Jan. 5 (The Conway Bulletin) — Azerbaijan’s financial watchdog declared DemirBank, a mid-sized lender part-owned by the EBRD and the Dutch development fund FMO, unfit to trade after bad debt swamped it and its capitalisation ratio level dropped (Dec. 23).
Azerbaijan’s banking sector has been flooded with bad debt since a 2014 fall in the price of oil triggered a currency devaluation and a recession. In 2017 its biggest bank, International Bank of Azerbaijan, defaulted on its debt.
The failure of Demirbank shows that part-ownership of a bank by major financial institutions doesn’t guarantee survival. The EBRD owned a 25% stake in Demirbank, and had been considering an increase. FMO owned a 10% stake.
The EBRD declined to comment on Demirbank’s licence being withdrawn.
FMO spokesman Paul Hartogsveld said: “We regret the fact that Demirbank has entered into this position and therefore can no longer contribute to serving financial customers in Azerbaijan.”
The EBRD has previously helped under-pressure banks in Azerbaijan in which it is a minority shareholder. In July 2017, the EBRD and DEG, the German development fund, both agreed to write off millions of dollars of Unibank’s debts in return for an increased stake.
In March, Fitch, the rating agency, had warned that smaller Azerbaijani banks were vulnerable because of a surge in non-performing loans. It said that the proportion of non-performing loans on banks’ debt books had reached 21% up from 12% in 2015.
Demirbank’s licence to trade was withdrawn on Dec. 23 by Azerbaijan’s Financial Markets Supervision Chamber, a decision upheld by an appeal court four days later.
People who had deposits at the bank will be eligible for compensation from a state fund.
Demirbank had deposits of just over 100m manat ($59m) from 55,000 depositors.
— This story was first published on Jan. 5 2018 in issue 356 of The Conway Bulletin