TBY talks to Jahangir Hajiyev, Chairman of the Board at the International Bank of Azerbaijan, on the international role of the bank, its efforts to diversify the economy, and the development of the local finance sector.
TBY IBA started operations in 1992 as a national development bank. How has it contributed to the stability of the banking system and the resiliency of the economy in Azerbaijan since then?
JAHANGIR HAJIYEV Reorganized in 1992 from VneshEconomBank of the USSR into an independent financial-crediting institution, the International Bank of Azerbaijan (IBA) is the same age as independent Azerbaijan. IBA has achieved the successful passage through all stages of the rehabilitation of the national economy and become an efficient financial institution holding the leading position in the banking sector of the country, and acting as its face in the international arena.
Having gained a foothold as one of the largest and most reliable financial holding brands in the Caucasus region, IBA holds the dominant position in all segments of the country’s financial and banking market. Its affiliated structures also dominate in such spheres as insurance and plastic card processing. Over a long period of time, IBA has efficiently represented Azerbaijan on the international scene. And, finally, being the bank of national development, IBA exerts a stabilizing influence upon the Azerbaijani economy as a whole. It must not be forgotten that being positioned at the second level of country’s banking system, we, properly speaking, are the main bearer of monetary policy developed at the Central Bank of Azerbaijan (CBAR).
IBA was able to pay down nearly half the sovereign debt of $2.5 billion at the peak of the crisis without outside help, and to honor commitments and syndicated loan repayments to foreign banks. We are proud to have weathered the storm as a positive contributor to regional stability and economic recovery.
How is IBA establishing itself on the international stage?
IBA has been in operation for 19 years. These were eventful years, with tough challenges, significant changes, and rapid multi-sided development. IBA is recognized as a leading bank in the southern Caucasus by world financial institutions. IBA is a founder of the Baku Interbank Currency Exchange, Baku Stock Exchange, AzeriCard processing center, International Insurance Company, the Joint Leasing Company, and is the first bank to have established its presence outside the country, in Moscow and Georgia. The bank also has representation offices in London, Frankfurt, Luxemburg, New York, and Dubai.
IBA is the first registered full member of the World Economic Forum’s Global Growth Companies Society, both representing the region and being a co-founder of the society.
IBA, holding a reputable position among the best financial and crediting organization in Eurasia, within last five years has received many international recognition awards, including the “Best Bank” award from Euromoney magazine; “Bank of the Year” from The Banker magazine; “Best Bank of Developing World Markets” from Global Finance; “Best Local Bank in Azerbaijan” and “Best Sustainability Award 2010” from emeafinance magazine, and many others. The bank’s rating by Fitch IBCA over last four years increased three fold and today is set at BBB-. The Bank’s rating from Moody’s Investors Service is set at Baa3.
How is IBA contributing to economic diversification?
We are reaping the benefit of half a decade of concerted economic diversification policies mandated by the country’s President. While 54.4% of GDP comes from the oil sector, 45.6% now comes solidly from non-oil sector activities and makes our small country more stable and independent. Earlier investments are spawning new industries in agriculture, petrochemicals, renewable energy, recycling, manufacturing, and other sectors that make sense for domestic and regional markets.
IBA had already begun large-scale restructuring to continue making all banking and business operations more transparent, efficient, and productive. While we are reaping the benefits of a decade of large-scale sector turnaround in terms of investments, such as in sustainable agriculture, we are moving full force into renewable energy with small wind turbines and looking into carbon trading and other industry practices that are transformative. We are bringing in new global patents from the US and the Gulf and technologies for coastal soil remediation for areas polluted by 163 years of oil drilling.
We are making new allies in sustainable development practices, which mesh well with Azerbaijani culture, its agricultural roots, and reverence for nature.
What is IBA’s position in the sector?
IBA is the largest and most established bank by far in Azerbaijan and contributes significantly to the stability of the banking system. IBA represents 40% to 50% of the banking market in Azerbaijan. We are 50.2% state-owned by the Ministry of Finance. As the national development bank, IBA investments involve structured initiatives for economic diversification.
The banking sector includes 46 banks, of which nine have international operations. IBA is the only state bank and has an intensive national franchise of 37 branches and a national penetration with service points in cities and provincial city centers. IBA also has eight international offices and two stand-alone bank subsidiaries in Russia and in Georgia. In Azerbaijan, IBA holds 44.2% of assets, 47.6% of loans, 15.7% of retail loans, 39.4% of deposits, 30.5% of capital, and 44.3% of banking sector profits. IBA has strong government support in its capitalization and is an integral part of the banking system, intermediating in a significant part of the country’s overall business activity.
What activities does IBA specialize in, and how important is innovation?
Since adopting the strategy of universal banking in the early 2000s, IBA renders all kinds of traditional and innovative banking products and services both to individuals and corporate customers. IBA can be rightfully considered as the leader in innovative and electronic banking products and services. The current processes convince the banks of the need to reconsider their attitude toward new technologies. The introduction of innovations is advancing within IBA in many directions. This includes the attraction of financial resources by way of securitization, expansion of the network of electronic service offices equipped with the “cash-in” type ATMs, allowing the payment of credit card bills, the introduction of mobile banking and electronic commerce systems, the application of up-to-date marketing communications, and much more. The bank was the first in Azerbaijan to implement such services as internet banking, mobile banking, urgent money transfers, an SMS notification alert service, and so on. The range of electronic bank services includes both simple and more sophisticated services, such as electronic term deposits and air ticket purchases.
In 2009 via all channels of electronic banking 498,6000 transactions were carried out amounting to AZN13.6 million. In 2010 the figures were 567,000 transactions worth AZN19.2 million. In general, more than 1.7 million e-banking transactions worth about AZN46 million have been carried out over the 2007-2010 period. In that regard, the bank plans to further develop its e-banking network, open new around-the-clock self-service points, as well as improve internet and mobile banking methods. In addition, the bank has been working toward the improvement of its Flexcube Direct Banking system. Currently, this technology is aimed at corporate users, allowing them to perform almost all operations while sitting in the office. In the future, the bank plans to introduce a retail version of this tool.
To what extent is IBA involved in project financing?
One of the most rapidly developing directions of IBA operations is project financing. IBA plays an active role in the development of this market. To date the bank has funded about 80 projects, with 50 of them being large and medium sized. These cover the sectors of construction, transport, energy production, trade, telecommunications, and production. Of the projects we participated in, the most interesting include the purchasing of 20 wind park units for energy generation at a cost of €104 million, the purchase of city buses for urban passenger transport networks at a value of $66 million, and mobile network infrastructure set up for €24 million. At this time, there are 10 projects being reviewed. The decision to fund the construction of 20 wind generators with a total generation capacity of 50 MW was taken in consideration of strict environmental criteria, and IBA was the guarantor of the deal, with Société Générale and Landesbank Berlin being the main participants. The factor of environmental friendliness will be also taken into consideration in the implementation of projects for the rehabilitation of oil field sites. IBA also has a strong position in trade finance. More than 70 leading banks of the world, mainly European and American, provide us the credit lines for these purposes at a volume of about $1 billion.
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