Asian Development Bank may allocate new credit for Azerbaijan - INTERVIEW

We have no experience being as a shareholder of any bank in Azerbaijan

Baku. 8 June. REPORT.AZ/ Resident Representative of the Asian Development Bank (ADB) for Azerbaijan, Mr. Olly Norojono gave an interview to Report News Agency:

- Last month, the government of Azerbaijan and the Asian Development Bank signed a protocol of intent on the multi-tranche loans. On what terms the loan is expected to be?

-- This document signed in order to allocate loan to "Azərisıq" JSC in the future, is not legal agreement but simply a Memorandum of Understanding.İn the framework of this document an agreement reached between ADB and Azerbaijan so that they can begin the project together.This document shoul be approved after internal investigation of ADB, at the same time the government must approve the document.

As for the terms, such conditions are not shown in memorandum.Just after the signing of a memorandum, Bank and government should agree to these terms until loan agreement.At present, work on the project is underway. According to our assumptions, this year we will present a project to a review of ADB's Board of Directors.

- Is the ADB's new loan agreement with a commercial bank in Azerbaijan expected this year? CanADB participate in capital of any bank in Azerbaijan that may arise as a result of the consolidation or existing bank's capital?

- This year is not expected to sign loan agreement with any bank.Now we have signed a loanagreement with two banks.But the ADB will continue to work with banks, especially small and medium-sized enterprises continue to develop the dialogue with local banks.

ADB implemented only credit support projects so far.In addition to the loan offerwe are working with the banks to finance trade and support them.We have no experience being as a shareholder of any bank in Azerbaijan. And we don’t plan to do this.

- Do you have suggestion in connection with the project on the development of the capital market? In addition, we would like to be informed about ADB’s plans to issue bonds in manats. When it can be done and to what extent?

- There is no offer yet.One proposal was to issue bonds in manats and it is currently in the initial stage - the issue was discussed with treasurer.The bonds are intended for the domestic market.It will be the first experience of Azerbaijan in the stock market as an issuer.

A similar issue was carried out in Georgia in lari.

In addition, it is important for us to study the local capital market in detail.The experts have not been able to meet with the Central Bank recently, however, meeting between the State Securities Committee and Ministry of Finance was held.

This issue in a very early stage and a concrete decision has not been made.Following the discussions, the final decision will be available taking into account the potential opportunities.In this regard a particular graphic not discussed but preliminary discussions are underway.

Basically, we are trying to satisfy the needs of the member countries.We never implement our interests in member states.When government requests we are looking at these projects.But, for example, when government wishes ADB's involvement in any area, we are trying to meet the demand from our best practice and well-earned knowledge in that area. At the moment, we have to do with infrastructure projects, according to the requests.In the case of applications in other areas, we will try to meet the needs of the government of Azerbaijan.

After the devaluation, many banks have restricted lending. Are there any suggestions on monetary policy to the banks in such a case? Or, have the Central Bank been advised?

- Our work with the Central Bank is the project only related to the development of the microfinance sector and we continue cooperating in this direction.However, in the office, as well as at the central office we are paying attention to this issue, because this factor can influence on the banks and the operations.Currently, senior professionals, the private sector, especially those who working with banks following this issue seriously.

- After the devaluation there are different opinions on the problems with the payment of certain loans in foreign currency. In turn, the ADB has provided loans in the currency. Have you conducted any research in this regard?

- We have conducted research on two banks from the beginning till the end of last year.Therefore, devaluation of the manat, which occurred in February 2015 were not included in the final report. However we will take a serious look at this issue in new projects in the future.

We appreciate the reduction of budget expenditures in this regard by government, as well as measures intended to develop economic growth in the non-oil sector.We see the possibility of this in development of the private sector only.For example, Kazakhstan increased subsidies to the private sector, Brazil which previously depended on coffee later has made important achievements in the development of the private sector later.

If there is no private sector in country or has more or less developed, there must be government intervention for development.But this does not mean that the state should take on any job.

Simply by creating an environment where the private sector will develop, government shows its support.

- Do you think 34% devaluation in February is enough for the economy of Azerbaijan or should we leave alone the exchange rate of the national currency?

- In our opinion, the exchange rate would have to give over the regulation of the market. Because it was the first devaluation and then, of course it could continue. This means a problem could occur twice. However, when the solution is handed over the market, shock would occur twise and after a while there is an economic growth.But there is another side of this issue - Azerbaijan's financial sector is very important to be ready for this pressure.Suddenly a different result could arise in case of leaving alone the exchange rate .Sometimes financial sector recovers from shock effects, in 1-3 sometimes the process takes 7-8 years.

In Turkey, this process occured several times: in 2004, 2008, 2012. Every time several banks left the market. Therefore, the issue should be taken into account is that the banking sector should be prepared for such effects. If the Central Bank has made such a decision, it is more important.I suppose that it was the right decision.But in any case there are difficulties in any subsequent decision.

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