of Azerbaijan grew $80 million in 2006,
and is investing heavily in the Azeri
It has GDP growth rates of 35 percent and
its Caspian petrodollars are going straight
into the coffers of the banking system. After
15 years of economic transition, its non-oil
sector has grown to represent almost half of
the countrys output. Suddenly, SMEs have
found an ideal business ally in domestic banks.
What country is it? Azerbaijan.
In Azerbaijan, the state was sole economic
agent for much of the 20th century. To a large
extent, it continued to regulate the market
well into the 1990s. In order to further economic
diversification, the banking system has had
to change old habits. Muslum Mursalov,
the Chairman of the Board at the Bank of Azerbaijan
has not had an easy ride since taking over in
2007. Set up in 1993, his institution has had
to break with the 70-year cycle of command economics.
But then, it took Western Europe 300 years for
laissez-faire principles to go mainstream.
Banking legislation was changed twice,
first in 1996 and later in 2004. The participation
of foreign capital was limited, in part as a
measure against inflation, says Mursalov.
Initially, strict banking policies in Azerbaijan
were meant to preserve local competitiveness.
By 2007, Mursalov says sound management and
robust shareholders had managed to keep domestic
banks afloat. Assets at the Bank of Azerbaijan,
for example, grew $80 million in 2006, or 30
percent year-on-year. We work closely
with the Entrepreneurs Association, the
Mortgage Fund and the Agriculture Department.
Also, thanks to advertising and the sponsorship
of a television show, our deposits grew by 3
million, says Mursalov.
Today, the Bank of Azerbaijan is a proven
economic agent in its own right. Mursalov says
the millions invested in factories serve to
open up new areas of activity. The Bank of Azerbaijan
has sunk money into canneries, bus stations
and infrastructure. With 16 branches, 5 of which
are located in the regions, Mursalov reaches
deep into the local SME tissue. These
branches play an important role in the development
of regional economies. In Nakhichevan, weve
invested more than $11 million in tobacco factories.
Cigarettes are then exported to countries like
Turkey and Iran, says Mursalov.
Chairman of the Board, Bank of Azerbaijan
Armed with ISO quality certification, the Bank
of Azerbaijan has begun to strategize for the
future. The plan involves selling shares to
foreign banks which will help send staff abroad
for training. Strengthening its foreign exchange
operations is crucial for Mursalov. So far,
BNP Paribas is eyeing the possibility of a link-up.
Foreigners dont know the country
very well and perceive the region as underdeveloped.
Selling shares to a foreign bank makes local
banking easier. Initially, BNP Paribas will
be opening credit lines valued at $5 million,
comments Mursalov. That may not be enough for
large-scale projects like the Baku-Tbilisi-Kars
railway. We need to raise our capital
by $50 million by end-2007, he adds.
Led by the Bank of Azerbaijan, the number
of deposit-taking institutions has shrunk by
5 to a little over 40. Officials now think the
figure will drop to 20 institutions in a few
years. In terms of territorial coverage, Kapital
Bank is the uncontested leader. Since its well-publicized
restructuring of 2004, assets and equity have
grown 350 percent. Kapital Bank is one of three
banks in Azerbaijan with international ratings.
According to Moodys, it is just one notch
down from Azerbaijans sovereign ratings.
Behind the robust figures is a dedicated team
of professionals. Rauf Rzayev, the Chairman
of the Board, thinks his bank has great potential.
Kapital Bank had all the prerequisites
to succeed. We had to change practically every
aspect of the way we worked, bringing our standards
up to international best practices. We now have
more than 18,000 corporate customers and 4 million
depositors, says Rzayev. The World Bank
opened a credit line for the implementation
of FlexCube software. Introducing the new IT
system took less than a year, when the usual
time period is between two and four years. We
couldnt afford a lengthy period of implementation
as we needed to catch up with increased market
demand, says Rzayev.
As Azeri banks go global, the non-oil economy
will gain more traction. Modernization has many
paths. Kapital Bank is still proud about its
quick upgrading of the state pension payment
system, switching to plastic cards in less than
two years. Our mission is to be a bank
of national importance and our credo states
that we will play an active role in the execution
of state projects, says Rzayev.