Financial results of 2022 in Azerbaijan

The year 2022, which we are about to leave behind, has been a rich year for Azerbaijan's financial sector, marked by many exciting innovations.

The most important event of the year was undoubtedly the change of the leadership of the Central Bank of Azerbaijan (CBA). Elman Rustamov, who had been the chairman of the financial market control body for 27 years, was removed from his position by the decision of the Milli Majlis (Parliament) and then continued his work as an advisor to the Prime Minister. The management of CBA was entrusted to Taleh Kazimov, the former chairman of the Board of Directors of PASHA Bank. In parallel, the Board of Directors was reformed in CBA. Alim Guliyev and Vadim Khubanov, who were part of Elman Rustamov's team, resigned due to the expiration of their term of office, and Aftandil Babayev left due to his retirement. They were replaced by the general director of the institution, Rashad Orujov, and the adviser of the former chairman, Aliyar Mammadyarov.

This year, the Baku branch of the National Bank of Pakistan was closed. CBA revoked its license upon the bank's appeal. Ultimately, the number of banks in the country fell from 26 to 25 for the first time since 2020. Instead, the regulator issued a license to SF Azerbaijan, a non-banking credit organization (NBCO), and revoked the license of Omni Finance. Home Finance, Payonix, Marja Invest, Alfa Credit, Caspian Finance and Puldeks NBCOs, which were established this year, will obtain licenses next year. Thus, at the end of the year, the number of NBCOs remained unchanged at 55. The number of credit unions decreased from 43 to 40 - Nurana, Goshgar and Yuksalish credit unions were removed from the market.

During the year, the situation in the currency market of Azerbaijan remained stable, and the exchange rate of the manat did not change. In the currency auctions held jointly by the CBA and the State Oil Fund, the demand was always fully paid at the expense of the latter; in other words, there was no need to use the CBA's foreign exchange reserves. Ultimately, the CBA increased its foreign exchange reserves by approximately $1 billion to $8 billion. Instead, the monetary base in the country decreased by more than 1 billion manats ($588.25 million); at the year's end, it was close to 17 billion manats ($10 billion). Speaking of the foreign exchange market, this year, the number of companies engaged in currency exchange activities outside of banks has increased from 2 to 5. CBA issued licenses to Zuhur, Baku Central Currency and Meta-Kapital companies. After the double devaluation of the manat in 2015, the Baku Interbank Currency Exchange, which lost its importance, started to be liquidated.

Although Azerbaijani banks do not buy and sell currency among themselves, in 2022, the interbank money market became more active in the country within the framework of the new monetary policy implemented by the CBA. The number of bank transactions concluded on the Bloomberg trading platform and on the repo market increased sharply. The CBA's interest rate decisions raised the average interest rates in the interbank market. In 2022, the CBA management reviewed the parameters of the interest corridor eight times, as in previous years. The discount rate in the country was gradually raised from 7.25% to 8.25%, the upper limit of the interest corridor from 8.25% to 9.25%, and the lower limit from 6% to 6.25%.

This year, the participants of the capital market of Azerbaijan also witnessed exciting innovations. Important steps were taken to increase activity in the market. CBA's Securities Issuance System was launched. The National Depository Center launched a new Marja sub-account and opened a nominal account at the the Central Securities Depository of the Turkish capital markets (Merkezi Kayıt Kuruluşu A.Ş. MKK). Baku Stock Exchange exempted the issuers of the shares included in the listing for the first time from the listing service fee until the end of next year. With the amendments made to the Tax Code, only dividends, discount and interest incomes on publicly offered stocks and bonds released for trading on the regulated market will be exempted from tax for five years from February 1, 2023. Speaking of the capital market, the number of investment companies in Azerbaijan has increased from 11 to 13. CBA issued licenses to Troni and Kapital Partners investment companies.

Although no big player entered the insurance market during the year, the sector was not left out of innovations. From January 1, the State Insurance Commercial Company (Azersıgorta) had to transfer most of its powers to the State Social Protection Fund under the Ministry of Labor and Social Protection of the Population, and became a joint-stock company and operated under conditions of intense competition. CBA started the Actuarial Development Program to form a new generation of actuaries with modern knowledge and skills in the country, to announce the "complaints index" on insurance, together with the Azerbaijan Association of Insurers Public Union. The rules on "Compulsory insurance of civil liability of motor vehicle owners" were updated, and citizens got the opportunity to apply to the company from which they received a certificate to obtain payment at the time of an insurance event. Another innovation was the calculation of mandatory auto insurance premiums based on risk factors. Azerbaijan, Compulsory Insurance Bureau, was elected a full-fledged member of the Green Card international insurance system, started cooperation with Turkiye in this framework, and at the same time reached an agreement with the International Council of Bureaus (ICB) to sell Green Cards to drivers of vehicles registered in Georgia and Kazakhstan.

In 2022, CBA signed Memorandums of Understanding on cooperation with the Finance Office under the Presidential Administration of Turkiye and China's Banking and Insurance Regulatory Commission. The International Association of Banknotes announced the updated 50-manat banknote of Azerbaijan as the best new banknote in the world. In addition, the Central Bank renewed the 10 and 20 manat banknotes, as well as 10, 20 and 50 qapik coins. The bank issued gold and silver commemorative coins dedicated to the World Football Championship held in Qatar, as well as a silver jubilee coin with a nominal value of 5 manats on the 30th anniversary of the establishment of the National Olympic Committee. The Bank also facilitated the sale of commemorative money.

Innovations have also taken place in mortgage lending, a particularly sensitive issue for the population in Azerbaijan. The rule of "Calculation of the monthly total income of the borrower (borrowers) for the mortgage loan provided at the expense of the Mortgage and Credit Guarantee Fund, including the subsidized mortgage loan" was changed, and the mortgage paper was electronicized. Another interesting innovation was the amendment of the "Rule of granting a mortgage loan, including a preferential mortgage loan, at the expense of the Mortgage and Credit Guarantee Fund", whereby persons who have been working as a journalist for at least five years, who are members of a young family, as well as those who worked as journalists for at least 15 years but are not members of a young family, had the opportunity to get a mortgage loan at a discounted rate - 4% per annum. But for this, the journalist must be included in the Media Register.

This year, the assets of SOFAZ did not remain unchanged. The currency reserves of the Fund exceeded $45 billion against the background of high oil prices. This led to an increase in Azerbaijan's foreign exchange reserves. According to the latest information, the country has about $56 billion in strategic reserves. An exciting novelty related to the fund was that it placed deposit of 1 billion euros in the Central Bank of Turkiye at the beginning of the year. Although the term of the deposit was until the end of July this year, it was later extended for another five months. Speaking of SOFAZ, both its budget and the state budget of Azerbaijan changed this year, and the budget price of oil (Azeri Light) was raised from $50 to $85 a barrel. Next year, the price will be 50 dollars/barrel.