A CONVERGENCE OF SYSTEMS

Against the background of the crisis and the post-crisis period there has been a weakening of mutual trust between the participants in financial markets and their client base, as a result of which the need has arisen for greater cooperation between the finance and banking systems. This is where regular meetings of representatives of the banks of various countries are extremely important, as was proved once again during the VI International Banking Conference of the CIS member-states, organized by the Finance and Banking Council of the CIS with the support of the International Bank of Azerbaijan and the CIS Executive Committee, which was held in Baku recently.

It has to be said that the event was held at a time of the announcement and subsequent lively debate by the banking community of the decision by the Central Bank of Azerbaijan regarding the deferment in the time given to local banks to increase their capital to 50m manats. This situation in Azerbaijan's banking sector became a subject of discussion at the aforementioned forum.

In an interview for R+ the chairman of the Coordinating Committee, CIS Finance and Banking Council Anatoliy Kazakov shared his thoughts about this, as well as other vital questions for the banking community.

- How do you assess the situation in Azerbaijan's banking sector and what are the predictions for the development of the market in the light of the CBA's decision to extend the terms of the fulfilment by banks of the criteria on capitalization?

- Azerbaijan's banking sector is sufficiently developed, and is one of the most stable in the CIS, as the crisis quite clearly showed. But at the same time the banking system is developing very rapidly, its assets are growing, and so, naturally, are risks. That is why we are trying to get greater unification of the system, including from the legal aspect. Let us say that in the Azerbaijani and Russian banking systems there is a high proportion of non-performing loans. On the other hand, there is a big struggle for good borrowers. The same situation may be seen in Ukraine.

As far as the minimum requirement of the Central Bank is concerned, I would like to point out that the bar has been set high. For example, in Russia a limit of 6m dollars has been set, and we have a softer approach to such questions. We don't "come down" so sharply because it is very difficult for the banks to cope with this task.

According to my predictions, there will be a reduction, albeit slight, in the number of banks in Azerbaijan. Some of the banks which cannot cope with their targets will be bought up: clearly, foreign capital - either western or from the CIS - will come in. For example, Rosselkhozbank [Russian Agricultural Bank] could take advantage of the situation.

But, generally speaking, I would like to emphasize that I assess the Central Bank's supervisory activity as highly effective. This can be seen at the level of the achievements of such banks as the International Bank of Azerbaijan.

- You raised the interesting idea about creating a payments system for the CIS. What would be the point of this?

- The CIS needs its own payments system along the lines of MasterCard. But so far this has not happened because the players in this market are very serious. Although we have come out of the crisis, the process of stagnation still goes on. We must reach our domestic CIS market and use the advantages in integration which we have: complementarity, linkage and the mutual dependence of our economies. It is no secret that our economies are more dependent on one another than the economies of the West. We are compelled to develop our domestic market: we have no alternative. We must also ensure a convergence of the banking systems, the bond market and stock exchanges. There is great potential in all areas. The creation of our own payments system will enable us to avoid all kinds of crises and bring stability to our work.

- You have always vigorously championed the development of Islamic banking. Within the framework of a previous conference a working group was even set up which included experts in this sphere. Has anything practical come of it?

- The working group continues to operate strongly. Islamic banking has taken hold pretty well in Kazakhstan, Azerbaijan and Tatarstan. Financial resources are being attracted as part of projects, although so far we are not talking about a lot of money. We have been thinking about setting up an Islamic bank in Russia but a whole number of legal procedures are preventing us from taking this step today. This question should be tackled with the country's top leaders. This bank will be not just Russian but embrace the whole of the CIS and it will be created in partnership with our Arab colleagues. At the moment we are studying and sizing up the experience of the International Bank of Azerbaijan and Kazakh banks, after which we intend to apply this experience to ourselves.

I am confident that the advancement of Islamic banking needs to be supported and it is extremely important to make adjustments to legislation. The Azerbaijani economy needs long-term money. After all, despite the large revenues from the sale of energy resources, your country, and Russia, too, needs to take advantage of the moment and continue the diversification of the economy and switch to innovative channels while the money is there. Islamic money, to put it crudely, is "long" money, and in this sense there is no alternative to it.

- Incidentally, you also proposed creating an Islamic bank of the Caspian countries. Has anything come of this?

- In my opinion, this is a very interesting project. But in this case the heads of the countries of the region also need to discuss this. If the politicians can agree then we, the bankers, will carry out this project. This bank has made a huge contribution to the development of the countries of the Caspian region. It wouldn't be a bad idea if its central office was in the Azerbaijani capital, because Baku is the centre of the South Caucasus. Azerbaijan is gaining real momentum and is becoming a true leader in many areas. We shall be returning to this question.

- Rumours have been going around for some time in Azerbaijan about setting up a specialized agrarian bank. Could Rosselkhozbank take part in this project? 

- I have no information on this score. But why not? Rosselkhozbank is a very strong player. It is no secret to anyone that a very large quantity of Azerbaijani fruit is exported to Russia. Instruments are needed to help increase these volumes. And from this point of view the creation of an agrarian bank involving Rosselkhozbank could give a boost to this process. Incidentally I eat only Azerbaijani tomatoes and cucumbers…