Nariman Mannapbekov: “Though Azerbaijan’s banking sector has become stronger, there are still issues” - INTERVIEW

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23 July 2020

As Azerbaijan’s largest multilateral development partner, Asian Development Bank (ADB) has mobilized over $5 billion in financing support for the country since 1999. ADB's partnership strategy for Azerbaijan aims to help boost private sector development, raise public sector efficiency, improve infrastructure, and strengthen human capital. Asian Development Bank is the major shareholder of AccessBank with 19,90% shares. 

ADB Country Director for Azerbaijan Nariman Mannapbekov’s interview with APA-Economics

How do you assess the current state of the global economy amid the coronavirus pandemic? How soon can the global economy recover?

We estimate that the contraction in the global economy in Q2 will be very sharp. Containment policies to stem the COVID-19 outbreak are inhibiting economic activity in many economies, including the largest ones. The global recovery most likely will be protracted as the process of normalizing will be hampered by continued social distancing and possible recurrences of outbreaks. Even if individual countries succeed in normalizing domestic activity, they will be held back by a very weak external environment and disrupted supply chains. The ADB has joined the international efforts to work together to limit the pandemic’s spread. Based on information regarding the timeline for availability of anti-COVID vaccine we will update soon our forecast for growth perspective in 2021.

During a video conference with President of Azerbaijan Ilham Aliyev, the head of the ADB, Masatsugu Asakawa, announced the readiness of the bank to continue supporting diversification of the economy of Azerbaijan and its recovery from coronavirus. What specific projects are planned in this direction?

Our work is guided by the Country Partnership Strategy (CPS) which was endorsed by the Government and ADB’s Board of Directors last year. The CPS’s objective is to support diversified and inclusive growth in Azerbaijan through the proposed wide range of modalities, expansion of knowledge work and private sector operations. The CPS is aligned with the government’s strategic agenda on economic diversification and external borrowing policy.

Based on Government’s request in introducing new and innovative tools for supporting MSMEs access to affordable local currency finance, ADB proposed to consider the introduction of a first loss portfolio cover facility and manage this facility by one of the existing agencies. We hope that ADB would be able to provide technical assistance to MCGF to house this facility and support in managing it, if created.

How do you assess the current situation in the banking sector of Azerbaijan?

Effective risk mitigation schemes, new financial instruments; improved capital market, intermediations, and access to finance are still work in progress, including with the support of ADB and other international financial institutions. We welcome measures of the Central Bank of Azerbaijan, taken to mitigate pandemic’s impact on the finance sector. Though the banking sector has become much stronger, there are still issues. As we know some banks have faced an issue with the availability of local currency liquidity. Since the introduction of quarantine regime, the total withdrawals from the banking system amounted almost AZN 900 million [some parts of these withdrawals deducted due to closure of 4 banks]. To cope with the emerging issue these banks raised deposit rates to attract funds, but this might not be sufficient. To stimulate the market actively, it might be useful to reactivate the interbank money market platform for all banks to trade with their liquidity.

Being the main shareholder of AccessBank how do you assess the current financial condition of the bank?

ADB is pleased with the progress AccessBank has made since the execution of bank’s recapitalization plan. The bank was slightly ahead of the ambitious business plan, including having made profit in Q1 2020. We are carefully monitoring the impact of the oil price plunge and pandemic on the bank’s customers and possible repercussion to bank’s liquidity, operations, and portfolio quality. The bank has a good financial position, particularly in the context of government priorities. Its main business focus is microlending in the regions, and thus has established a quite diversified loan portfolio in manats, which protects its earning’s base. Thanks to the transparency of operations, strong capital base, and well-regarded shareholder group, the bank has long been a strong deposit taking institution. It has very little foreign currency exposure in its lending operations but has high need for national currency, necessary for new loan growth. Business lending is crucial to restore the country's sustainable economic growth.

Additionally, the recapitalization plan set aside an amount of contingent capital in case the bank faces adverse business shocks in 2020 that could cause a capital breach. ADB is a provider of contingent capital and thus, if necessary, has already demonstrated a willingness to increase its shareholding.

Is help planned for the AccessBank’s customers who are experiencing financial difficulties during the coronavirus pandemic?

AccessBank is working with its clients to address the pandemic’s impact on their ability to repay loans in time. The bank has had inquiries from borrowers on the minor rescheduling of repayments which have been processed smoothly. There may be a slightly longer lag between the COVID containment measures and the impact on the microfinance loan portfolio as compared with corporate or retail banking, but the bank is well equipped to handle those challenges given the strengthened operational capacity and well-established team in the bank.

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