Located in the Caucasus, Azerbaijan has been part of one of the fastest-growing emerging market regions in the world in recent years, with investors seeking riskier asset classes in the era of low interest rates in advanced economies. However, a number of macroeconomic trends, alongside the Federal Reserve tightening monetary policy in the US, have reversed this of late.
World Finance spoke to Taleh Kazimov, CEO and Chairman of PASHA Bank, about this trend. As Azerbaijan’s leading corporate bank, PASHA Bank is well placed to shed light on the financial sector in the region. Established in 2007, the bank offers all standard financial services, including investment banking, trade financing and asset management, to a range of clients, from large corporations to small and medium enterprises. The bank works particularly closely with companies operating in the non-oil sectors of the economy, including agriculture, transportation, construction and retail, which are vital for helping Azerbaijan to diversify its economy.
What has spurred PASHA Bank to take an active role in the securities market?
Besides its core business activity – corporate banking and private banking – PASHA Bank is also known as an investment bank in the regional market. The bank has been named Best Investment Bank, Azerbaijan by International Finance and EMEA Finance several times.
Among the different types of products, securities play a major role. The Azerbaijani Government has been investing a lot to set up the securities market framework and improve legislative requirements to create the necessary market conditions for growth. At PASHA Bank, we also see this as our responsibility as a corporate citizen, and we contribute by initiating underwriting and market-maker opportunities for corporations as well as financial institutions.
PASHA Bank is the major player in the market in terms of offering underwriting and market-making services to clients
This creates the opportunity for them to diversify their funding sources, gain access to cheaper funds (compared to equity) and secure a solid reputation (if the placement is successful). At the same time, PASHA Bank utilises securities as an important diversification tool. We believe that, in an uncertain economic environment, diversification of income sources is important and the securities market is definitely the right one for us.
PASHA Bank is the major player in the market in terms of offering underwriting and market-making services to clients. The impact of this service is immediate liquidity, as well as access to different funding sources and products. PASHA Bank has underwritten over 100 million bonds for both financial institutions and corporations, and has created the opportunity to diversify their funding sources.
PASHA Bank is the only bank in Azerbaijan that hasn’t been downgraded by rating agencies. How was that achieved?
PASHA Bank has been analysing the market and following economic trends closely. We have taken the necessary steps to avoid forex risk, credit risk and operational risk. The bank announced, in 2015, a transformation year in which we created a corporate recovery team which solely manages loan clients that are struggling with their payments, helping them to correctly frame their strategies in order to recover from challenging situations. Another major difference is our approach to the lending process. Thorough analysis of financial statements is a must, and existing cashflow sources have to be matched with lending currency. We believe that these decisions and approaches have helped us to achieve the aforementioned success.
What challenges currently exist in the region’s financial industry?
Economic slowdown generally results in the weakening of asset quality. This period is no exception. Consumer finance banks are experiencing problems with loans nominated in foreign exchange, while corporate and investment banks see problems from large corporations due to weakening macro conditions. We think that those institutions with the best quality of management, systems and procedures will navigate these challenging times, while weak institutions will lose market share.
Developing banking activity inside the Azerbaijan-Turkey-Georgia economic triangle, we are aspiring to contribute to an increase of trade flow between the countries. We are more than confident in the successful future of the region, and we are ready to become one of the engines of its economic development. We plan to lend support both to Azerbaijani entrepreneurs in these countries and local businesses too.
What plans does PASHA Bank have for the future?
Our vision is to be the leading Azerbaijani bank, and we align our operations with our vision and strategic objectives. The bank will continue strengthening its core capabilities and working on efficiency improvements. Corporate banking will remain our focus.