2024-01-25 05:31:56
During the 20-year dynastic rule of Azerbaijan’s autocratic president Ilham Aliyev, his close relatives amassed wealth thanks to lucrative state contracts.
Along with sectors such as natural gas resources, air transport and construction, banking has also been a significant source of wealth for the first family of Azerbaijan.
Aliyev’s daughters and other relatives control billions of manat assets in private banks.
A new investigation by Radio Liberty revealed that the dominance of the ruling family in the banking sector is gradually increasing.
The research revealed that since the devaluation of the manat in 2015, the total share of the four banks owned by the Aliyevs has tripled in the banking sector of Azerbaijan.
In 2015, the devaluation decision made by the government at the time of the sharp drop in oil prices resulted in the loss of value of people’s savings and the creation of anxiety in the society.
Four banks belonging to the ruling family – “Pasha Bank”, “Kapital Bank”, “Khalq Bank” and “Bank Eurasia” have also become the banks that manage the largest part of hundreds of millions of manat loans allocated by the government as part of the business support program.
How did Aliyev’s banks get rich due to devaluation?
According to the results of the analysis conducted by Azadlig Radio based on the latest annual financial reports, The total assets of Aliyev’s banks increased from 4 billion manats in 2015 (5.1 billion dollars before devaluation) to 20 billion manats (11.8 billion dollars at the current exchange rate) at the end of 2022. During this period, the total share of the total assets of the ruling family in the banking sector increased from 16 percent to 43 percent.
According to Azerbaijan’s legislation on antimonopoly activity, controlling more than 35 percent of the market is considered a dominant position, and in such cases intervention is intended to prevent the creation of monopolies. But the economist Speaker Jafarli He told RFE/RL that these laws have never been used.
The total share of these banks in the sector is currently higher than the share of state-owned banks.
The total share of state banks in the assets of the country’s banking sector is approximately 30 percent. This is a decrease compared to 38 percent in 2015.
In January 2015, the Central Bank of Azerbaijan increased the minimum capital required for banks to operate by five times to 50 million manats (64 million dollars at the current exchange rate). After two devaluations and this decision of the Central Bank, at least 20 competitors disappeared from the sector.
The significant growth of Aliyev-related banks over the past eight years is partly due to the effects of the devaluation of the national currency.
However, during the same period, these four banks accumulated assets faster than their competitors.
High incomes obtained as a result of entrusting them with low-interest state loans allocated within the framework of the Entrepreneurship Development Fund also play a role in this matter.
Bank analysts expressed displeasure that the special attitude shown by the state put Aliyev’s banks ahead of rival banks with weaker political ties and allowed for the creation of a de facto oligopoly. This means fewer choices and higher loan rates for companies and the public.
Bank of Aliyev’s daughters and grandfathers
62-year-old Aliyev has tightened his control over the country since taking over power from his father in 2003. He scheduled an early election for February 7. Considering the limitations of Azerbaijan’s legislative and political environment, there is almost no doubt that Aliyev will win. This victory will mean that he will remain in power for another seven years.
After Aliyev’s 20 years in power, Azerbaijan ranks 157th among 180 countries in the latest Corruption Index report of Transparency International. The US State Department writes in its report that a small number of government-controlled holdings control the economy.
Although RFE/RL’s Azerbaijan service contacted each of the four banks connected to Aliyev with a request for clarification, only “Kapital Bank” answered their questions until the time of publication of this article.
“Capital Bank” explained the bank’s growth and ranking in the top three by providing more competitive products that meet the needs and requirements of customers: “As for our obligations to the Central Bank and other state institutions, we inform you that in 2023, compared to 2022, these obligations of our bank have halved to 540,000 AZN. The interest rate is announced by the Central Bank as a standard for all banks.
As for the provision of allowances and pensions through Kapital Bank, the bank advised Radio Liberty to address these questions to the relevant institutions.
In October 2023, “Muganbank”, which has been operating for 20 years, became the last bank that had to stop its activity in Azerbaijan. The Central Bank revoked his license citing capital adequacy requirements. In May 2023, another bank “Gunay Bank” was closed under the same conditions.
This brings to 22 the number of banks that have closed in the eight years since the tightening of capital requirements and the emergence of a serious currency crisis as a result of falling oil prices. This means approximately half of the 45 banks operating at the beginning of 2015.
Former deputy chairman of the Economic Policy Commission of the Parliament, member of the YAP Ali Alirzayev In an interview with RFE/RL’s Azerbaijan service, he tried to downplay the importance of the erosion of the banking sector: “In a dynamic market economy, companies must adapt to market forces… Such is the law of the market. We should not stand on some fixed number and insist that if the number of banks was 45 in the past, it should always be 45.”
However, as a result of the strengthening measures that took place in the last 10 years, three of the top five banks of Azerbaijan in terms of assets – “Pasha Bank”, “Kapital Bank” and “Xalq Bank” – are owned by Aliyev’s two daughters and First Lady, who is also the First Vice President since 2017. It is under the control of Mehriban Aliyeva’s relatives.
In the public financial statements of all three of these banks Leyla and Arzu Aliyeva together with their grandfathers, Mehriban Aliyeva’s father Arif Pashayev, are shown as the main entrepreneurs.
In the reports of “Pasha Bank” and “Kapital Bank”, the cousin of another entrepreneur – Mehriban Aliyeva – is named after them. Jamal Pashayevthe name of is also added. In both cases, shares are controlled through “Pasha Holding” or other companies. Pasha Holding, the largest conglomerate of Azerbaijan, owns assets in the financial, construction and tourism sectors.
The fourth bank under the control of Aliyev’s family members – “Bank Eurasia” – has not declared its main entrepreneurs. However, RFE/RL’s Azerbaijan service has determined that “Pasha Holding” indirectly owns a 37.5 percent stake in “Bank Eurasia” through a subsidiary company called “PMD Group”.
Former Minister of Taxation Ashraf Kamilov He was the legal representative of “Azbiznescom”, which owns another 25 percent of the shares of “Bank Eurasia”. In the “Pandora Papers” leaked in 2021, Kamilov is shown as a confidant of the empire of secret offshore companies belonging to the Aliyev family.
The loans they took at 1 percent were given at 5-7 percent
The increasing dominance of banks connected to Aliyev is more pronounced against the background of the exclusion of state banks. Until the beginning of 2023, their assets amounting to approximately 20.5 billion manats accounted for 63 percent of the assets of the entire private banking sector.
In 2023, the declared net profit of these banks was 500 million manats, and in 2022 it was 486 million manats. These are the official figures of the Central Bank of Azerbaijan.
Former bank employee and lawyer who helps citizens in their disputes with banks Akram Hasanov He says that there is a direct connection between the loans given by the Central Bank at the very beginning of the crisis and the rapid growth of banks linked to Aliyev.
“Central Bank before devaluation [bəzi] gave very cheap loans to banks”, – Hasanov told the Azerbaijan service of RFE/RL. He added that such loans were not offered to all banks, and in many cases they were allocated under conditions of very little transparency.
38 percent of the 3.5 billion manat income from loan interest in Azerbaijan in 2023, somewhere around 1.3 billion manat, fell to the banks of the Aliyevs.
Hasanov says that in April 2022, he personally asked the Chairman of the Central Bank, Taleh Kazimova, a question about favoritism. Kazimov, the former director of “Pasha Bank”, was still newly appointed as the chairman of the Central Bank at that time. According to Hasanov, Kazimov claimed that loans were offered equally to all banks.
The Central Bank did not respond to RFE/RL’s request for clarification regarding the mentioned loans, the terms and conditions of their allocation, and the process.
However, the former head of “Gunay Bank”. Mahmud Mammadov He criticized the Central Bank for closing his bank in May 2023.
“There were banks with loans amounting to 500-600 million manats. However, the Central Bank also gave us 1-2 million manat loans.”– Mammadov said this in an interview with the local media a few days before the bank’s license was revoked.
Mammadov refused Radio Liberty’s request to talk about it in more detail.
Research by the Azerbaijan service of RFE/RL shows that the banking empire belonging to the Aliyev family played a key role in providing government loans to local entrepreneurs, in addition to official functions such as paying salaries to civil servants and collecting utility payments.
The Entrepreneurship Development Fund of the Ministry of Economy allocates loans to banks on unequal terms. At the end of 2022, the total credit balance of the institution was 952 million manats ($560 million). Of this, 699 million manats (411 million dollars) were loans given to banks.
The financial reports of Aliyev’s banks show that these banks have given loans from the Entrepreneurship Development Fund at 1 percent to local entrepreneurs and other individuals at 5-7 percent.
Reports show that by the end of 2022, the Entrepreneurship Development Fund distributed more than half of its loans through banks connected to Aliyev’s family.
Some businessmen say that they do not profit from such loan projects and question the fund’s working methods.
“Clients of closed banks will flock to Aliyev’s banks”
Living in Baku, but having a farm in Shamkir Shahin Najafov He told RFE/RL that after meeting with banks for six months, his application for a soft loan was rejected. According to him, the banks demanded that the collateral be in the capital, Baku.
“I am a farmer in the region. Why should a person living in the village have something in Baku? Why should I, the entrepreneur, not be able to get these loans?– says Najafov.
Geibulla Mammadov another farmer named lives in Rustov village of Guba. He complains that these types of concessional loans do not reach his business and that of his neighbors. He told RFE/RL that he applied for these loans for more than a year, but could not get results.
Independent economist Allahverdi Aydinsa says that loan interest rates in Azerbaijan are so high that citizens face difficulties in repaying the loans they have taken.
The Central Bank says the average interest rate for consumer loans is currently 16 percent. However, independent experts believe that real average interest rates are higher.
Despite the denial of the Azerbaijani officials, A. Aydin believes that the banks belonging to the ruling family in the banking sector in Azerbaijan have grown so much through administrative means and with the support of the state.
“Because if the banks are closed, the banks belonging to the ruling family will increase their market share a little more. Customers of closed banks will also flock to those banks. With this, in the coming years, the monopoly in the banking sector will increase, and citizens will not have an alternative option.”– A.Aydın reports.
RFE/RL’s Andy Heil and Riin Aljas contributed to this article.
Freedom radio
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