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EBRD signs first financial sector project in Azerbaijan
The European Bank for Reconstruction and Development (EBRD) is providing a US$ 20 million(ECU 17.5 million) multi-bank framework financing facility to encourage the development of private enterprises and the banking sector in Azerbaijan. This will promote the growth of small and medium-sized enterprises (SMEs) by providing access to much-needed medium to long-term credit. It will also support the development of the banking sector by working on a direct bank-to-bank basis with several leading financial institutions in Azerbaijan. Present at the signing was HE Mr Heydar Aliyev, President of the Azerbaijan Republic, and Charles Frank, Acting President of the EBRD.
"In any type of economy, small and medium-sized enterprises are associated with economic growth and job creation, and in transition countries they play the additional role of stabilisers during economic fluctuations as well as promoters of industrial evolution," said Charles Frank. "Crucial to the development of the SME sector are strong banks. This facility will strengthen the Azeri banking sector by promoting institutional development, adherence to good standards of corporate governance, and the financial discipline of debt covenant requirements."
International Bank of Azerbaijan (IBA) is the first bank to sign a US$ 2.35 million (ECU 2.1 million) credit line under the facility. A second credit line is expected to be signed with a local private bank in early autumn and a number of additional credit lines could be signed around the end of the year.
IBA is currently the largest bank in Azerbaijan and is growing rapidly. The government of the Azerbaijan Republic has stated its intention to privatise IBA in the near future. "International Bank has adopted a process of internal reform aimed at bringing the bank up to the highest international banking standards by improving its organisational structure, introducing new products and services, and strengthening its corporate governance," said Fuad Akhundov, Chairman of the Board and CEO of International Bank. "With the aid of a twinning programme arranged by the EBRD and funded by EU-TACIS and the increased capitalisation to be achieved through privatisation, we can demonstrate to both the domestic and foreign markets that the risk of lending to the SME sector is manageable. That can only lead to a stronger Azeri banking sector and greater public confidence."
All banks participating in the facility must demonstrate their interest in term-lending to private sector SMEs, and, above all, their willingness to adopt sound international banking principles and a high level of corporate governance. Under the facility, the EBRD will work with a number of selected local banks, strengthening institutions through technical cooperation programmes. This should increase competitiveness in the banking sector, thereby indirectly improving the quality of lending services. Since 1991, the EBRD has committed a total of ECU 113.3 million to Azerbaijan.
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