The bankruptcy of the International Bank of Azerbaijan has alarmed western investors. It has been the highlight of the global news last week. The first problems appeared in the autumn 2014, when the slump of global oil prices pulled AZN down.
But that was not the key cause of the bankruptcy. In the autumn 2015, Azerbaijan faced a huge corruption scandal, which resulted in the house arrest of National Security Minister Eldar Mahmudov and the detention of his predecessor Jahangir Hajiyev, who had led the bank for 15 years and was the main candidate for the Chairman of the Central Bank. It turned out that Hajiyev was Mahmudov’s relative and that it was the latter who recommended him as Interbank’s CEO.
Their crimes were a shock for President Aliyev. It turned out that Mahmudov and Hajiyev were at the head of an organized criminal group, which was engaged in kidnapping influential businessmen and other criminal activities. Among the criminals were several generals for the National Security Ministry.
Mahmudov used the ministry for laundering stolen budgetary funds. In 2009-2015, he transferred as much as $8bn to offshore accounts. This means that there was no banking or customs control in Azerbaijan during those years. The stolen money would be enough for supporting education for eight years or health care for twenty years.
The news has urged western investors to withdraw their assets. The Kazakh investors are in panic as they are unable to find the $250mn they have invested in the bank.
In the meantime, the bank’s creditors, who own 87% of its foreign obligations, have voted for its restructuring. This process is due to finish on July 18, 2017. During the last meeting in London, the Azerbaijani authorities offered the bank’s creditors several scenarios. One of them stipulates exchange of the debt for 12- and 15-year sovereign bonds. Among the creditors are Cargill, Citibank, Rubrika Finance Company Limited and Credit Suisse AG.
The bank’s total debt to its foreign creditors amounts to $3.3bn. Once the bank is restructured, its foreign exchange obligations will be given to the state. Until then, the bank will pay nothing to its foreign creditors.
Expert from the Center for Support for Economic Initiatives Samir Aliyev has told EADaily that the state owns over 3/4of Interbank’s shares. This means that the state is responsible for the bank’s obligations. “It is not a secret that the bank has not been able to pay its obligations so far. So, the state had two options: either to liquidate the bank or to try to keep it afloat. It preferred the latter one as it would have to pay the bank’s debt even if it was liquidated. It will be hard for the state to pay all debts at once but it will try to do it stage by stage,” Aliyev said.
Akram Gasanov, Director of Akram Gasanov and Partnersand Anti-Collector legal firms, says that the key problem is Interbank’s inability to repay its debts. “For the government, it would be easier to declare the bank bankrupt and to avoid repaying its debts. But among the bank’s creditors are influential banks from the United States, Russia, France, Switzerland. If those banks lose their deposits, it will be a big blow on Azerbaijan’s image and credit rating,” Gasanov says.
As regards the managers of the bank, they are not competent, according to Gasanov. “They are acting unprofessionally. They have posted lots of restructuring plans so far and each time they had to revise them. It looks like some of them are amateurs. And this is a big problem for the bank,” Gasanov says.
Azerbaijani MP Vahtid Ahmedov has told EADaily that the bank’s debt has had a very band effect on Azerbaijan’s financial sector. “The bank has lots of inoperative assets, foreign debts and bad loans. On top of this, it has lots of big deposits by businessmen, the state and individuals. The government is going to repay its foreign debts and will take the necessary money from either the budget or the Oil Fund,” Ahmedov said.
It should be noted that Azerbaijan’s banking sector collapsed very quickly and responsible for this are the Central Bank and the Financial Market Supervisory Authority. The regulators should have been quick in reacting to the crisis but they proved to be not ready for it.
The government is not in panic though as it has a big oil fund and an international foreign exchange reserve that is five times as big as its foreign debt.
Maksud Talibli (Baku)