Ben Aris in Baku -

The crisis proved a boon for AccessBank, arguably the best bank operating in Azerbaijan's financial sector. Founded in October 2002 by a slew of international financial institutions that included German development bank KfW, the European Bank for Reconstruction and Development (EBRD), and the World Bank's commercial arm the IFC, depositors flocked to the bank in the midst of the crisis as people's attention switched from high interest rates to safety.

And the bank has kept up the pace as the crisis recedes. Its emphasis on international best practices and its development mission to support economic development means it caters to Azeris who don't benefit directly from the oil and gas sector - which is almost everyone in the country.

British born Andrew Pospielovsky, a former academic who runs the bank, cuts a slightly odd figure in Baku. Foreign banks (other than those of Russia and Georgia) have largely ignored the small republic perched on the Caspian Sea. British financial powerhouse HSBC arrived in the 1990s only to leave during the last big crisis, leaving the sector open to the locals that dominate today. Pospielovsky is one of very few foreign-born bankers working in the country.

The central bank says it's keen to see more foreign banks enter the sector, but isn't letting everyone in. According to bne sources in Azerbaijan, Georgian lender TCB, the second-largest bank in the country, opened a representative office in Baku, but has been refused a full license because "it doesn't add anything to the local bank sector."

This is not the case with AccessBank, which has pioneered micro-lending in the country and is a major force in the still underdeveloped small and medium-sized enterprise (SME) niche that should underpin the economy's badly needed diversification. It also happens to be a very profitable model.

AccessBank has been growing exponentially in the last few years: assets grew from $17m at the start of 2006 when the bank had less than 6,000 customers to a massive $297m at the start of this year and just under 100,000 customers. "The growth has been explosive and continued, albeit at a slightly slower pace, in 2009," says Pospielovsky sitting in his modest office in downtown Baku. "We have increased the number of depositors and the portfolio has increased every month - without exception - over the last five years."

The bank specialises in non-oil business and a quarter of its loans are made to small and micro-businesses connected to the agricultural sector, one of Azerbaijan's few competitive non-energy sectors. (The oil money that has poured in since the Baku-Tbilisi-Ceyhan pipeline began exporting crude in 2006 has driven up the value of the manat, making the country's manufacturing exports uncompetitive.) "There is still loads of upside in the agricultural sector, as the food-processing facilities here are still very rudimentary," says Pospielovsky.

Like many foreign-owned banks during previous crises, AccessBank benefited from a flight to quality. The crisis was a reality check for punters in Azerbaijan: in 2008 customers were shopping around for the highest interest rates, but since the financial tsunami broke at the end of 2008 the key selling point has been stability and reliability. AccessBank's quasi-sovereign foreign shareholders are rock solid backers and the name EBRD is starting to mean something to the man on the street in Azerbaijan: the bank saw its loan portfolio increase by 40%, its assets rise by 55% and deposits go up four-fold in 2009, while the results for the sector as a whole were more or less flat.

And these strong growth results have also fed through to the bottom line: the bank is ranked as the ninth largest in the sector by assets (out of 42), but is second in terms of profit and number one in terms of return on equity.

Sector slowdown

Azerbaijan started its lending boom late compared to other countries in the region, which worked to its benefit, as banks didn't have a chance to overextend themselves before the crunch hit. But as the panic recedes, the sector is poised to return to fast-growth mode. And there is still a long way to go, as banking assets as a share of GDP remain low at 25%, according to the central bank. "In the boom you had 15% inflation, salaries going up by half every year [due to the flood of oil money that arrived in 2006], so everyone maxed out on debt and many people bought apartments as they were doubling in price in a year," says Pospielovsky. "Then the liquidity crunch hit in 2008 and brought the boom to an abrupt end."

The quality of the loan book is now more important to bankers than the speed of its growth, but thanks to its shareholders, AccessBank has been following international best practices from the start and boasts a non-performing loan ratio of less than 1%.

As arguably the best bank in the country and in a very attractive market sector, coupled with its blue-chip list of shareholders, AccessBank has the competitive advantage of being able to borrow easily and cheaply, and Pospielovsky says he is turning down offers of money on a weekly basis. While lending to the global banking sector has slowed, international banks are still sitting on huge cash piles and looking for something to do with it; AccessBank highlights the tangible eastward shift in investment strategies, as Pospielovsky's phone rings off the hook with offers to borrow at rates 500 basis points lower than pre-crisis levels. "We get offers every week [from international bankers] offering me money and I keep turning them down," says Pospielovsky. "The international banks have lots of cash and they don't know what to do with it, but thanks to rising deposits I have all the money I need."