Azeris Shut 4 Banks in Week After Imposing Capital Controls

  • Authorities close almost tenth of all banks amid currency rout
  • Central bank governor sees `healthier' industry after cleanup

Azerbaijan shuttered almost a tenth of the nation’s lenders in the past week as authorities struggle to restore trust in the national currency after imposing capital controls and devaluing the manat twice last year.

The regulator in the capital, Baku, said there’ll be more closures to come after revoking the licenses of privately owned United Credit Bank and NBC Bank for failing to comply with a minimum capital requirement of 50 million manat ($30.7 million). The lenders couldn’t meet their obligations to creditors and their management wasn’t “reliable or prudential,” the central bank said Tuesday in an e-mailed statement. The cleanup has left Azerbaijan with 39 banks.

“Banks that don’t meet requirements and have major shortcomings can’t operate in Azerbaijan,” President Ilham Aliyev was cited as saying by the news service APA. He urged banks to invest in the real economy to help create new jobs and develop the non-oil industry.

Azerbaijan, the largest oil exporter in the former Soviet Union after Russia and Kazakhstan, saw its currency plunge to the weakest on record after relinquishing control of its exchange rate last month. Authorities imposed some restrictions on the movement of capital last week to contain the fallout from the currency crisis, with Governor Elman Rustamov saying that five to seven banks may be merged to consolidate the industry.

‘Healthier’ System

The central bank burned through $8.7 billion, or 64 percent of its reserves, last year to defend the manat as crude prices plunged. Rustamov said more lenders will be closed down as part of a plan to build a “healthier” financial system.

Demir Bank and AGBank signed a preliminary agreement to merge their operations, Interfax reported on Tuesday, citing a statement. Bank of Azerbaijan and Gancabank lost their licenses earlier this month for falling short of the requirements.

Aliyev told his government on Tuesday to speed up work on streamlining the banking industry. Azerbaijan announced last week that all retail deposits will be insured in full.

Fitch Ratings said that Azerbaijan’s “small” banking industry, with assets equivalent to 50 percent of gross domestic product last year “gives the government scope to support it,” according to a Jan. 22 statement.

“But direct capital support would be another fiscal cost,” the ratings company said. “An escalation of banking sector pressures would further hit growth.

Before it's here, it's on the Bloomberg Terminal.