APA-Economics interviewed Davit Tsiklauri, the Chairman of the Management Board of AccessBank, focusing on the bank's activities, financial performance for 2024, plans, and an analysis of current trends in the banking sector.
-Mr. Davit, AccessBank had a remarkably successful year in 2024, with a net profit exceeding 54 million AZN. The bank also ranked second in the country in terms of return on equity (ROE). How would you assess the bank's overall performance over the past year?
-The year has been extremely positive for us. If I had to sum it up in one word, I would say we did very well, and that’s thanks to the hard work of our 1,500 employees. Our biggest achievement, which may not be immediately apparent to the market, is what we’ve accomplished since the new team joined in early 2022, including myself.
Back then, the bank's equity was around 80 million AZN. In just three years, we’ve more than doubled that to over 180 million AZN—an increase of nearly 150%. This level of growth in such a short period is exceptional. However, our focus isn’t just on yearly performance but on building sustainable success.
We don’t solely measure success by the bottom line. Metrics like cost-to-income ratio, return on equity, and return on assets are equally important. For example, in 2024, while our growth rate was slower compared to 2023 and even lower than some of our peers, we focused on smart growth.
By smart growth, I mean making strategic decisions that benefit both our clients and shareholders. With limited capital, it’s crucial to allocate resources to the most efficient and impactful areas. That’s been a key strength of ours. As you mentioned, ranking second in efficiency metrics is a significant achievement for a bank that had almost no profits back in 2020 or 2021.
Overall, we are confident that our direction over the past three years has been the right one, and we aim to continue delivering value sustainably.
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-Although the bank's total deposit portfolio grew last year, there was a 4% decline in the deposit portfolio of individual clients. However, the Chairman of the Central Bank recently stated that the number of depositors among the population increased by 40% last year. Could you explain this discrepancy?
-Yes, certainly. As I’ve mentioned before, over the past three years, this bank has undergone significant adjustments and corrections. One of the major changes we made was gaining access to foreign institutional lenders. This has allowed us to diversify our funding sources and bring in capital from foreign countries.
Currently, our foreign borrowings stand at approximately 100 million AZN, and we expect this number to continue increasing. There is another bank in the Azerbaijani market that is successfully doing the same, but they and we are among the very few institutions actively leveraging foreign lenders.
When I refer to foreign lenders, I mean entities like EBRD, Blue Orchard, and IFC. Access to such funding enables us to diversify and manage resources more effectively.
Another factor to consider is the significant increase in deposit costs. For example, today, a one-year deposit offers an interest rate of around 12%, whereas a year ago, this rate was closer to 9-10%. That’s a notable increase in costs, and it happened because the larger banks suddenly needed liquidity. To attract funds, they raised their deposit rates, which worked in their favor.
As a result, many clients, who previously sought better rates from smaller banks, stopped shopping around and concentrated their deposits with the larger banks. Now, almost the entire market is offering 12%, making it a standard rate. A few years ago, I could never have imagined that the two largest banks (which I won’t name) would offer such competitive deposit rates, but that is the reality today.
For us, however, we’ve opted to substitute these more expensive deposits with foreign borrowings. While we’re not entirely replacing deposits with foreign funding, we’ve made significant strides in introducing longer-term money into our balance sheet. Foreign borrowings typically come with three- to five-year terms, which is much longer than the 12- to 18-month terms typical of deposits. This helps us maintain a more prudent and stable financial structure.
-Last year Azerbaijan hosted the major climate conference, COP29, where the primary focus was on accelerating the transition to a green economy. It was announced that the financial sector in Azerbaijan would allocate $2 billion to this area. How much credit does AccessBank plan to allocate for green economy initiatives?"
We don’t have a specific target, but when I mentioned the international funding we’ve attracted, I would estimate that at least half of that money is dedicated to green financing—specifically, Green Environmental Lending. Naturally, the funds we’ve secured will be allocated to projects in this area.
Overall, it’s not just about that particular funding. Green financing, while not a completely new concept, is still relatively new to Azerbaijan. When we analyze our portfolio, we see that we already have projects that align with green initiatives. However, we haven’t been actively tracking or separately reporting on how much of our portfolio is allocated to green financing.
For instance, many of our clients are engaged in greenhouse projects or irrigation systems, which fall under the category of green initiatives. AccessBank is one of the major banks supporting agriculture, particularly through micro-entrepreneurs. A significant portion of these micro-loans are being used for purposes like irrigation, greenhouses, or upgrading equipment to more environmentally friendly and efficient alternatives—all of which align with green financing principles.
-We are aware that AccessBank has extensive cooperation with international financial institutions, especially the EBRD. Could additional funding be attracted from this organization for financing the green economy?
-Absolutely. While green financing is a significant focus, there are also other key themes, such as supporting women in business and promoting gender equality in entrepreneurship. We aim to attract additional funding this year, not just for green projects but for these other areas as well.
Interestingly, some international institutions that have been absent from the Azerbaijani market for at least the last 10 years are now showing renewed interest in doing business here. While I cannot provide specific names or details at this point, we are currently in negotiations with several of these organizations. Although it’s uncertain when these negotiations will conclude, the outlook is very positive.
This growing interest from foreign institutions is not solely an achievement of AccessBank. I see it as an achievement for Azerbaijan as a whole, reflecting the country’s increasing attractiveness to international lenders. We plan to leverage this interest further in the coming years.
-Some banks are even offering returns of around 12%, and interest rates on dollar deposits have also risen. AccessBank's dollar deposit rates are likely around 4-5%. In your opinion, what is the reason behind this?"
-The increase in deposit rates is related to liquidity. When we talk about liquidity, a shortage of liquidity isn’t necessarily a bad thing. Why? Because insufficient liquidity often indicates a lot of economic activity—banks are actively lending money. If the economy is performing well, there is more borrowing, as businesses see opportunities to expand, produce, and sell more. Conversely, if the economy were struggling, there wouldn’t be much demand for loans.
Currently, there is a slight shortage of local currency liquidity in the banking system. This is because much of the available liquidity has already been deployed into lending. Additionally, new regulations have also contributed to this liquidity shortage. However, banks are increasing deposit rates to attract more liquidity to continue their lending operations. This is ultimately a positive indicator, as it shows there is strong demand for loans and, by extension, economic activity.
Now, why are some banks offering deposit rates as high as 12-13%? It’s a matter of equilibrium. If banks are attracting deposits at these rates, it means they can lend out this money at even higher rates. In turn, this suggests that borrowers are expecting to generate profits that exceed the cost of borrowing. From a broader perspective, this might be a positive signal for the economy, although if continued in the longer term it might lead to smaller lending growth on an annual basis
I believe the current liquidity shortage is temporary. As the economy gains momentum and foreign investments increase, the liquidity supply should stabilize and meet the banks’ needs.
-What do you think, will the deposit percentage in the Azerbaijani banking sector continue to grow, or might it decrease a little?
I believe the deposits will continue to grow overall in the banking sector. In the short term, I don’t see interest rates decreasing; This is primarily due to the ongoing need for liquidity.
If you look at the growth rate of banks, most of them have increased by 20-25% in the past year. I expect this growth trend to persist, with at least a 15-20% rate for the overall sector. The Azerbaijani economy is relatively strong, despite being in a geopolitically volatile region. For instance, some of the immediate neighbors' economies have grown by 7-9% in real terms. Such performance also has a good spillover effect on Azerbaijan and vice-versa as some sectors are interconnected between the counties, particularly logistics, trade, commodities, etc.
As an example, Azerbaijan’s non-oil economy has expanded in mid-single digits continuously every year now post Covid slowdown and if it continues to expand at 4-5% annually in real terms then I see banking to be expanding at a 15% rate easily in nominal terms. With such growth, banks will continue to require additional liquidity to support their lending activities.
So to revert to your questions - deposit rates may only increase even further if the local currency liquidity shortage persists. That said, in the short term, I don’t anticipate any significant changes in the deposit rates. If you're considering opening a deposit account, now is a very good time.
-The deposit rates we mentioned exceed the limits for insured deposits. Do you think there is a need for changes in deposit insurance regulations?
- I support the idea of the market regulating itself. Today, most banks don’t offer rates higher than 12% possibly due to this insurance cap. If I, as a bank, and my shareholders are willing to pay 13%, why shouldn't that deposit be insured? I do not see a valid explanation as to why such a cap should exist, i.e. what is the purpose it serves.
Such restrictions usually cause institutions to explore other creative options. As an example, I’ve noticed some banks have offered cashback incentives to depositors so that the overall benefit that a depositor receives is higher than 12%. Ultimately, some creativity and innovation could provide opportunities for higher overall returns than the 12% capped rate on term deposits.
I am of the view, that if the cap or any sort of restriction on the bank’s funding (such as deposits, foreign borrowings, etc) does not allow interest rates on the deposits to be regulated by the market requirements, then the equilibrium between the funding and lending will always be distorted.
I would also consider eliminating insurance on foreign currency deposits. That would help to de-dollarize deposits and provide manat liquidity both in the short and long-term
-Digitalization in the financial and banking sector is accelerating rapidly. NFC-supported payments are becoming widespread, and some service areas are introducing Face ID payments. AccessBank is not staying behind in this trend. For instance, last year, an intelligent ATM was introduced at a co-brand branch. What other innovations can we expect in this direction?
- Digitalization is indeed the biggest tool in payments, and I believe that the use of physical cards may slowly diminish and be replaced with digital means. This shift is convenient for users, and we are observing that payment volumes, especially tokenized payments made through phones rather than physical cards, are increasing significantly.
Looking ahead to next year, we won't reinvent the wheel, but we will focus on enhancing our digital services. Our goal is to create convenience for clients like you. For instance, clients should be able to perform tasks such as opening a deposit or applying for a loan without needing to call customer service or visit a branch. That’s the direction we are heading in—to integrate all our services into digital.
- We are seeing an increase in cyber fraud cases. What measures is AccessBank taking to address this issue?
- We have implemented numerous measures to ensure our information security. Our dedicated team is actively working on both hardware and software solutions internally. Fortunately, we have not experienced any incidents in this area. We partner with a processing center that is also implementing a completely new fraud management system for banks starting this year.
Our approach to fraud is proactive rather than reactive. While fraud rates are very low, most incidents are due to client negligence, particularly phishing. Unfortunately, banks can do little to combat phishing besides educating clients. Many issues in the market arise from phishing attempts, where clients inadvertently share sensitive information.
Regarding other types of fraud, such as card theft, our current tools are quite robust. Major payment providers like Visa and Mastercard have effective processes for resolving fraudulent transactions. If there is sufficient evidence of fraud, funds can be reversed. However, with phishing, our primary strategy is to educate clients. We regularly issue warnings, especially when phishing incidents increase, advising clients not to share their passwords or card details. Phishing is not just an issue in Azerbaijan; it is common in the region and beyond. The key to combating this is continuous client education, advising them to be cautious and not to fully trust to any incoming calls that ask to hand over the sensitive info over the phone.
-What are AccessBank's main goals and plans for 2025, particularly regarding financial indicators, net profit, and return on equity?
-In terms of financial indicators, our goal is to achieve a growth rate of approximately 10% in 2025. While this target is not overly ambitious, it reflects our focus on sustainable and efficient growth. One of our priorities is to allocate our capital effectively to the projects we find most appropriate. Specifically, we aim to deliver a return on equity of at least 20% and improve our cost-to-income ratio. While we do not have a fixed numerical target for the cost-to-income ratio, even a 1% improvement would be considered a significant achievement, as we believe our current ratio is already in a strong position.
Another major goal is to expand foreign institutional borrowing. This is critical, particularly in times of liquidity shortages. We see foreign institutions as key providers of long-term capital, offering funding terms of three, five, or even seven years. This is essential, as deposits tend to be shorter-term, typically ranging from 12 to 24 months. Broadening our relationships with diverse foreign lenders will not only strengthen our bank but also foster a more resilient banking ecosystem in Azerbaijan.
Finally, we are prioritizing digital transformation. Over the past three years, our progress in enhancing digital services has been somewhat slow. While our payment services are robust and fully operational, we recognize the need to incorporate additional services into our digital platforms. We aim to enable customers to access as many banking services as possible through their devices, ensuring convenience and efficiency.
- What are your expectations for the banking sector, and what changes do you believe are necessary?
I believe the most positive aspect of Azerbaijan’s banking sector is its constant evolution. This progress benefits all stakeholders, including individual banks, the Central Bank, and regulatory authorities. Over the past three years, the sector has experienced rapid development, and I am optimistic this momentum will continue.
However, I hope that all stakeholders, including our clients, regulators, such as the Central Bank of Azerbaijan (CBAR), the Financial Intelligence Unit (FIU), the tax authorities, etc, recognize that this growth is heading in the right direction and therefore any to be implemented must be evaluated from the point of increasing efficiency and lowering bureaucracy without jeopardizing robustness of the financial sector.
Looking ahead, I am confident that the growth and innovation we have witnessed over the past three years will extend into the next three years and beyond, driving further success for the banking sector and the broader economy.
