DIVERSIFIED INDUSTRIES NOT IMPACTED BY THE CRISIS

Until recently the main functions of international financial institutions was to maintain and promote the economies of developing countries. However, the global financial crisis which is continuing to keep almost the whole of Europe in its firm grip and is affecting the economic environment throughout the world and has caused the International Monetary Fund (IMF) to extend its operations somewhat to help countries extricate themselves from the crisis.

The Black Sea Trade and Development Bank  (BSTDB) has also become involved in this process. Over the last few years it has been forced to redirect its efforts towards the declining growth in the economy of the region embraced by the bank's operations.

Although Azerbaijan is, according to the bank's management, rather an exception to this, it is worth the countries in the region learning from Azerbaijan's experience in diversifying its industries and maintaining a stable economy against the backdrop of the tendencies towards recession throughout the world.

In an interview with R+ the bank's chairman Andrey Kondakov, who has come to Baku to attend the XVth Annual Meeting of the BSTDB Board, shares his views on this and other issues with us.

- Can you tell us what you think about the economic situation in the world and how it is impacting on the Black Sea region?

- The situation in the world economy is rather complicated and, unfortunately, the long awaited revival, which was planned and forecast at the end of the year, did not happen. All the major international organisations downgraded their forecasts in this connection. The reasons for the depression are well known, so I won't go into them. The world economic crisis is also having an impact on our region. From 2000 to 2008 the Black Sea region was one of the most dynamically developing areas. The average annual growth rate throughout the region was 6-7 per cent. Unfortunately, this region has been hit more than the others during the recession years and is suffering the consequences to the greatest extent. The growth rate has fallen from the above-mentioned figure to minus 6 per cent.

- To what extent will the countries in the region manage to revive their national economies?

- At the present time the region's economy is picking up, but not as fast as it might. We find this somewhat alarming, and this is making us more cautious in our operations. Last year the growth rate throughout the Black Sea region was 2.1 per cent, while this year the most optimistic forecast is 3 per cent. So, we see the new yardstick for growth in the Black Sea region as 3-3.5 per cent.

- How is the BSTDB reacting to these changes?

- The way the situation is developing has forced us to make a more cautious re-assessment a number of guidelines in the bank's strategy. The initial version of the bank's operating strategy, which was approved in 2010, envisaged the bank's operation expanding by 14 per cent annually. At that time, this figure was based on the seven-per-cent growth rates of the time. This is believed to be correct, when the portfolio of an international financial organisation is two, maximum 2.5 times higher than the growth rate of the relevant regions or economies. After the sharp drop and very slow revival of the economies in the region, we recommended to our share-holders that the guidelines for the growth of the BSTDB portfolio should be reassessed somewhat.

- What did this re-assessment consist of?

- At the end of last year a decision was taken to retain the main guidelines in the bank's strategy, except for the rates of credit portfolio expansion. Now they are closer to the historical values established during the first 14 years of the bank's existence and are 7-7.5 per cent per year. The main thing is not to stretch the resources too much. The portfolio is growing just as before, and the bank is developing, but more carefully.

- What do you think about the economic situation in the Southern Caucasus?

- The countries in the Southern Caucasus did not manage to avoid the negative consequences of the recession. Nevertheless, Azerbaijan's economy is developing successfully; the country's economic figures for the first four months of 2013 do provide grounds for optimism; the country has managed to cope with inflation. The tendency towards ever expanding growth in the country's non-oil sector needs to be singled out. This is the result of the effective and successful diversification policy being conducted by the country's government and the provision of the corresponding structures to back it up. I think that Azerbaijan's experience in diversifying its industries will be helpful and interesting to colleagues from other countries.

- How actively is Azerbaijan involved in the bank's operations?

- Azerbaijan's share in the BSTDB's balanced portfolio is 10 per cent. This is quite an impressive figure, making the country's share the fourth largest among the bank's partners. Considering that Azerbaijan holds five per cent of the bank's shares and the bank's shareholders include major economic players like Russia, Turkey, Ukraine and others, this is a decent amount. We envisage some very good opportunities for further expanding business in Azerbaijan.

- What are the main trends in the BSTDB's operations in Azerbaijan and what are the results of bilateral co-operation?

- The bank's operations in the country are focussed on the banking sector, but we are attempting to diversify and boost the number of organizations we work with. Last year the bank approved three projects amounting to 10m Eurasia. But by the beginning of 2013 we had already approved four projects worth 21m Eurasia. This indicates the dynamic nature of the developing co-operation between the BSTDB and Azerbaijan. We are working with the country's major banks, expanding co-operation with the non-banking credit organisations, as well and planning to broaden the scope of the banking sector, since we have managed to get co-operation going with other, smaller banks operating in Azerbaijan.

- Does this mean that the bank's operations in Azerbaijan are focussed exclusively on the banking sector?

- Naturally, the bank is looking to broaden the scope of the sectors it deals with. BSTDB's share-holders think that the bank should boost its presence in the real economy in the Black Sea region as a whole and in Azerbaijan in particular. At the present time the bank regards this trend as a priority. We are planning to become involved in financing transport sector projects. All these plans are currently at a preliminary stage, but we are hoping that the outcome of our talks will be successful and that these projects will be implemented in the foreseeable future. Besides, the BSTDB is planning to increase its credit input to our partners in the banking sector.