Financial Stability Review. January June, Financial stability review. Central Bank of the Republic of Azerbaijan

Transcription

1 21 Financial Stability Review January June, 21 Financial stability review Central Bank of the Republic of Azerbaijan

2 January June 21 Table of Contents Summary 4 1. Financial markets Foreign exchange market Stock market State Securities market Corporate bonds Banking sector and risks Financial sustainability of the banking sector Financial results of activities of the banking sector Credit portfolio Financial resources and liquidity risk Payment systems.. 24 Conclusion

3 List of Graphs Graph 1.1. Key indicators of the foreign exchange market. 6 Graph 1.2. Key indicators of cash foreign exchange transactions.. 7 Graph 1.3. Notes in circulation... 8 Graph 1.4. Corporate bonds and stock market. 9 Graph 2.1. Key indicators of the banking sector 1 Graph 2.2. Asset structure Graph 2.3. Loan portfolio structure by type Graph 2.4. Number of banks structural network. 12 Graph 3.1. Dynamics of risk weighted balance assets.. 14 Graph 4.1. Profit structure. 15 Graph 5.1. Currency structure of credit portfolio. 17 Graph 5.2. Maturity structure of credit portfolio.. 18 Graph 5.3. Loans to individuals by purpose... 2 Graph 5.4. Loan provisioning Graph 6.1. Currency structure of deposits of the population.. 22 Graph 6.2. GAP/asset ratio 23 Graph 7.1. Dynamics of payment operations in the National Payment System Graph 7.2. Dynamics of payments on AZIPS Graph 7.3. Dynamics of payments on BCSS (Retail Payment System). 26 Graph 7.4. Number of installed ATMs and POS-terminals. 26 List of tables Table 3.1. Structure and dynamics of the aggregate capital of the banking sector. 19 Table 5.2. Sectoral structure of credit portfolio

4 Summary Banking sector having demonstrated financial sustainability over the past six months of 21 continued its growth. Banking sector assets have increased by 4.4% and made AZN 12,2 bln. Bank loans made AZN 8,6 bln having increased by 5,2% as of 1 July 21 as compared with the beginning of the year. High deposit growth rate has continued, deposits of individuals increased by 9,8% and made AZN 2,6 bln within the period. With gradual slowdown of the global economic crisis, banks have started to attract resources from external financial markets. Liquidity position of the banking sector has been high enough. Thus, about 84% of current liabilities have been provided with liquid assets which exceed minimum requirement (3%). Capital adequacy of the sector made 17,2%, prevailing the required norm (12%). Banks ROA made 1,2%, ROE 8,8% within the period. Banking sector has continued to expand its branch network. 15 new bank branches were launched within the first half of 21, of them 6 have started operating in regions. As of 1 July 21 there are 64 operational bank branches, of which 39 are operating in the regions. Measures taken by the Central Bank have been targeted at minimizing systemic risk, securing the sector s stable and sustainable performance, preserving confidence of the population and investors. Having taken potential risks into account, The Central Bank has improved supervisory and regulatory framework in order to boost financial stability. The measures taken are first of all aimed at a bigger amplification of the bank s financial sustainability, as well as increase of requirements on capitalization, improvement of risk evaluation and management mechanisms. According to the new methodology of the Basel Committee on banking supervision, the decision was taken to apply a leverage ratio new capital sufficiency ratio with the purpose to increase capital quality and provide sustainable growth of bank assets. At the same time, new requirements were set 4

5 on internal policies, regulations and procedures of banks regarding liquidity risk management which are crucial in providing stable and safe performance of the banking sector. Banking sector supervision is being provided on a more advanced mode, primary goal of which is adequate evaluation of risks leading to proper diagnosis of financial stability as well as capital adequacy. Financial soundness indicators of banks have been intensively monitored, regular stress-tests provided, and obtained results were considered in preventive management of financial stability. The policy of promotion of decrease of interest rates on deposits has been continued. According to the decision of the Trustee Board of Azerbaijan Deposit Insurance Fund in agreement with the Central Bank from 1 June 21 the maximum deposit interest rate for deposits that are insured by the Fund has been reduced from 15% to 12%. This decision, having had a decreasing effect on deposits interest rates enabled decrease of interest rates on loans as well. Due to the Law on Non-Banking Credit Institutions developed by the Central Bank taking effect from 9 February 21, it is expected that the number of nonbanking credit institutions will increase and regional coverage will expand in the upcoming period. According to the new regulatory principles of the Basel Committee on banking supervision that are under way the Central Bank has started application of counter-cyclical approach in banking regulation and supervision, it is expected to adopt key parameters of new macro-prudential management framework that will more enhance financial stability of the banking sector in the nearest future. 5

6 1. Financial Markets 1.1. Foreign exchange market Scene with internal foreign exchange market in H1 of 21 was still stable. Total volume of domestic foreign exchange market slightly increased (,1%) and made USD 88,9 mln as compared with January June of the previous year. In comparison with similar period of the previous year, the volume of transactions conducted in unorganized foreign exchange market (OpIFEM and IBT) has increased by 13,2% (or USD 998,8 mln) and became USD 8591,2 mln which took 97,6% of internal currency market. Volume of transactions conducted at IBT was USD 3734,4 mln which made 43,5% of the volume of unorganized foreign exchange market. Volume of organized domestic currency market (BEST) has decreased by 82,5% (or USD 989,4 mln) and fell to USD 29,6 mln which is 2,4% of the total volume of internal currency market. Graph 1.1. Key Indicators of Foreign exchange Market Source CBA Jan Feb Mar Apr May Jun Central Bank intervention (mln.manat) AZN/USD exchange rate (right scale) In January June of 21, the volume of net foreign exchange purchase on the market executed by Central Bank was equal to USD 598,4 mln which is 1,8 times less than the similar period of the previous year. Official exchange rate of manat against USD fell by,4% within the reporting period (Graph 1.1). 6

7 As compared with the similar period of the previous year, volume of cash USD taken by legal entities and individuals from banks has decreased by 31,9% and made USD 1838,9. Difference between free and official exchange rates decreased by 1,9 times (Graph 1.2.). Graph 1.2. Key Indicators of Cash Foreign Exchange Operations mln.manat Jan-9 Mar-9May-9 Jul-9 Sep-9 Nov-9 Jan-1 Mar-1May-1,4,35,3,25,2,15,1,5 Source CBA Net USD purchase, (mln. manat) Difference between bank and official exchange rate (right scale) 7

8 1.2. Stock exchange State securities As in previous years, the Central Bank issued 4 week notes in 21 in order to regulate liquidity of the money market. Demand for CBA notes increased in Q2, 21 as compared with Q1. Thus, while Q1 of the current year total placement of notes was AZN 45 mln, in Q2 of 21 this number has increased by 28% and made AZN 63 mln. Return on notes was still 1%. Graph 1.3. Notes in circulation mln.manat % Source : CBA Notes in circulation Notes yield There was revival on the secondary market of state short-term bills (ST-bills). Thus, whereas volume of transactio ons conducted at secondary market in Q1 was AZN 12 mln, in Q2 this number has increased by 5 times and became AZN 63, 4 mln. One-year-bills exercised primary share in the term structure of ST-bills. 8

9 1.2.2.Corporate bonds and equity Growth has been observed in the corporate securities market particularly in corporate bonds segment within H1, 21 as compared to the similar period of the previous year. This growth was exercised both on placement of bonds and in transactions at secondary market (26% and 119% respectively). As compared with Q1, 21, in Q2, 21 the volume of placement by equity has increased. While in Q1, 21 this number was AZN 23 mln, in Q2, 21 this number has increased by 67% made AZN 38,6 mln. Graph 1.4. Corporate bonds and equity market 7 mln.manat , ,6 24 4,8 Placement Q1,21 Placement Q2, 21 Secondary market Q1,21 Source : CBA Corporate bonds Shares 2,5,8 Secondary market Q2,21 Growth was observed at corporate bonds market. While the volume of increase in placement on corporate bonds in Q1, 21 was AZN 19 mln, volume of placement in Q2, 21 already was AZN 27 mln. Decrease has been observed in secondary equity market operations. While in Q1, 21 volume of equity operations was AZN 2,5 mln, in Q2, 21 this number has decreased by 68% and made AZN,8 mln. On the opposite, increase has been observed at the secondary corporate bond market.while in Q1, 21 the volume of transactions on corporate bonds was AZN 24 mln, in Q2, 21 this number equaled to AZN 4,8 mln. 9

10 2. Banking sector and risks Dynamics of the banking sector Key indicators of the banking sector increased both on annual ( ), and quarterly basis (Graph 2.1.). Graph 2.1. Key indicators of banking sector, in mln manats mln.manat Assets Loans Loans to legal entities Individual loans Total Capital Assets of the banking sector having increased by AZN 515,7 mln or 4,4% within January June, 21 became AZN 12,2 bln as of 1 July, 21. Assets increased by AZN 3 bln (32, 5%) as of June of the current year compared to the similar period of the previous year. In comparison with the beginning of the year, bank loans have increased by AZN 427,9 mln or 5,2% and became AZN 8658,3 mln as of 1 July, 21. As compared with the relevant month of the previous year loans increased by AZN 2, 4 bln (37,7%). Major part of loan portfolio growth in January June (83%) occurred in Q2 of the current year. Loan activity being still on stipulated increase of share of loans in average assets of the banking sector to 71% (Graph 2.1.). 1

11 Growth of loan portfolio primarily occurred through increase of deposits, interbank operations, and liquidity support of the Central Bank. Graph 2.2. Assets structure, in % Loan placement Other assets Volume of loans issued to legal entities within 6 months of the current year has increased by 2,6% (annual 49%) and made AZN 5,9 bln. Volume of loans to households increased by 8% (12,6% on annual basis) within half year and made AZN 2,3 bln (Graph 2.3). 11

12 Graph 2.3. Loan portfolio structure by loan type 6 mln.manat /7/9 1/1/9 1/1/1 1/4/1 1/7/1 Loans to legal entities, mln.manat Loans to individuals, mln.manat Average rate on individual loans, %-lə (sağ şkala) Infrastructure network of the banking sector is expanding: 15 new branches were launched within 6 months and currently the number of bank branches is 64. The number of bank departments increased from 19 to 114 (Graph 2.4). Graph 2.4. Number of structural net of banks /1/9 1/1/1 1/4/1 1/7/1 Domestic Bank branches Bank offices 12

13 3. Financial sustainability of the banking sector Capitalization of the banking sector As in previous years, capital adequacy indicators of the banking sector were on an acceptable level, Tier I Capital constituted 83% of the aggregate capital. Volume of the aggregate capital of the banking sector has increased by 2,3% and made AZN 1,8 bln (annual growth being 9%). Capital sustainability was mainly secured through share capital. Thus, authorized capital increased by 12,6% as compared with the year launch (AZN 146,8 mln) and comprised 73% of the equity. The authorized capital increased by AZN 262 mln (25%) on an annual basis (Table 3.1.). Along with this, share of foreign investors capital participation increased as well. Within H1 of the current year, capital investment of such shareholders to the banks authorized capital has increased by 16,8% (AZN 34,4 mln)and made AZN 238,8 mln (18,2% of total authorized capital of the banking sector) as of Table 3.1. Structure and dynamics of total capital of the banking sector (in million manats) Tier I Capital Authorized capital Share premium Retained net profit Tier II Capital Profit of current year Aggregate reserves Other funds of capital Deductions from total capital Total capital after deductions 1/7/ ,9 117,8 32,3 236,1 429,3 154,2 15,2 169,9 47,3 1651,4 1/1/ ,5 1144,6 2,7 138,8 53,9 269,6 122,8 138,6 57, 1 758,9 1/7/21 151,7 1291,4 2,7 215,5 357,5 94,8 129,8 133, 59,4 1799,3 13

14 Notwithstanding asset growth of the banking sector, share of risk weighted assets slightly changed (Graph 3.1.). Graph 3.1. Dynamics of risk weighted balance assets mln.manat Total amount of risk weighted balance assets, mln. Manats Risk weighted balance assets/balance assets, % Actual level of systemic capital adequacy indicator offers creation of significant capital reserve buffer. Adequacy of the aggregate capital of the banking sector remained on a high level (17,2%) and considerably exceeded the minimum limit (12%) set by the Central Bank. At the same time, adequacy of Tier I Capital exceeds the limit as well 14,4%. 14

15 4. Financial results of the banking sector performance Profit (before tax) generated by banks within H1, 21 came to AZN 8,8 mln (Graph 4.1.). Net profit after tax constituted AZN 7,5 mln. Graph 4.1. Profit structure, in million manats January June 29 January June 21 Profit from interest rate Cost of interest rate Interest rate income Non interest rate income Loan loss provisions Income before taxes Interest rates on loans decreased driven by decline in the share of consumer loans, which have normally higher interest rates in portfolio, as well as by increase in long-term preferential investment and mortgage loans. As a result, banks interest income fell by 1,2% compared to the similar period of the previous year and made AZN 56,7 mln as of 1 July. Unlike partial decrease of interest income, non-interest income of banks increased by 1,9% as compared with the similar period of the previous year and constituted AZN 13,3 mln. Increase of non-interest income is primarily put down to increase of commissioning income for banking services. Thus, aggregate income of banks 15

16 made AZN 637 mln, and in absolute expression is comparable with income generated in relevant period of the previous year. However, income (both interest and non-interest) to average assets moved from 13,6% to 1,7%. As compared with H1 of the previous year interest expenses increased by 18,7% and made AZN 268 mln as of Increase of interest expenses is connected with change of banks funds source structure, particularly with attraction of fixed and payable funds (collections of legal entities and individuals). Despite increase of interest expenses, their ratio to average assets decreased from 4,8% to 4,5% as compared with the similar period of the previous year. When opportunities to increase income base were constrained, banks reviewed the structure of expenses, particularly non-interest expenses. Thus, as compared with January June of the previous year despite increase of non-interest expenses in absolute expression their ratio to average assets of the banking sector decreased from 4,3% (1.7.29) to 3,5%. Banks total expenses (both interest and noninterest) constituted AZN 477,6 mln. Within the period, volume of net income from banks operations in foreign currency decreased by 9,1% as compared with the similar period of the previous year and made AZN 46,3 mln. Specific weight of income generated from foreign currency operations in total income was 7%. Conservatism in credit behavior of banks (both from loans underwriting and monitoring of issued loans quality perspective) prevailed within the period. This trend demonstrated itself in dynamics of volume of deductions to loan loss provisioning. Thus, within the period these deductions increased by 7,5% as compared with the similar period of the previous year and made AZN 78,8 mln. However, ratio of these deductions to assets did not change and kept the level of 29 (1,3%). As a result, return on banking sector assets within H1, 21 made 1,2% (3,1% in the similar period of 29), ROE was 8,8% (21,2% in the similar period of 29). 16

17 5. Credit Portfolio Loan activity growth has been observed in Q2 of the current year. The Central Bank continued taking preventive measures in order to avert systemic risks and trends of pro-cyclic behavior. In case of necessity, these measures are directed at correction of business models and maintenance of adequate level of credit risk. Maintenance of exchange rate stability paved the way for 8,5% increase of loans in national currency within January June; it became a key source of total loan portfolio growth which resulted not only in prevention of potential dollarization in loan structure, but also in increase of specific weight of loans in national currency from 58,5% to 6,3% (Graph 5.1.). Graph 5.1. Currency structure of loan portfolio 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Loans in Foreign currency Loans in manats Growth rate of long-term loans (7,5%) prevails over growth rate of total loans (5,2%). As a result, specific weight of long-term loans in the structure of loan portfolio increased by 1,6 basis points and made 74,4% (AZN 6439,8 mln) as of the period end (Graph 5.2). 17

18 Graph 5.2. Maturity structure of loan portfolio, in % 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Short-term loans Long-term loans Along with currency and term structure of loans, sectoral changes have occurred as well. The biggest growth rate on loans (as compared with the similar period of the previous year) was observed in loans issued to energy, non-oil industry and production, trade and services, agriculture, processing and households. The biggest growth rate in the current year was observed in loans to non-oil industry and production, trade and services and households (Table 5.2). 18

19 Table 5.2. Sectoral structure of loan portfolio Increase/decreas e (+/-) in mln manats share, in % in mln manats share, in % in mln manats share, in % Including January- June 21 in mln manats Trade and services 1342,7 21,4 212,1 23,2 669,4 49,9 178,6 9,7 Households 282,5 33,1 2344,3 27,1 261,8 12,6 172,7 8, including Loans on operations with plastic cards Energy, chemistry and natural 11,4 326,1 1,6 5,2 124,9 1394,8 1,4 16,1 23,5 168,7 23,2 327,7 5,5-127,5 4,6 8,4 resources Agriculture and processing 354,5 5,6 42,3 4,6 47,8 13,5 13, 3,3 Construction and property 644,2 1,2 64,1 7, -4,1 6,2 27,8 4,8 Industry and production 518,8 8,3 64,4 7, 85,6 16,5 67,7 12, 6 Transport and communication 462,1 7,3 45,2 5,2-11,9 2,6-7,2 13, 5 sha re, in % Crediting of the population is still key part of banking services. However, reevaluation of credit risks, diversification trends of portfolio affected loans issued to individuals as well. Specific weight of loans to individuals in total credit exposure having increased by only,7 basic points within the period constituted 27,1% (33,1% in the similar period of 29). As of 1 July 21 specific weight of loans for entrepreneurial activity and consumption in loans to households made 9% and 73% accordingly. 13% of the loan portfolio falls to the share of mortgage loans. As compared with the year launch, the share of consumer loans in the structure of loans to households 19

20 decreased, share of real estate related loans increased, no change was in loans to entrepreneurs. Outstanding debt on credit cards is 5% in retail credit portfolio, 1,4% in total bank loans (Graph 5.3). Graph 5.3. Loans to individuals by purpose,million manats 1/7/ % 4.98% 8.75% 12.95% 1/4/1 71.4% 5.16% 8.78% 15.1% 1/1/ % 5.13% 8.8% 1.93% 1/7/ % 4.52% 8.72% 8.58% % 1% 2% 3% 4% 5% 6% 7% 8% 9% 1% Consumer loans Loans on entrepreneural activitiy Loans on plastic cards operations Real estate loans Quality of loan portfolio remained at an acceptable level. Thus, 6,9% (6% as of ) of the portfolio is taken by non-standard loans. The share of nonperforming loans in the portfolio made 3.9% (3,5% at the year launch). Loan provisioning take 7% of the portfolio (6,7% as of ) as of 1 July 21. Reserves created within H1 of 21 constitute about 12% of general reserves. As of 1 July 21 reserves created by banks exceeded non-performing loans by almost 2 times, loss loans 4,5 times. (Graph 5.4.). 2

21 Graph 5.4. Loan provisioning mln.manat % Special reserves on loans, mln.manat Source CBA 6. Financial resources and liquidity risk Deposits were the key source of the banks resource base within January June 21. As in previous periods, the crucial source of financial resources is deposits and savings attracted from resident legal entities and individuals. As compared with the beginning of the year, total deposit base of banks has increased by AZN 57,2 mln and was equal to AZN 4,7 bln. Share of deposits and savings in total liabilities structure made 46,5%. Volatility was observed in dynamics of deposits of legal entities within January June of the current year. As of the end of June the volume of deposits of legal entities decreased by 7,4% and constituted AZN 2,1 bln. Deposits increased by 22% on an annual basis and formed 21,2% of bank liabilities. Deposits of the population increased by 9,8% within January June and came to AZN 2,5 bln, share of which in banks liabilities constituted 25,3%. 21

22 Deposits increased by 32,4% on an annual basis. Significant deposit growth has been observed in Q2 of the current year. Along with absolute growth of the deposit base, there were positive changes in its quality. Thus, growth of term deposits prevailed over growth of demand deposits. On an annual basis, while deposits placed in current accounts increased by 9,4%, term deposits increased by 42%. Share of term deposits in total deposits changed within 6-64%, whereas as of 1 July 29 this ratio was 55%. Volume of term deposits of the population increased by 34% on an annual basis, including increase by 12,4% within the current year; as of 1 July 21 this volume constituted AZN 2 bln. Share of term deposits in total deposits changed by 78-81% within H1 of 21. Along with enhancement of total stability of the deposit base its duration increased as well. Thus, 33,2% of total deposits belongs to deposits with over one year maturity (32,2% as of ). Along with improvement of term structure of savings of legal entities and individuals observed were positive trends in their currency structure. Thus, share of deposits of legal entities and individuals in national currency in total deposits in H1 of 21 has increased by 2,3% and became 41,6% (35,7% as of ). Deposits of the population in manats within January June have increased by 15,2% as of and became AZN 1,1, bln, deposits in foreign currency have increased by 5,9% and made AZN 1,4 bln (Graph 6.1). Graph 6.1. Currency structure of deposits of the population, in million manats 1/7/ /4/ /1/ /7/ Deposits of legal entities Individual deposits Deposits in manats Timed deposits 22

23 Volume of interbank liabilities increased by AZN 238,4 mln (14%) within January June of the current year and constituted AZN 1,9 bln. Share of these resources in total liabilities moved from 17,6% at the beginning of the year to 19,2%. Net increase in funds attracted from non-residents in H1 of 21 was AZN 245 mln. As of the period end volume of liabilities attracted from non-resident banks was AZN 2 mln, the share of which in total liabilities was 19,6%. Liabilities of the banking sector due to the Central Bank remained unaltered (15,2%). Despite revival of loan activity in Q2 of the current year liquidity level of banks was still high. Ratio of liquid assets to total assets confirms adequate management of liquidity risk. Thus, as of share of liquid assets in total assets was 21,3%, liquid assets to deposits 56,3%. Term analysis of liquidity by assets and liabilities (GAP analysis) displays acceptable level of liquidity (±1%) (Graph 6.2). Graph 6.2. GAP to assets, in % as of % Over 365 days 23

24 7. Payment systems One of the key targets of the Central Bank is to provide stable performance and development of payment systems. Graph 7.1. Dynamics of payment systems in the National Payment Systems mln.manat Volume of payments, mln. man Number of payments, thousand Within 6 months of 21 growth tendency of quantity and volume of payments in payment systems endured. In total 5,12 items of operations were conducted in the National Payment System within the period, total volume of which equaled to AZN 37,88 bln. As compared with the similar period of the previous year amount of operations increased by 13% (2,6 mln items), volume by 2% (AZN 569 mln). Volume of payments equivalent to half year GDP indicator circulates within 27 days (relevant indicator for H1 29 was 24 days, H2 29 days). Within January June, 21 payments with AZN 287 mln volume daily average number being 38,8 thousand items were made (as compared with the similar period of the previous year these numbers respectively were AZN 283 mln and 19,1 thousand items). Through Interbank National Settlements (AZIPS) that is of systemic importance to the country, 93% of the volume of and 3,4% of the number of all non-cash payments were conducted as non-cash settlements within H1 of 21 (174 thousand operations totaling to AZN 35,1 bln) which shows purpose of the system 24

25 to conduct large volume priority payments. The amount per payment order in the system averaged to AZN 21,7 thousand within H1 21 which exceeds the previous year by 9% (AZN 17 thousand). Notwithstanding the slight decrease in the number of payments on the system as compared with the similar period of the previous year total amount of conducted settlements increased by AZN 283 mln (1%). Graph 7.2. Dynamics of payments on AZIPS mln.manat /1/1 1/3/1 1/5/ Volume of payments mln. man Number of payments, thsd In Retail Payment System (BCSS) majority of all non-cash payments were processed as retail non-cash settlements number being 96,6%, volume being 7,3% (4,95 mln orders amounting to AZN 2,78 bln) which indicates primary purpose of the system retail payments. Average amount per payment order was AZN 563,1. Graph 7.3. Dynamics of payments on BCSS /21 2/21 3/21 4/21 5/21 6/ Volume of payments, mln.manat Amount of payment, thsd 25

26 Development of payment systems in 21 enabled to expand payment services. Development of infrastructure providing banking services was one of the factors pushing this. Positive trends in payment systems are put down to dynamic development of infrastructure enabling provision of payments through payment cards (ATMs and e-terminals). The number of operations conducted through ATMs and POS terminals being 21,4 mln items amounted to AZN 3,5 bln. Graph 7.4. Number of installed ATMs and POS-terminals /21 2/21 3/21 4/21 5/21 6/21 Amount of ATM's Amount of POS Terminals The number of ATMs installed in bank branches, retail trade and service entities throughout the country has increased by 5% (83 pieces) as compared with the beginning of the year made 1777 pcs, of which 995 are installed in Baku, 782 in regions. On average 197,4 ATMs serve per million of the population. The number of POS-terminals increased by 2% (158) and was equal to 8815, and average 979,4 terminals fall into the share of one million people. Within H1 of 21 the number of bank cards increased by 174 thousand and made 4,15 mln pcs. On average there are 461 payment cards per thousand persons and 1,8 bank enities serve per 1 thousand persons. 1,95 thousand operations amounting to AZN 6,29 mln were conducted through internet banking within the reporting period. 26

27 Conclusion Thus, key trends in the banking sector in H1 of 21 were as follows: o Growth of loan portfolio was due to increase in deposits and interbank operations; o As in previous years, capital adequacy indicators of the banking sector were at an acceptable level. Quality of equity of the banking sector is at an acceptable level as well. Capital sustainability was primarily secured through funds of shareholders. o Banks compensated income base constraints though optimization of expense structure. o Despite revival of loan activity in Q2 of the current year, liquidity level remained high. Liquidity analysis by terms of assets and liabilities (GAP analysis) reflects acceptable level of liquidity. o Growth rate of the number and volume of payments in payment systems within 6 months of 21 continued. 27