Azerbaijan rushes to shut banks before law on insuring deposits

The central bank on Wednesday revoked the licenses of Atrabank ASC and Qafqaz Inkisaf Banki ASC, also known as Caucasus Development Bank, for failing to meet a minimum capital requirement of 50 million manat ($31.3 million). It said the lenders couldn’t meet their requirements to creditors and their management wasn’t "reliable or prudential.”

Authorities are culling the banking industry to keep it immune to contagion from a currency crisis roiling the economy of the third-largest oil exporter in the former Soviet Union. The collapse in crude prices has sent the manat to the weakest on record after the central bank relinquished control of the exchange rate last month. Azerbaijan imposed some restrictions on the movement of capital last week and announced plans to insure all retail deposits, with central bank Governor Elman Rustamov saying that five to seven banks may be merged to consolidate the industry.

"The reason for this rush is clear,” Samir Aliyev, an analyst at the Economic Research Center in the Azeri capital, Baku, said on Facebook. "The central bank is trying to decide the fate of banks before parliament approves a law next month to insure bank deposits fully. The government doesn’t want to return in full the deposits of banks that are going to be closed.”

License withdrawals have purged more than a tenth of Azerbaijan’s banks, with two other lenders announcing plans to merge their operations on Monday.

Three other major Azeri lenders -- Pasha Bank, Kapital Bank and Atabank -- are also discussing a merger, the news website Report reported on Tuesday, citing a person it didn’t identify.

Parliament is set to discuss legislative changes on deposit insurance after returning from its winter recess Feb. 1. 

Current rules guarantee protection to savings accounts holding as much as 30,000 manat and paying no more than 12 percent annually.

Fitch Ratings last week estimated the share of dollar-denominated deposits at Azeri lenders at 75 percent of the total.

President Ilham Aliyev on Tuesday pushed the central bank to act quickly to streamline the financial industry. He urged banks to invest in the real economy to help create new jobs and develop the non-oil industry.

"Banks that don’t meet requirements and have major shortcomings can’t operate in Azerbaijan,” Aliyev said in comments broadcast on the state television channel AzTV.

 

(Bloomberg)