CBA says shift to ‘floating’ manat rate justified itself

/By Azernews/

By Aynur Karimova

The Central Bank's decision to switch to the floating exchange rate of the national currency, the manat, has justified itself, Elman Rustamov believes.

CBA President announced that the Azerbaijani manat will remain in floating mode until its stability is ensured.

“Given the current conditions, considering the situation in the global economy, this is the right decision, and it meets strategic interests of Azerbaijan,” he told reporters on March 2.

The CBA switched to the floating exchange rate of manat on December 21, as a result of which the exchange rate of the dollar and the euro increased by 47.6 percent and 47.9 percent and stood at 1.55 manats and 1.685 manats, respectively.

The Central Bank conducts auctions to sell foreign currency three times a week - on Mondays, Wednesdays and Fridays. Along with currency interventions of the CBA, Azerbaijan's state oil fund SOFAZ also carries out sale of the USD to the banks.

Rustamov further added that the banks operating in Azerbaijan's banking sector, receive sufficient volume of foreign currency through auctions.

“Today we hold auctions, and, as one can see, there are no other parallel processes on the market. We have our own schedule in accordance with which we carry out the auctions,” he explained.

Rustamov reminded that the CBA’s main task is not to provide banks with foreign currency, but to prevent sharp fluctuations of the manat exchange rate.

"A revised state budget for 2016 has already been adopted, and it envisages the transfer program, which is the main channel for providing market with foreign currency,” he noted.

The Parliament adopted amendments to the state budget of 2016 on February 23. Under the amendments, the budget revenues are projected at 16.822 billion manats ($10.671 billion), while budget expenditures at 18.495 billion manats ($11.732 billion).

The budget deficit will amount to 1.673 billion manats ($1.061 billion). The parameters of the state budget were revised given the price of oil at $25 per barrel.

Rustamov went on to add that the CBA has increased the volume of its capital from 10 million manats ($6.344 million) to 500 million manats ($317.18 million).

The corresponding amendments to the law ‘On the Central Bank of Azerbaijan’ were made in 2015. The capital of the CBA is comprised of the authorized capital and capital reserves.

The capital reserves should not be less than the bank’s authorized capital and are formed with the deductions from the profit of the fiscal year.

CBA to defend itself

Commenting on revocation of licenses of several banks Rustamov said that the CBA intends to defend its interests in court due to the revocation of licenses of Atrabank and Caucasus Development Bank.

“The trial is underway,” he said. “We will defend the decisions made and our own interests in court.”

The CBA revoked the licenses of these two banks on January 27 because their total capitals did not correspond to the minimum requirement of 50 million manats ($31.718 million). The banks also could not fulfill obligations to creditors, according to the CBA.

Later, Atrabank and Caucasus Development Bank agreed to merge, and signed a protocol of intent.

Rustamov believes that the process of the consolidation of banks is not yet finished.

“This process will end when new shareholders hold a meeting,” he said. “For now, three banks are in the process of consolidation, they have already signed a protocol of intentions. But the further process will take time. At first, they need to carry out mutual evaluation of assets and so on.”

Since early 2016, the CBA has terminated the licenses of Texnikabank, Caucasus Development Bank, Atrabank, Gandja Bank, Bank of Azerbaijan, United Credit Bank and NBCBank. Later, the license of NBCBank was restored due to the bank's plans to merge.

In mid-February, AGBank and Bank Standard decided to combine their assets and signed a corresponding protocol of intentions.

At the same time, the NBCBank has already signed a protocol of intent to merge with the Parabank and the Kredobank.

Experts believe that the consolidation will allow stable banks, which have deliberately decided to merge, to increase their share in the market and to gain more revenues, experts say. This strategy would be more correct if targets growth of profit and market share.

The International Finance Corporation and the European Bank for Reconstruction and Development support the consolidation of the country’s banks, regarding it as a way leading to financial recovery of the banks.