Azerbaijan resumes bank cleanup by culling four more lenders

Bloomberg

Azerbaijan closed down four more banks as the former Soviet Union’s third-largest crude exporter reels from the worst collapse in oil prices in a generation.
The Financial Markets Supervisory Authority revoked the licenses of Dekabank, Kredobank, Parabank and Zaminbank to “reduce risks in the banking sector, ensure financial sustainability and increase trust,” Rufat Aslanli, head of the Baku-based regulator, told reporters Friday in the Azeri capital.
Azerbaijan has 33 banks left after the latest move.
The lenders failed to “classify their assets in accordance with law” and “set aside sufficient reserves to prevent possible damages,” he said. The banks also weren’t meeting the minimum capital requirement and presented false reports about their activities, according to Aslanli.
Azerbaijan rushed to purge weak lenders and consolidate the rest of the financial industry in mid-January amid a crisis sweeping the economy, revoking the licenses of seven banks in a matter of weeks.
Asset quality worsened as the national currency lost more than 50 percent against the dollar last year, with the central bank shifting to a free float after burning through more than half of its reserves.
The manat is the worst performer this month among its ex-Soviet peers with a loss of 2.4 percent against the dollar. It traded 0.3 percent stronger at 1.5882 versus the US currency.
More to Come
“These aren’t going to be the last banks to be shut down,” Vuqar Bayramov, head of the Center for Economic and Social Development, a research group in Baku, said. “The banks that profited hugely thanks to high interest rates during the oil boom weren’t prepared for the post-oil period.”
The Financial Markets Supervisory Authority was established in February to take over as the banking regulator from the central bank. It also oversees the country’s financial markets.
Azerbaijan’s Deposit Insurance Fund will repay more than 140 million manat (US$88 million) to account holders after the lenders’ closure, Aslanli said. Some of the lenders expressed interest in continuing to operate as non-banking credit companies, he added.
The deposit insurer also plans to borrow about 100 million manat from the central bank to compensate savers at the four failed banks, according to Interfax.
Despite the latest cull, there are “no serious problems” in the industry at the moment, Aslanli said. Authorities are working to restore to health two other lenders, Standard Bank and the International Bank of Azerbaijan, the nation’s biggest, according to Aslanli.
“The banking sector operates as normal,” he said.