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When HSBC entered Azerbaijan's banking market at the start of the 1990s, it gave the state-owned incumbents a nasty shock. With only a fraction of the sector's capital, HSBC quickly became home to the largest share of hard currency deposits in the country. To this day, the level of a domestic bank's services are measured against that of HSBC, even though the British bank quit the market in the aftermath of the 1998 crisis over a decade ago.

"When HSBC came to Azerbaijan, it collected more dollar deposits than International Bank Azerbaijan and so put lots of pressure on the biggest bank in the sector to get its act together," says one local banker. "It was very embarrassing for the state-owned banks, which still haven't matched its quality of service."

And the local banks have been given little impetus since to improve their levels of service, as the bank acquisition frenzy that struck other countries in the CIS region over the last few years largely bypassed Azerbaijan. So far, there has only been one major acquisition when Russia's state-owned giant VTB bought into the market in 2008, but this deal was as much about politics as business, believe many locals.

Several big international banks have been on recces to Baku. Both Raiffeisen International and Societe Generale were scouting around two years ago and the French bank nearly cut a deal with one local bank, but failed when the two sides couldn't agree on a price, bankers say.

Despite the lack of deals, the Central Bank of Azerbaijan is keen to get the ball rolling, so there are no regulatory barriers: the only rule is investors have to seek approval for any purchase of over 10% of a bank. And some of the local banks say they would be interested in selling stakes, but they report that international interest seems to have evaporated again. The lack of a visible exit has made it doubly difficult to sell stakes even if there is interest.

The only foreign player left in the game now is Hungary's OTP Group, which has been in talks with Unibank, Azerbaijan biggest commercial bank. The European Bank for Reconstruction and Development has held a stake in Unibank for over seven years and wants to sell. However, the crisis means talks have been temporarily iced, although both sides say they are keen to resume when the financial world returns to normal.

In the meantime, the EBRD together with the Development Bank of Austria (OeEB), the Deutsche Investitions-und Entwicklungsgesellschaft (DEG) and the Dutch development bank (FMO) on July 8 signed a $83m financing package for Unibank to strengthen its capital base and help it to carry on lending to the real economy in the current difficult environment. The package included a $7m equity investment, a $25m senior convertible bond and a $51m senior loan.