Azerbaijan banks under stress

By bne IntelliNews November 27, 2009

bne -

In September, both Fitch Ratings and Moody's Investors Service warned that Azerbaijan's banking sector remains fragile and highlighted the poor quality of risk management as one of the major issues. Bankers in Baku took exception to the two reports.

Ironically, the country's banking sector was already tackling the problem of the quality of risk management well before the global financial crisis struck. While bankers admit that lending, especially to consumers and for real estate projects, had gotten ahead of itself, they point out the rate of non-performing loans is exceptionally low and there is a palpable lack of problems compared to the banking sectors of neighbouring countries. Azerbaijan's bank sector is much more robust than the picture the ratings agency paint, they argue. For example, the Azeri bank sector is almost alone in the CIS in that it is lending to companies again.

"Fitch pointed out the weakness of risk management in Azerbaijan, but we are already on the case," says Rufat Mahmud, chairman of the Azerbaijan Association of Risk Professionals, an NGO launched at the start of 2007 in the midst of the boom and dedicated to improving the quality risk analysis. To its credit, the Central Bank of Azerbaijan (CBA) welcomed the initiative, giving it an endorsement by signing a memorandum of understanding in March.

Affiliated with the Global Association of Risk Professionals (GARP), which has the backing of organisations like the World Bank, the Azeri association launched its first round of training this year taking in 100 students, or two people from every bank in the country, and putting them through a tough three-month course to teach them international best risk management practices. The first class graduated in the summer and have returned to their banks to implement the new ideas.

In addition to the training of professional risk managers, the association is also producing manuals, software, guidelines and other material to improve the quality of risk management. It is also actively lobbying the CBA to improve the regulatory environment. "The central bank had already started to implement tough risk management rules even before the crisis, but the trouble was banks didn't know how to implement the new rules," says Rufat. "One of our roles is to work with the central bank to lobby for change in the regulations that will improve the quality of risk management."

Related Articles

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

EURASIA BLOG: Spectre of further devaluation stalks Azerbaijan

bne IntelliNews -   That President Ilham Aliyev's party, the New Azerbaijan Party (YAP), won the November 1 parliamentary elections by a landslide took no-one by surprise: YAP has not lost a single ... more

COMMENT: Fading glow of Islamic finance calls for fresh thinking

Gary Kleiman of Kleiman International - Islamic finance, once hailed in the wake of the 2008 global financial crisis as an answer to the speculative excesses of Western banking, ... more

Notice: Undefined index: subject_id in /var/www/html/application/controllers/IndexController.php on line 335
Dismiss