Does Azerbaijan need new bank support mechanism?
More than 10 banks have closed in Azerbaijan over the past two years.
Earlier, the Financial Market Supervisory Authority (FIMSA) stressed that preventive measures were not carried out due to a limited regulatory framework and the banks were not recovered, which resulted to their closure.
Of course, FIMSA carries out various measures for the recovery of banks, amends the legislation to expand its capabilities in this direction. According to the FIMSA experts, over the past period, individual plans were prepared for each bank to prevent the worsening of the situation. However, it was impossible to fully protect the financial sector and banks. Thus, another bank - DemirBank left the market last month.
Russia's experience is noteworthy in this regard. The Banking Sector Consolidation Fund has been operating there since 2017. Being on the one hand an investment fund, this structure is engaged in preventing bankruptcy of banks. The fund manager can manage the mutual investment funds, dealer activity and securities management activity.
"In case of establishing the Banking Sector Consolidation Fund in Azerbaijan, this structure could become an effective tool for supporting and improving the banks," Jalal Naghiyev, advisor to the chairman of the Nikoil Bank's board, told Trend.
Azerbaijan Investment Company, operating in the country, which buys a share in the companies, helps them to improve the level of corporate governance, draw up a business plan, and then withdraws from the company's capital.
Naghiyev said that by analogy with the investment company, the Banking Sector Consolidation Fund may form new management in banks, help create a new business plan and develop the company, rather than resell the collateral property of banks.
"On the one hand, this will help to avoid 'idle time' in enterprises passing to the balance of banks because of the debts of owners, maintain economic development and preserve jobs," he said. "On the other hand, banks are freed from bad assets because the Banking Sector Consolidation Fund buys them and the bank gets liquidity."
The expert added that representatives of the banking sector and the government represented by FIMSA can manage the Banking Sector Consolidation Fund.
"The Banking Sector Consolidation Fund's initial capital could be formed through the banks' contributions, while the amount of contributions would be set depending on the volume of assets," he said.
"At the same time, the Banking Sector Consolidation Fund could invest 20 percent of its assets in high-risk assets, while 80 percent in low-risk assets," the expert added.
‘Azerbaijan’s corporate securities market needs development’
The corporate securities market has a very small share in the total turnover in the Baku Stock Exchange (BSE), BSE chairman Vugar Namazov said in an interview with Trend.
He said that a lot of work must be carried out for the development of the corporate securities market.
"In general, 2017 was a record year for the BSE with a turnover of 13.6 billion manat in 2017," he said. "The trading is carried out in five markets, namely, state securities market, stock market, market of debt instruments, market of repo transactions and derivatives market."
"If we do not take into account derivative instruments, a big part of the market (about 80 percent) accounts for the state securities market, which shows that a lot of work should be carried out to develop the private sector," Namazov said.
Namazov added that the state securities market could play the role of a model for the corporate securities market, especially in IPO.
"We have all seen how the issue of SOCAR bonds increased interest in mass issuance of bonds," he said. "We have already completed the listing of Unibank and METAK company. A similar step aimed at mass issuance of securities is also necessary for the stock market. All expect someone to take the first step and if it is successful, the rest will follow this example. Therefore, a role model, that is, a big company that could carry out a big issue of securities, is very important for us."
According to the Baku Stock Exchange, the total turnover of stock transactions on all instruments on the BSE in 2017 amounted to over 13.6 billion manat, which is 2.4 times more than in 2016.
The state securities market turnover amounted to 6.07 billion manat (7.3-fold growth for the year), corporate securities market turnover - 1.62 billion manat (3.9-fold growth) and the derivatives market turnover - 5.9 billion manat (33.6 percent).
