A Greater Process
TuranBank updated its strategy for 2012-2015. Can you explain what these updates included?
TuranBank has been in Azerbaijan for 22 years and, until 2007, the bank operated as a boutique bank serving a small number of businesses. The bank moved away from corporate clients toward the SME and retail sector by approving a strategy for 2008-2011. Together with the IFC and other institutional investors, we looked at our strengths and weaknesses and decided to further expand our focus and add micro business to our model in our 2012-2015 vision. In Azerbaijan, we have roughly 95,000 legal entities and roughly 500,000 people in Azerbaijan with the tax registry who are involved in entrepreneurship activity. We started piloting a new strategy branch by branch. A group loan product where, for example, five people collectively obtain a loan and pay it back together has been introduced. Also, we are looking into green business for an additional customer base, whereas the bank will be supporting projects that are eco-friendly, as well as those that are thinking of optimizing their operations from an energy and environmental impact prospective. Although Azerbaijan still imports foodstuff, we also export a large amount of foodstuff meaning that there is great capacity that we can take advantage in terms of potential markets for the local producers.
What is the balance between your corporate and retail strategy?
In 2012, the balance was roughly 52% corporate and 48% SME. Our goal is to be at 75% MSME by the end of 2015. Currently, we are at roughly 70% of our portfolio, because we still have companies that have been with us for 10 years, and we want to keep those relationships. The idea is that by growing, the exposure and number of corporates will be reduced, and we will be in line with our targets by the end of 2015.
Looking at the European Games, what opportunities do you think there are for the development of the MSMEs, and what role can TuranBank play in that?
The most important barrier for every economy is the learning cost associated with the development process. Learning and integrating better standards takes time, especially for SMEs. We work with many companies involved in catering, tourism, and transport, and previously their standards may have been different, but now they are changing, taking into account better practices. It benefits them to learn and understand the advantages. Sometimes our clients are a little skeptical, but eventually they understand that they need to be a part of this greater process. If our customers and our partners work with better standards, it is great for us. It means we speak the same language. Further down the line, it will create additional investment opportunities for everyone. Our stock market is in a rapid development phase, and we need companies to open up. In addition, we expect new revenue streams that will further support their growth. I believe The European Games will greatly assist with all this.
What is the benefit of providing such a wide range of loan services?
The needs of businesses vary. As a financial intermediary, we have to examine a project and give advice on what type of loan should be granted. TuranBank cooperates with a number of domestic and international financial institutions. Through these partnerships we get preferential loan facilities, which help us access lower-cost and longer-term finance. Local funds and savings are available on average for two-years, except for those that are financed through government funds and agencies. However, in certain areas, such as agriculture projects, five to seven year loans are needed. Even if they do not fall within the scope of local funds, we are able to provide the required financial facility for these businesses so that they can be repaid in time.
What opportunities does TuranBank's presence in other regions of Azerbaijan bring?
We pride ourselves on our substantial knowledge in terms of regions, as well as agriculture and related processing, even though gaining that experience took some time. In 2014, we opened two new branches, both in regions where there are many SMEs. Our access to finance should benefit the businesses and the regions. The major banks work with the corporates, and we work with MSMEs. We expect three additional branches in the regions in 2015. The one that we opened in September 2014 in Jalilabad is already paying benefits, and we hope to move to the Agcabadi region soon.
What is the significance of the partnerships that TuranBank has with international institutions?
In recent years, international cooperation has been a huge part of our operations. We cooperate with the International Finance Corporation (IFC), Black Sea Trade and Development Bank (BSTDB), European Bank of Reconstruction and Development (EBRD), Islamic Corporation for the Development of the Private Sector (ICD), the United States Agency for International Development (USAID), and many others. The most important part for me is what we learn from these institutions. For example, our employees have been to several regional banks in the US in recent past. They have seen the standards, and how the businesses operate, watching how loans are generated, and how saving products work. We have been part of a lot of technical assistance projects, and it has been helpful in transforming the bank to its current standards. Learning is a major part of our culture, and this cooperation has helped us tremendously.
What are the most important steps that need to be taken to ensure that the financial sector continues to develop and mature?
The overall banking system is stable as the central bank has a conservative countercyclical position. When it sees the sector booming it tries to cool it down. As a conservative banker, I agree with that. Increasingly, private credit bureaus are a necessity. Currently, we have only one, which is a structure within the Central Bank. We are one of 10 banks in Azerbaijan, together with IFC to create the first private credit bureau in the country, which should be in place by the end of 2015. Corporate governance standards are not compulsory, businesses are moving in that direction at a slower pace, and in order for the banking sector to move forward it should be incentivized. We lower our risk perception as an institution in lending process when we see the standards. Another part of this process is bringing additional capital into the country, which will also bring with it more expertise and transparency. An environment that attracts more companies to invest in Azerbaijan will help the banking sector to grow, as we will be dealing with institutions and companies that operate with better standards. The government is rapidly moving in the direction of an actively used electronic payment environment with approved strategy and banks are seeing results. There has been an increase in the number of ATMs, terminals, and overall non-cash transactions. With the collapse of the Soviet system, people lost their trust in the financial system. However, what the government achieved is impressive in terms of realities of today. Savings have gone up by almost 10% in 2014 in the sector. The government, through its monetary and fiscal mechanisms, has always supported private business. This has been very clear if you analyze how the Azerbaijani economy has transformed in recent years. TuranBank will always try to support this process and play its role as a financial institution.