BSTDB President: The bank has a strategic orientation towards expanding participation in regional infrastructure projects of Azerbaijan - INTERVIEW

Report's interview with Dmitry Pankin, President of the Black Sea Trade and Development Bank (BSTDB)

- How do you assess the impact of the current situation on world markets on the activities of the BSTDB? How do you manage to intensify your activity in the region today?

- The situation in the world is developing according to an increasingly less predictable scenario. We are witnessing a slowdown in economic growth amid escalating trade disputes and weakening investment flows. The growth in the Black Sea region is mainly exposed to external risks, as the governments of our member- countries have sometimes undertaken quite difficult measures to ensure the stability of economies and protect their markets.

As for the bank, despite fact that negative external factors are indicated, we have recently achieved a significant portfolio growth, which features the active demand for our products in all countries of the region.

- How do you assess the development of the Azerbaijani economy in recent years, and what recommendations can you give in connection with the reforms carried out in the country?

- Over the past few years, the economic growth rate in Azerbaijan has remained low, especially compared to the period before 2014. Nevertheless, the country is showing good macroeconomic stability thanks to, as we believe, the measures that the government took immediately after the rapid decline in oil prices. The first wave reforms led to a significant improvement in the business climate in the country, which was marked by a sharp increase in the international rating of Azerbaijan in the Doing Business report, featuring the conditions for doing business.

The reform process slowed down somewhat amid restoration of the budget balance, including by external calculations. The manifestation of the definite economic results of the reforms takes time, especially in conditions of countries rich in natural resources, such as Azerbaijan or Russia. The initiated reforms should be continued to accelerate economic growth and further strengthen the business climate, which will be the most visual indicator of success. We see that the government is demonstrating the necessary political will for this.

- The bank's new strategy on Azerbaijan to cover a period until 2022 has been approved this year. How much does it correspond to the new policy of the Azerbaijani government on external borrowings? What new areas of cooperation with Azerbaijan are considered by the BSTDB? 

- The country strategy for Azerbaijan has already been approved by BSTDB Board of Directors among the first ones. As you may know, the bank’s new medium-term strategy for 2019-2022 involves increasing funding for infrastructure projects in member countries. By their nature, the infrastructure projects are carried out mainly by state-owned companies. At the same time, Azerbaijan’s foreign borrowing strategy is focused on reducing the debt burden of the public sector. This does not mean that the state should stop taking loans. Azerbaijan will continue to invest in infrastructure, and if there is a decision to contact us for assistance in this matter, the bank will be interested to participate.

However, given the task of reducing the government debt, our country strategy for Azerbaijan focuses mainly on operations in the private sector. The priority for us will be investments in sectors that have the greatest development effect, such as energy and energy efficiency, export-oriented production in the non-oil sector, agriculture and agribusiness, which are also among the national priorities.

We expect that our financing will be important amid a weakened banking sector whose share in Azerbaijan’s GDP remains relatively low. We will be pleased to consider project proposals, especially in cases where sponsors are unable to obtain financing from commercial banks.

Summing up, I would like to repeat that, given the strategic objective of reducing the credit burden of the public sector in Azerbaijan, we mainly focus on projects in the private sector, which comprise most of our total portfolio in the member countries.

- You noted earlier that the new strategy provides for a multiple increase in the country's investment portfolio. What amount do you mean? Is it planned to increase technical assistance to Azerbaijan?

- The adopted targets for the growth of the BSTDB portfolio in Azerbaijan provide for additional financing of about EUR 300,000,000 by the end of 2022 (the current portfolio is EUR 106,500,000). These guidelines should work closely with the real market needs for our products and maintaining the necessary portfolio balance across all member countries.

As you know, the BSTDB is currently developing a number of projects in the field of electric power, production of equipment for the oil and gas industry, and support for trade financing in Azerbaijan. At what stage is the development of these projects and their implementation envisaged with the private or public sector?

- Indeed, we are working with applications for financing in these areas received from potential clients from Azerbaijan, mainly private companies. Preparation of the project documentation is carried out in several stages and passes through several stages of approval. In case of successful completion of all stages of preparation and approval, financing of these projects is planned for the period starting from 2020.

- BSTDB provided $50,000,000 to SOCAR for trade financing. Is it planned to issue new loans to the State Oil Company of Azerbaijan?

- BSTDB provided the trade financing to SOCAR Trading to pay for oil supplies from Russia to the STAR refinery in Izmir (Turkey). The bank also works with the subsidiary SOCAR Turkey Enerji and is ready to consider the applications for new financing from the State Oil Company, whose activity is important for Azerbaijan's economy

- A very successful placement of BSTDB manat bonds took place recently. Given that the demand for bonds in the national currency of Azerbaijan is 8 times higher than the offer, is a new issue of manat bonds planned?

- The Black Sea Trade and Development Bank intends to continue to support the sustainable development of the local securities market and to respond promptly to the needs of the Azerbaijani market, in particular, small business, in financing in local currency. We are considering the possibility of issuing the second tranche of a bond loan in 2020, depending on the specific needs of financing the projects in national currency.

- What regional projects are the most relevant today? What major projects in the countries of the region, in particular in Azerbaijan, is the BSTDB ready to participate together with other international financial institutions?

- The bank has a strategic orientation towards expanding participation in regional infrastructure projects of Azerbaijan, whose implementation will largely depend on the demand for such participation from governments and sponsors of such projects. Among the existing regional projects, we can note our loans to SOCAR in Turkey: the Azerbaijani company operating in Turkey supports the development of trade between Russia, Turkey and Azerbaijan. We have provided a number of credit lines to Turkish banks in Georgia and Greek banks in Romania. It is also possible to indicate our projects in Ukraine to expand the capacities of elevators in the Black Sea regions, necessary to increase the grain supplies to other member countries of the bank.

As you may know, we are co-financing a large project of the second stage of the Shah Deniz gas condensate field development, together with a number of other development banks, which is also an important regional project. We would love to consider participating in projects related to the expansion or extension of existing pipelines in our region, such as the Trans-Adriatic Pipeline (TAP) and Trans-Anatolian Pipeline (TANAP), or in other projects to expand Azerbaijan’s access to international markets via the regional countries. Promoting the development of infrastructure that supports economic relations between the member countries of the bank is one of our main priorities. For example, we are ready to consider participation in increasing the capacity of the Baku-Tbilisi-Kars railway or in projects for the development of power lines between our countries, for example, between Azerbaijan and Russia, Georgia or Turkey.