The views by Azeri officials and international experts on the bank sector status in Azerbaijan, is extremely diverse.
Recently, high-ranking officials, talking about the dynamic development of the bank sector, gave an example of the rate of growth of the main indexes, which are higher than the general statistical indexes in other areas of the national economy. So, the rise of gross domestic product in 2004 year was 10,2%, whereas the assets of bank organizations was 58%, the equities of the banks increased by 91%, the volume of the aggregate credit portfolio increased by 47%, including a rise of long-term credit which increased by 58%

To these indexes, we can also add the growth of the basic balance indexes of banks. For 2004, deposits and holdings increased by 67,9% and formed 5126,3 milliards manats. The invested holdings of individuals formed 2015,6 billion manats, at the growth of 60%, their deposits amounted to 3110,7 billion mantas, an annual rise of 73,5%. On 1st January 2005, the authorized capital of Azerbaijan banks formed 1051 milliards mantas, an annual rise of 41,3%.

The status at 1st January this year in Azerbaijan, showed that 114 organizations have a license for conducting bank operations, 70 of which are non-banking credit organizations and 44 of which are banks. For all that, 42 organizations have the right to receive holdings of the population, 43 of them have the right to conduct operations in foreign currencies, 2 of them have the right to conduct operations with jewelry, 30 of them have the right to conduct operations with credit cards. Besides this, on 1st January 2005, 44 banks were functioning in Azerbaijan, as well as 15 banks with foreign capital. The credit organizations hold 350 branches. They have 1 branch, 1 representation, and a branch establishment of the bank abroad. According to the status report, non-banking credit organizations have 25 branches.
It should be noted that the rate of growth of the bank sector in Azerbaijan is high enough. At the same time, foreign experts give a rather negative view of the bank sector of Azerbaijan.

The problems facing bank managers

The International Monetary fund repeatedly notified its dissatisfaction to the Azerbaijan Government about the absence of the privatization progress of the two state banks- the International Bank of Azerbaijan and the Capital bank. The role of the International Bank of Azerbaijan must be especially noted in the bank sector. As to the results of the year, the volume of involved resources of the International Bank of Azerbaijan constituted 3,925 billion mantas, 74% higher than the indexes of 2003. Of that 3,875 billion manats belong to the share of investments and deposits. It constitutes 76% of the total index of the bank sector which is 4% higher than the level of 2003. In other words, it means that the State practically controls and manages the operations of the lion's share of the bank sector. As is known all over the world, the State is always considered to be a bad manager, and is often found guilty of creating a "greenhouse" position for itself.
Of course, this wasn't overlooked by research conducted by international organizations which conferred the low index of economical freedom in the bank sector of Azerbaijan. So, the American Heritage fund, a Commercial Department of USA, especially emphasized the lack of credit resources to be the main obstacle in the way of development of private business in Azerbaijan. Except for the donor credit lines, no credit resources exist in the country with the period of more than 12-18 months.
High credit rates can also be added to the above-mentioned problems. Today, credit given by the commercial banks ranges from 15% to 30% a year. Sure, there are state credits suggested by the commercial banks with 7% a year, for entrepreneurs to support enterprises with the line of the National fund. But these credits face a risk of never being returned. In addition, we need to remember the problems related to the degree of credit given to one project by the commercial bank, which obviously does not allow the entrepreneurs to realize any solid project.
Doubtlessly, there arise some questions, how do the managers of commercial banks react to these situations? What problems especially disturb the bank circles?

Bankers are not against the monopolization of the International Bank of Azerbaijan

During conversations with bankers of the leading commercial banks, the monopoly of the International Bank of Azerbaijan does not make any negative response to their activity. Besides, during separate conversations the bankers expressed their opinions that the Azerbaijan Government had better reestablish the activity of the State Agrarian Bank.
At present, credit lines under the projects of the World Bank, the European Council and others are directly realized by means of the non-banking credit organization "Agrarkredit". The authority of the country is currently trying to strengthen financial streams to the agrarian sector, but the commercial banks are not eager to take the burdens and risks of crediting the agrarian sector.
Basically for today, the commercial banks give credit to businessmen on the security of their real estate located in the centre of the city. Certainly, properties in regions are less valuable, and there are problems concerning its liquidity. If we review the above-mentioned problems and those difficulties which are met with bank credit, it will become clear that commercial banks are not eager to undertake the crediting of the agrarian sector.
As the bankers note, the problem of the Azerbaijan bank sector is that there are very few average (medium) commercial banks (according to the international standards). In their opinion, the number of average (medium) commercial banks must be at least five or six. In the Azerbaijan market, there exists one unique bank- The International Bank of Azerbaijan which is able to credit big projects, while the other banks are difficult to relate to list of average.
It is not difficult to imagine what kind of difficulties businessmen have in getting credit for big projects. We should not forget that the commercial banks don't have the right to give credit over 25% from the amount of authorized capital under one project. In other words, taking into the account that the authorized capital of the commercial banks achieves the requirement of the National Bank of Azerbaijan at the level of USD 5 million, the commercial banks can give credit amounting to little more than USD1 million under a single project.
To overcome the deadlock, managers of the commercial banks intend to attract the interests of international finance institutions (especially the European Bank of Reconstruction and Development) by jointly financing large projects or syndicating credit. However, as yet, the commercial banks have been unable to show an example of how syndicated credit would work.
One of the variants for increasing the possibilities of commercial banks in crediting the real sector could be by attracting the resources of the population, but this could create many problems for the commercial banks.

The key word is 'Trust'

The National Bank of Azerbaijan believes the commercial banks could still attract many resources of the population, thus solving the problem of scarcity of financial resources. For this, it is necessary to increase the population's trust in the banks. From this point, the National Bank of Azerbaijan has worked out a bill concerning "insurance on deposits" which was submitted for consideration to the Government, according to Elman Rustamov - Chairman of the Board of the Azerbaijan National bank. A system for insuring holdings and deposits is already implemented in 70 countries, and it works, so this mechanism could be replicated in post-Soviet countries. The point is that the population has not been completely reeformed from the financial pyramid and frozen holdings on saving accounts: "In Azerbaijan, this problem has not yet been solved".
At the same time, the introduction of an insurance system in Kazakhstan enabled banks to increase their volume of holdings by 400%, from USD 300 million to USD 1,2 billion.
But even in this case, the commercial banks will need to attract the resources of the population from 9% to 11%. It is not difficult to understand that, if we add to that the managerial (administrative) expenses of bankers, plus the commercial risks, then we can estimate a 20% over a year.
Certainly this poses the question: where can the Azerbaijan commercial banks can find other cheap resources? The answer could be found in the control and receipt of incomes from nested resources accumulated in the State Oil Fund of the Azerbaijan Republic and The National Bank of Azerbaijan. In fact, the received dividends from management, amounts to no more than 3% a year.
At the same time, during unofficial talks between the managers of the State Oil Fund of the Azerbaijan Republic and the National Bank of Azerbaijan, a bad perception of the working commercial banks has been revealed. As a result, the Azerbaijan Government keeps its resources abroad in the securities of large European banks, which later open the credit lines with the Azerbaijan commercial banks with their percentage incomes (margins).
It is interesting enough that international finance institutions (like the European Bank of Reconstruction and Development) and other large international banks, trust the commercial banks of Azerbaijan more than the Government of Azerbaijan! Moreover, it appears that the commercial banks of Azerbaijan can successfully obtain credit lines and return loans with additional percentage rates to international financial institutions and the largest banks of the world.
This clearly shows that the Azerbaijan Government should trust its own banking system much more than it does at present.

The Top Managers Who Don't Exist

In other words, the bank sector does not develop separately from other spheres of the national economy. Diligent work covering many areas is conducted by the commercial banks, including the further improvement of cooperation with international finance institutions (the International Financial Corporation and the State Secretariat of Switzerland on economical relations (SECO)) to address the problems related to risk management. In many banks, action has been taken to train top managers in the bank sector.
Today, according to bankers, top managers practically don't exist in industrial sectors where financial streams must be directed. With regard to the bankers, it is very difficult to find business projects under which it might be possible to invest, especially in agriculture where farmers are not going to return the credit offered by the National Fund to Support Entrepreneurship. So, in view of the current situation of the national economy, the banking sector has achieved significant objectives, but it is still less developed in terms of international standards.