Several Azeri banks to face bankruptcy threat – researchers

Several commercial banks in Azerbaijan will face the threat of bankruptcy in 2008 due to staunch competition expected in light of the entry of major foreign banks to the domestic market, a local group predicts.

“Some local commercial banks are not ready to compete with overseas financial institutions,” head of the Economic and Social Development Center Vugar Bayramov says.

He noted that US bank Citigroup Inc., which intends to open a subsidiary in the country next year, operates in over 100 countries around the globe. The bank holds the accounts of more than 200 million legal and natural entities. Citigroup pays out $11 billion every year in dividends alone, which exceeds Azerbaijan’s budget and is 22 times the charter capital of the country’s largest bank, the International Bank of Azerbaijan.

“It is crystal clear what these indicators mean for Azerbaijani banks,” Bayramov said. “As of nine months of 2007, banks made a net profit of [only] 106.2 million manats ($126.4 million). Moreover, five local banks are still operating with losses. It is unclear how they will be able to compete with foreign financial institutions.”

The researcher said the country’s central bank should undertake comprehensive measures to increase the competitiveness of local banks. “State care for local commercial banks is pivotal in order for them not to lose in the competition.”

The National Bank has confirmed that the appeals by several leading world banks had been reviewed and that these institutions could start operation in the domestic market in 2008.*