bne IntelliNews has learned the identity of three of the five Azerbaijani banks that have been placed under special supervision from local banking sources who asked to remain anonymous, namely Unibank, AtaBank and DemirBank.

The Azerbaijani financial authorities have placed five banks with capitalisation-related problems under special supervision, Rufat Aslanli, chairman of the financial markets regulator in Azerbaijan, told journalists on May 30, according to Report news agency, without naming the banks.

Local sources named Unibank, AtaBank and DemirBank as three of the banks, the latter of which is now being considered by the European Bank for Reconstruction and Development (EBRD) for a recapitalisation worth $41mn (AZN70mn), local banking sources told bne IntelliNews. The EBRD is already a shareholder with a 25% stake in the medium-sized Azerbaijani lender, which was on the verge of default in November, according to Fitch Ratings. Dutch development finance company FMO is also a 10% shareholder in DemirBank.

Aslanli’s statement comes amid rising concerns about the entire Azerbaijani banking sector after its largest lender, International Bank of Azerbaijan (IBA), defaulted on its foreign currency obligations in early May. The steep depreciation of the Azerbaijani manat that started in 2015, coupled with an economic recession prompted by low oil and gas prices, have affected the whole Azerbaijani economy and the banking sector in particular. Problem loans in the sector now comprise 30% of all loans, according to Moody’s Investors Service.

In 2016, the government revoked the licences of 11 of the country’s 44 lenders due to low capitalisation and the violation of prudential norms. Earlier this year, AccessBank, the country's fifth largest lender and previously a strong bank owned in part by international financial institutions, had its viability rating reduced to ‘f’ by Fitch Ratings after the share of non-performing loans in its portfolio rose to 27%.

Unibank is the sixth largest bank in Azerbaijan by assets, while AtaBank is the country’s ninth largest lender.

According to local sources, the Azerbaijani authorities are looking to merge AtaBank with another small bank, the Caspian Development Bank (CDB). In April, CDB announced on its website that the managements of the two banks were assessing the possibility of a “reorganisation”.

bne IntelliNews contacted the EBRD to confirm speculation that it is looking to turn some $41mn that it has given DemirBank in loans into share capital. The EBRD had not responded by press time.  

In his statement, Aslanli also decried the high interest rates that banks charge businesses for loans. They reportedly average from 22% to 26% for loans in Azerbaijani manats and from 13% to 15% for foreign currency-denominated loans.