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Gudrat Hasanguliyev: “The state keeps its funds in foreign banks and does not trust local banks”

Gudrat Hasanguliyev: “The state keeps its funds in foreign banks and does not trust local banks”

Chairman of the Whole Azerbaijan Popular Front Party, MP Gudrat Hasanguliyev, said at a meeting of the Milli Majlis on December 11 that keeping the funds of the State Oil Fund of the Republic of Azerbaijan (SOFAZ) abroad affects the confidence of citizens in local banks.

"Part of the funds in the State Oil Fund should be kept in banks. The state keeps its funds in foreign banks and does not trust local banks. In this case, why should a citizen trust local banks?” the MP said.

Fakt Yoxla examined whether Gudrat Hasanguliyev's claim was true.

As of January 1, 2020, SOFAZ's assets amounted to $ 43.3 billion.

68.7% of these assets are held in the form of fixed income securities, 14.1% in shares, 11.4% in gold, and 5.8% in real estate.

SOFAZ prefers securities because it considers it risky to keep funds in bank accounts.

The Fund's assets on fixed income securities amounted to $ 29.8 billion. About $ 1.5 billion (5%) of these funds are held in the form of deposits and cash.

State Oil Fund of the Republic of Azerbaijan

Distribution of portfolio of fixed income securities

2019

Securities Share
Corporate bonds 26.4%
Sovereign debt securities 24.5%
Financial bonds 23.4%
Agencies and international organizations 18.4%
Deposits and cash 5.0%
Short-term commercial securities 2.3%

The portfolio of fixed-income securities of the SOFAZ uses 1.4 billion AZN of deposits and cash as money market funds.

Investments in money market funds consist of shares paid on demand of these funds. These funds invest their assets in short-term debt and debt-related instruments - commercial securities, certificates of deposit, floating-rate bonds, US Treasury bonds, Eurobonds, and asset-backed securities.

As of January 1, SOFAZ kept 1.2 billion AZN in bank accounts. This was equal to 2.5% of the Fund's total assets. 99.91% of these funds are kept in foreign banks and 0.09% in local banks. Accounts in all other foreign currencies except manat were opened in foreign banks.

The Fund's assets in local currency are held in the International Bank and the Central Bank. As of December 31, 2019, these bank accounts had funds in the amount of 71,000 AZN and 972,000 AZN, respectively. Last year, these figures amounted to 112,000 AZN and 820,000 AZN.

State Oil Fund of the Republic of Azerbaijan

Distribution of funds held in bank accounts 2019

Currency Thousand manats Share
Azerbaijani manat 1,010 0.08%
USD 694,638 59.8%
British pound sterling 67,599 5.80%
Chinese yuan 1,349 0.11%
Swiss franc 1,946 0.17%
Australian dollar 2,108 0.18%
Euro 340,082 29.30%
Russian ruble 398 0.03%
South Korean won 1,476 0.13%
Canadian dollar 822 0.07%
Hong Kong dollar 435 0.04%
Norwegian krone 406 0.04%
Danish krone 208 0.02%
New Zealand dollar 143 0.01%
Japanese yen 43,175 3.72%
Singapore dollar 220 0.19%
Swedish krone 75 0.07%
Israeli shekel 93 0.08%
Turkish lira 4,434 0.38%
Total 1,160,617 100%

The President's decree on SOFAZ's budget for 2019 states that 90% of the Fund's assets can be expressed in the currencies of countries where the credit rating issued by international credit agencies is not lower than "A" (Standard & Poor's, Fitch) or "A2" (Moody's).

Azerbaijan's credit rating approved by these agencies is BB+ and Ba2, respectively. This factor limits the Fund's ability to carry out wider investment activities in manat.

Thus, SOFAZ, which has $ 43.3 billion in assets as of January 1, 2020, does not prefer to invest in bank accounts due to risk factors. The funds held in these accounts amounted to 1.2 billion AZN, or 2.5% of the Fund's total assets, of which 99.91% fell to foreign banks and 0.09% to local banks.

Fakt Yoxla concludes that Gudrat Hasanguliyev's claim is True.

True
  • 21 December, 2020
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