‘Cotton production has doubled thanks to IBA investments,’ says Jahangir Hajiyev, Chairman of the Board at IBA.

Jahangir Hajiyev is Chairman of the Board at IBA, the largest financial institution in Azerbaijan. As the official intermediary for the oil and gas sector, IBA is expected to grow exponentially in the medium-term.

International Bank of Azerbaijan is the largest bank in Azerbaijan. Could you start this interview with your introduction to this flagship financial institution?

IBA it is not only the biggest financial institution in Azerbaijan, but also in the southern Caucasus region. It is not only a bank, but a group of companies. We have an insurance company that is the biggest one in the region and has insurance captive company in Switzerland. We have a Plastic Card Processing Company, which is a member of Visa International and MasterCard International. We have the biggest leasing company - "AzeriLeasing Company" and we are selling 51% of the shares to UK investors. We have representative offices in London, Frankfurt and full operating bank in Moscow, with branches in Saint Petersburg and Yekaterinburg in Russia. We are a well-diversified institution. 50,2% of the shares of the Bank belong to the government- the Ministry of Finance. It is a semi-state owned bank. I have just come back from Georgia recently. I had a meeting with the Georgian Prime Minister and the Chairman of the Central Bank of Georgia. IBA plans to open a bank in Georgia. Georgia's economy is growing fast now, but there is a gap between the banking sector access and the needs of the economy. There are several joint projects between Azerbaijan and Georgia. Georgia will benefit from our presence.

To what extend do you think this product diversification has contributed to position yourself as the leading bank on the domestic market?

Using our opportunities and our strengths we have created those different companies. Each company is a leader in its segment. The insurance company is developing the insurance sector in Azerbaijan. Many banks in Azerbaijan became associated members of Visa International and MasterCard International through Azericard. And now after gaining reputation they are becoming principle members of the international payment system independently from IBA. It is just one example of IBA developing the banking sector. The same exists in all sectors of the economy.

What impact do you think the I.T. modernization process has had in terms of raising your competitiveness and increasing you customer satisfaction?

Let give me you example: so far we had a bank IT system bought in 1995. We recently acquired the best IT program: FLEX cube of IFLEX from a British-Indian company. It is the best of the best banking IT system all over the world. Of course this gives opportunities to develop our internal IT systems and to develop our services to our customers. All our subsidiaries -insurance company, leasing company will benefit from this IT system.

In your vision, as a Chairman of this company, what is the place of excellence and of commitment to quality in the bank overall success?

Last two years we received quality awards from Citibank. Last week Citigroup celebrated its 15th anniversary of their presence in Azerbaijan. During this presentation, I told in my speech that today we are celebrating the 13th anniversary of cooperation building between Citigroup and IBA. We started in 1993 with exchange of correspondent account, then clearance operations and payments went through Citibank. We are very satisfied with them and the volume is very big. In terms of transactions it is more than 1.2 billion dollars. Citibank is the arranger of the last syndicated loan granted IBA -56 million dollars. We are good partners with them. Taking into account that we were awarded by Citigroup for excellence is an honour.

The shareholders have been on the outlook for private partners. A significant and recent development was EBRD on negotiation to acquire 20% of the bank. To what extend do you think the arrival of this prestigious Western investment bank sent a strong message to international financial market about their confidence in the bank's management and future potential?

Since 1997 we had two presidential decrees about the privatization of IBA. The government negotiated with EBRD to sell 20% of IBA's shares. But they did not succeed. As a manager we did not have a clear vision about the strategy of EBRD and what could EBRD possibly bring to the bank. Their strategic plan and exit strategy was not giving us satisfaction.EBRD buys shares then sells them after 5-6 years. That is the reason why there was a third presidential decree dated March 1st in 2005. The decree is about the privatization of IBA and the second largest bank of Azerbaijan-Capital Bank. What is the way of this privatization? The government should organize a commission of representatives from the Ministry of Finance, Ministry of Economic Development, IBA and the Cabinet of Ministers. This commission has been already formed. The Commission will hire financial consultants. On behalf of the government one of them will make offers to potential investors. EBRD can also participate to this tender. The Government broadened the potential numbers of investors.

What is the timeline you are looking at for the privatization of the bank?

By the end of this year or next year, we will be privatized. It is up to the Government to decide when it will sell our shares. We are increasing our capital, quality of management, corporate governance and are preparing IBA for Euro bonds issues. Next year-2007 will be the year of Euro bonds for IBA.

You have very ambitious expansion plan with the opening of offices in Turkey, Luxemburg and Dubai. What is the strategy behind this bold move to international markets?

The oil revenues that Azerbaijan earns will boost the economy and especially non-oil sectors. Nevertheless there is a risk of inflation. Four-five years ago we started our activities abroad. Our credit portfolio in Russia has been up to hundred million dollars already. That is why we have such an ambitious plan to extend our activity abroad. One of our target markets is in Russia, because this country has a huge market. We also have good experience in Georgia. It is a neighbouring country and we have mutual beneficial projects. We also consider Turkey. I believe that in the future we will open our bank in Turkey as well.

What are the growth opportunities that you foresee for IBA in the future with this new boom for the country?

Developing the non-oil sector is by all means our first goal. We are successful in that. I mentioned it in my speech in Washington made to The Sixth Business and Investment Conference of The United States - Azerbaijan Chamber of Commerce. IBA has very good experience. During the soviet times, Azerbaijan was an agricultural country and still 50% of Azeri population lives in rural areas. They have good experience in agriculture, this is why we decided to develop and invest in agricultural sector. The agricultural sector has it's,specific risks. We have also silk and cotton production in Azerbaijan. Cotton production in Azerbaijan has been doubled thanks to our investments. Azerbaijan used to produce 1 300 000 tons of cotton in a year during the Soviet period. Then the production of cotton in our country decreased to 97 000 tons in 2003. We began to finance several companies to increase the production. The production increased up to 137 thousand tons in 2004. Then the production was 200 thousand tons last year. This year it should be up to 250 thousand tons. So we have doubled the production. We also invest in the cotton processing, spinning and all cotton related production. We also invested in the irrigation system. We attracted many American companies to this field such as Valmont Nebraska. It is the biggest irrigation company.

As the leading bank supporting the private sector, what do you think is your role in increasing entrepreneurship and supporting to great extend the whole economic development of this country?

Our credit portfolio is very diversified. It does not only consist of oil sector financing. We finance only 30-40% of the oil sector whereas other finance goes to the agricultural, construction sector and all kind of production, processing fields. Diversification of loan portfolio is one of the main goals of IBA. We aim to drive the economy forward, to develop its opportunities, to finance and develop non-oil sectors. It is crucial for Azerbaijan. We understand that oil prosperity will not last forever and we have to develop alternative sectors.

To what extend is IBA prepared and willing to work with American companies discovering the potential of this country and wanting to invest here?

To the greatest extend. We are the largest bank with great potential and a clear strategy. I am very glad if even a small American company comes to Azerbaijan and starts its business here. Our main target is non-oil sector and non-oil companies. Our company tries to develop business in Azerbaijan. At the same time we are going to finance the potential buyers in Azerbaijan. We are also expanding our activities abroad. We are getting more and more partners in Europe, in the USA. I am very proud that last year the president of one of the largest company- Valmont visited Azerbaijan after our invitation.

As the leading bank with state-of-the-art technologies, how do you think your realizations can send a strong message about the true potential of Azerbaijan banking sector?

Six years ago we had more than 200 banks in Azerbaijan. Today the sector comprises about 40 banks but it is still under-capitalized. Even IBA is under-capitalized. We have 1.5 billion dollars of assets. According to the international standards we only have 100 million dollars share holders equity. We want to double our capital every year. I think Azerbaijan needs no more than 10 to 15 banks, but strong and highly capitalized ones. The National Bank is conducting the right policy pushing for more consolidation.

What is the achievement you feel most proud of?

First of all taking the bank to the international market. I think IBA has to show its role not only inside the country, but also abroad. During my chairing, IBA stepped ahead and became internationally known.

Do you have final message to deliver about the bank?

I invite businessmen and investors to our country. And I want to make them sure that at least they have the partner as IBA in Azerbaijan. We will do our best to facilitate their business and to help them in building their work here. They are more than welcome.

Thank you very much for your comments, and we wish you the best of luck for the Future!