DO NOT MIX FRIENDSHIP AND BUSINESS

The crisis waves on the international financial grounds are not subsiding and this forces members of the market to cooperate more closely in common search of ways out of the dead-end, improving both their own indicators and the general economic climate as a whole. Often it is with joint efforts that the weak links in the general financial developments can be addressed - such trends are especially fruitful when they concern cooperation between market players from countries with interlinked economies. 

In this connection the obvious signs of the bank sectors of a number of CIS countries growing closer over the past two years can be seen as a significant contribution to the strengthening of local financial structures and the market as a whole. This is the general resume of the recent 5th Baku International Bank Conference of the CIS member-states: "CIS financial markets: new opportunities and global risks". 

CIS bankers, unite!

According to the chairman of the Coordination Council of the Finance and Banking Council of the CIS, Anatoliy Kazakov, the bank system of the CIS continues to grow and the volume of its assets surged over the past year from one trillion to 1.5 trillion dollars, that is by half. "However, the system is still weak and so is its integration. Yet, there is a positive tendency for the growth of operations in national currencies," the Russian banker said. In his view, the CIS financial market has a vast potential and in order to completely wield it they have to attract pension money, Islamic financing, long-term funds and strengthen ties between the financial centres in the CIS.

Such calls for strengthening cooperation between bank markets are voiced at almost every conference of the CIS Bank Council. The crisis trends observed in the international financial sphere since 2008 prompt a search for new ways of survival and on the one hand coming closer on the market could be a solid response to the global challenges. It would seem that the CIS countries with common economic past are appropriate for the implementation of this idea. Nevertheless, according to the executive secretary of the CIS, Sergey Lebedev, the growth in trade in the CIS countries and other trends establish new requirements for industrial and investment cooperation of the CIS countries. 

Lebedev said that a number of Russian initiatives, including the Russian membership in the World Trade Organization, serve the merger of the CIS countries, including the financial and bank systems, as well as the investment and stock exchange markets of the Commonwealth. And today it is very important to concentrate the resources of the business structures, financial and other institutions of the CIS countries. 

General Secretary of the Banking Association for Central and Eastern Europe (BACEE) Istvan Lendel also believes that there is a need in the CIS to create and develop strong infrastructure. "Attracting financing for infrastructure projects in the CIS is not so simple, but it is possible, including with the involvement of the funds of the international financial institutions," he said.

In this connection it must be noted that more attention is being paid lately to issues of improving the global financial system. "In this context creating in Russia the international financial centre of the CIS countries can play a big role; it will provide a new impetus to integration processes," Lebedev said. Kazakov added that the next step in development of the Finance and Banking Council of the CIS will be turning it into the Financial and Banking Union. "We will think on intensifying in 2013 measures to involve more banks in joint cooperation as we need the common economic space," he said. At present there are also discussions on creating the common financial centre for the CIS countries, initially in Moscow.

The long-discussed matter in the financial and banking circles of creating a common currency space is expected to be realized first within the framework of the Customs Union of the Eurasian Economic Community, since large mutual deals will be often conducted here. Timur Suleymenov, member of the collegium and minister for economy and financial politics of the Eurasian Economic Commission, said that this will also help to bring closer the implementation of the global idea of creating a common currency space within the Commonwealth.

Mutually beneficial friendship

On the one hand all these proposals are promising and can yield significant dividends and it is of course nice to hear Kazakov's remarks that "Baku is turning into a serious and dynamically growing financial centre for flows from Asia and Europe". On the other hand, the uneven development of the CIS bank structures, disagreements on the political arena and other aspects force Azerbaijan to treat such proposals with some caution. Because Azerbaijan can be said to be entering a new stage of the development of the bank sector and it is quite possible that after a year the situation here will be drastically different from what it is today. 

For example, the Central Bank of Azerbaijan increased requirements for the bank capitalization (they increased fivefold to 50m manats) and for this reason the number of market players is expected to fall. The general director of the Central Bank, Rasad Orucov, said that banks have already commenced talks on consolidation. "Now talks are under way in various combinations between various banks. At this stage of course nobody is going to divulge plans. We await results. This is not an easy process. This decision will lead to considerable changes on the market," Orucov said. In the opinion of the chairman of the board of the biggest bank in Azerbaijan, the International Bank of Azerbaijan, Cahangir Haciyev, the demand for bank services in Azerbaijan can be fully met by just 20 banks. 

So it is still necessary that the changes took place and that the market, its participants and consumers get used to them, and then steps for the globalisation are taken. But to a certain degree the changes initiated by the Central Bank of Azerbaijan can facilitate this as well. Kazakov agrees that a number of banks will end their operations in Azerbaijan, "but, on the other hand, this creates good conditions for the arrival of CIS banks, because the business climate here is good".

In addition, the internationally popular Islamic banking is currently developing in Azerbaijan and considering the growing need for this instrument in Russia and other CIS countries exchange of experience and cooperation of banks can be established. 

Hence, by and large there are many causes and opportunities for cooperation. Friendship without the dependence of one side, without hegemony, based on mutually beneficial terms, is good in all spheres and at all levels. What matters is to avoid damage to the fragile but already clearly shaped tendencies for the development of the financial and bank system in Azerbaijan.