the country's economy were taken into account.
The approval of the "Financial Sector Development Strategy for 2024-2026" was another significant event.
The strategy includes priorities such as the development of insurance, capital markets, and the payment sector in the country, as well as strengthening the stability of the banking sector.
It outlines strategic goals such as expanding financial accessibility, increasing the coverage of financial services and diversifying financial instruments, improving sector efficiency, implementing corporate governance, and enhancing transparency and stability. The strategic document identifies the likely market potential of each sector, the relevant quality requirements set by the CBA, the control mechanisms, and other aspects.
This spring, Azerbaijan and Albania signed an agreement on economic cooperation. The document promotes collaboration in priority areas, including trade, investment, energy, transportation, infrastructure, agriculture, tourism, environmental protection, and humanitarian issues.
The central banks of Azerbaijan and Uzbekistan signed a memorandum of understanding. The memorandum will serve to expand partnerships, exchange experiences and information, as well as organize bilateral visits.
Besides, the CBA and the Astana International Financial Center signed a memorandum of understanding. The memorandum will help establish a legal framework for cooperation between the institutions, strengthen collaborative relations, and facilitate the safe functioning of financial markets and the expansion of information exchange. Within the memorandum's framework, institutions will exchange experiences and information, as well as organize mutual visits.
This year, Azerbaijani banks and the Asian Development Bank (ADB) signed a number of agreements. For instance, Rabitabank and ADB signed a cooperation agreement on the "Trade Finance Guarantee System." The cooperation with ADB aims to enhance Rabitabank's trade finance operations and offer improved services to its clients. TuranBank and ADB signed an agreement for financing international trade transactions. Under this new agreement, ADB approved a trade finance guarantee limit, including TuranBank in the "Trade and Supply Chain Finance Program" (TSCFP). It is worth noting that this agreement will expand import and export operations in the country and support clients' trade transactions.
Furthermore, AccessBank secured a $5 million loan from the Swiss company responsAbility Investment AG. It is noted that AccessBank entered into a loan agreement with two funds managed by responsAbility for amounts of $3 million and $2 million, respectively, with a term of three years. The funds raised will be directed toward initiatives that support the development of entrepreneurship in Azerbaijan, including financing microloans, which is one of the bank’s priority areas.
It was also reported that TuranBank opened a correspondent account in US dollars at Habib American Bank. As part of the cooperation, TuranBank will open a correspondent account in US dollars at HAB Bank, which is considered one of the leading banks in the United States for international payments and settlements, offering its clients more convenient and faster foreign currency transactions.
Moreover, Rabitabank and the International Islamic Trade Finance Corporation (ITFC) signed an agreement for the development of the private sector amounting to $15 million. According to Islamic financial principles, the agreement calls for the creation of commercial financing mechanisms that can meet the wide range of needs of private sector clients. These mechanisms will help small and medium-sized businesses.
Moreover, AccessBank and the European Bank for Reconstruction and Development (EBRD) signed an agreement for the joint financing of companies in Azerbaijan (Risk Sharing Facility).
Chairman of the Board of AccessBank Davit Tsiklauri told Trend that this agreement opens up the opportunity for the bank to jointly finance companies in Azerbaijan.
"Unlike the usual scheme where the EBRD provides the funds and we issue loans, here it is about jointly offering a loan to a specific Azerbaijani company. What does this give us? First of all, it allows us to finance larger projects. Thanks to our cooperation with the EBRD, we can combine our resources and provide a loan that will significantly exceed the possible limits if we worked alone," he said.
ITFC’s Chief Operating Officer Nazim Nurdali told Trend that the corporation plans to collaborate with about 10 banks and financial institutions in Azerbaijan to create financing lines.
"Currently, we are implementing a similar model in Tajikistan, Kyrgyzstan, and Azerbaijan. Our partnership in Uzbekistan began in 2018 with one bank and has since expanded to 12. We aim to replicate this success in Azerbaijan, planning to cooperate with approximately 10 banks and financial institutions to create financing lines. Our focus in Azerbaijan will be on providing financing through local banks as intermediaries. We intend to allocate financing lines ranging from $20 to $30 million for import-export activities, which will then be distributed by these banks among their key SME clients. This approach aligns with the dynamic economy of Azerbaijan, where the private sector plays a vital role," he said.
This year, ADB carried out a new placement of bonds in the national currency of Azerbaijan, raising 19.5 million manat (about $11.5 million). It was set up as a three-year bond with a currency link and an amortization fund that mirrored the terms of the loan's amortization. The goal was to raise money to help women in Azerbaijan start their own businesses and work in agriculture.
Regarding the key interest rate, it is worth noting that in December 2023, the Board of the CBA decided to reduce the key rate from 8.5 percent to eight percent. The upper limit of the interest rate corridor was lowered from 9.5 percent to 9 percent, and the lower limit was reduced from 7 percent to 6.5 percent. At the first meeting of the CBA Board this year, it was decided to lower the key rate by 0.25 percentage points, from eight percent to 7.75 percent. The CBA Board reduced the upper limit of the interest rate corridor to 8.75 percent and the lower limit to 6.25 percent.
At the final meeting of the year, the CBA decided to keep the key rate unchanged at 7.25 percent, with the upper and lower limits of the interest rate corridor remaining unchanged at 8.25 percent and 6.25 percent, respectively.
Insurance sector
This year, the Azerbaijan Insurance Association and the Union of Insurance and Reinsurance Companies of Northern Cyprus signed a memorandum.
The memorandum outlines areas of collaboration, including staff and experience exchange, the development of new joint insurance products, and the establishment of reinsurance links between the two countries.
Additionally, the CEO of Asoba Vladimir Korobushkin told Trend in the corridors of the 2024 Azerbaijan International Insurance Forum (AIIF-2024) that the company plans to enter the Azerbaijani market.
"We are looking for a partner who could represent our interests and assist in resolving emerging issues in Azerbaijan. In return, we are ready to provide similar support to the clients of this partner in Belarus, helping them with insurance claims, including evacuation if necessary. China, Türkiye, and Azerbaijan are increasingly receiving logistics flows from Belarus. Therefore, it is especially important for us to find a reliable partner for mutually beneficial cooperation, which is why we are participating in this forum," he said.
This year, the opportunity to use the international insurance service "Green Card" was made available in the liberated territories of Azerbaijan.
In addition to all the above-mentioned developments, the Azerbaijani manat remained stable against the US dollar this year.
According to the report of the Asian Development Bank (ADB), Azerbaijan is expected to keep the national currency pegged to the dollar at least until 2026.
The report emphasized that this will be due to a significant reduction in pressure on the manat.
Analysts of the Dutch ING (multinational banking and financial services) also predict that Azerbaijan will retain the manat's de facto peg to the U.S. dollar at the level of 1.7 manat to 1 U.S. dollar at least until 2026.
Analysts of the international rating agency S&P Global Ratings also expect this rate to be maintained until at least 2026.