Identifier
Created
Classification
Origin
07BAKU489
2007-04-23 11:07:00
CONFIDENTIAL
Embassy Baku
Cable title:  

RUSSIAN BANKING GIANT EYES AZERBAIJAN'S BANKING

Tags:  ECON EFIN ENRG EPET AJ RU 
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VZCZCXRO3437
RR RUEHDBU
DE RUEHKB #0489 1131107
ZNY CCCCC ZZH
R 231107Z APR 07
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 2872
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 2095
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
C O N F I D E N T I A L BAKU 000489 

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/24/2017
TAGS: ECON EFIN ENRG EPET AJ RU
SUBJECT: RUSSIAN BANKING GIANT EYES AZERBAIJAN'S BANKING
SECTOR


Classified By: AMBASSADOR ANNE E. DERSE PER REASONS 1.4 (B,D)

C O N F I D E N T I A L BAKU 000489

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/24/2017
TAGS: ECON EFIN ENRG EPET AJ RU
SUBJECT: RUSSIAN BANKING GIANT EYES AZERBAIJAN'S BANKING
SECTOR


Classified By: AMBASSADOR ANNE E. DERSE PER REASONS 1.4 (B,D)


1. (C) SUMMARY: Russia's second largest state-owned bank,
Vneshtorgbank (VTB),is reportedly interested in purchasing
50 percent of Azerbaijan's stated-owned Kapital Bank.
Kapital Bank is currently the second largest bank in
Azerbaijan with USD 186 million in assets. VTB has been keen
to enter the Azerbaijan's financial and banking sector since
early 2006 when the bank's Chairman and CEO Andrey Kostin met
with Azerbaijani President Aliyev. Contacts at local private
bank have confirmed that VTB is interested in purchasing a
large share of Kapital Bank. Despite its sizeable assets and
largest branch system, Kapital Bank is probably the least
modern of the leading Azerbaijani banks in terms of corporate
governance and overall operations. END SUMMARY


2. (SBU) Russia's second largest bank, Vneshtorgbank, is
interested in purchasing 50 percent of state-owned Kapital
Bank, according to National Bank Chairman Elman Rustamov.
VTB, established in 1990 and 99.9 percent owned by the
Russian Federation, would become one of the largest
international banks to operate in Azerbaijan's relatively
small banking sector. On April 16, VTB and local private
bank Unibank announced a syndicated loan facility valued at
USD 15 million. This transaction is the first fully
syndicated facility for an Azerbaijani private bank without
the mediation of an international development institution.


3. (SBU) VTB has been keen to enter Azerbaijan's financial
and banking sector since early 2006 when the bank's Chairman
and CEO Andrey Kostin met with Azerbaijani President Aliyev.
During that visit, Kostin also announced plans to invest in
large joint projects with the State Oil Company of the
Azerbaijani Republic (SOCAR) in the oil and gas sector in
Azerbaijan. To date, however, there have been no public
announcements regarding any SOCAR-VTB projects. Bilateral
Azerbaijan-Russia trade in 2006 totaled USD 1.5 billion, a
large increase compared to 2005.


4. (SBU) Kapital Bank is currently the second largest bank in
Azerbaijan with AZN 149 million (USD 186 million) in assets
and AZN 123 million (USD 154 million) in liabilities. In
February 2007, Fitch upgraded the bank's default rating from
B to BB minus. Privatization of Kapital Bank had been
discussed for a few years and a Presidential Decree in March
2005 laid the foundation for the partial privatization. On
April 16, the State Committee on State Property announced an
auction to partially privatize Kapital Bank. According to the
State Property Committee, Kapital Bank will issue additional
shares by the end of June 2007. These shares will be
auctioned off in five equal lots worth a total of USD 15
million.


5. (C) COMMENT: Contacts at local private bank, Bank
Respublica, have confirmed that VTB is interested in
purchasing a large share of Kapital Bank, noting that the
public announcements of the impending purchase signal the
seriousness of the sale. Despite being a sector leader due
to its assets size and branch system, Kapital Bank is
probably the least modern Azerbaijani bank in terms of
corporate governance and operations. The bank's client base
consists of mostly medium and small state enterprises, with
these relationships relying heavily on government control and
support. Kapital Bank is not a favorite among private
businesses and consumers, because of a substantial Soviet-era
legacy in its culture, corporate governance, and operations.
Kapital Bank's standing, however, could change if VTB raises
the level of corporate governance, modernizes operations, and
offers attractive products and loans to businesses and
consumers. While common history and traditions may help
build relations, it remains to be seen whether VTB can
transform Kapital Bank into a leading banking institution.
END COMMENT.
DERSE