A presidential decree in 2005 has opened the door for privatization.

apital Bank wants to be the Citibank of Azerbaijan,” says Rauf Rzayev (INTERVIEW), Chairman of the Board. After signing a contract with the I-FLEX Group in 2006, to which Citibank is also a party, Kapital Bank is widening the range of its products. For fast cash money transfers, its customers will soon be able to use their mobile phones. “I don’t think it will be active in the next two years, but I do know we will be the first in the market to offer these services,” says Mr. Rzayev. Such forward-looking positions are new in Azerbaijan.

Appointed Chairman in 2004, Mr. Rzayev initially faced the daunting task of transforming the bank’s ethos. Founded in 1874, the institution was known for 131 years as the United Universal Joint-Stock Bank, or BUS Bank. In 2000, the merger with three other state-owned banks allowed it to inherit the healthiest assets in Azerbaijan’s banking sector. Re-branded as Kapital Bank in January 2005, it is still fully state-owned by the Ministry of Finance. But as of March 2005, a presidential decree marked the beginning of a privatization process that will reduce state ownership by 50 percent.

Mr. Rzayev qualifies the current situation at Kapital Bank as a re-engineering operation. The rank-and-file economist that he is, Mr. Rzayev is responsible for top-down modernization. His ambition is to eventually control the open market and become number one in the country’s banking scene. So far, he has undertaken an internal restructuring of the organization and instituted 52 new procedures to improve corporate governance. Effective risk management is also a top priority. The network, meanwhile, has been widened to include 89 branches and 97 cash-desk offices. All of these factors have strengthened its profile among international financial institutions.

“We went through an audit process this year and the bank was priced at $60 million. Compared to 2004, we have grown tenfold,” says Mr. Rzayev. The auditor, PriceWaterhouseCoopers, assessed the bank’s income, cash-flows and changes in shareholder equity. It found that the bank renders a full range of banking services: deposits, loans, currency conversion, currency transfers, safe deposit boxes, cash transfers, sale of credit cards and brokerage services at the Baku Stock Exchange. It has correspondent relations with a number of international banks, including Citibank, American Express, Commerzbank and HSBC.

The success of Mr. Rzayev’s re-engineering process was first reflected in the bank’s 2004 financial results. Income had grown 2.5 times year-on-year. Revenue was up 17.6 percent and assets had grown 58.9 percent. In terms of capital, it had grown 43.8 percent over the previous year.

Azerbaijan pays special attention to its relationship with the U.S., a major energy and infrastructure partner. As the domestic economy develops, the transfer of know-how from the U.S. banking system will prove decisive. At Kapital Bank, all the ATMs are currently sourced in the U.S. Since 2000, it has also become the leader in express money transfers via Western Union. As an open market with a Western development style, Mr. Rzayev thinks the relationship will deepen in the future. “A bank works in the direction that customers want it to work,” he says.