PASHA Bank, one of Azerbaijan's leading banks, has announced its financial results for the year ended 31 December 2013 The speakers at the conference were Mr. Farid Akhundov, Chairman of the Executive Board, Mr. Shahin Mammadov, Member of Executive Board and Chief Financial Officer, and Mr. Taleh Kazimov, Member of Executive Board and Chief Investment Officer.

Despite the difficult market conditions, the Republic of Azerbaijan's banking sector grew by almost 23% in 2013. PASHA Bank has successfully completed two years of its 2012-2014 strategic plan, which is aimed at providing more services to both SMEs and corporate clients with international activity and at strengthening the Bank as a corporate institution.

The Bank retained its position as the largest commercial bank in Azerbaijan by total equity, which reached AZN 234,923 thousand (USD 299,456 thousand), compared to AZN 188,348 thousands (USD 240,087 thousand) in 2012.

As a result of the strategic decision to diversify its asset portfolio, the Bank has efficiently managed to keep a good balance of services offered to its clients.

As of 31 December 2013, PASHA Bank's total assets decreased by 2% year-on-year to AZN 704,055 thousand (USD 897,457 thousand) compared to AZN 721,075 thousand/ USD 919,152 thousand in 2012. This is largely attributed to reduced activity on customer accounts.

The breakdown of the Bank's assets as of 31 December 2013 is as follows:
- loans to customers - 47%;
- securities portfolio - 30%;
- due from credit institutions - 7%;
- cash and cash equivalents - 7% and the balance belonging to other non-current and current assets.

Throughout the global financial crisis, PASHA Bank benefited from its strong capital position and established itself as a strong partner for companies with transparent and sustainable management. The balance of disciplined loan repayments in Azerbaijan is still deteriorating and demand for credit from SMEs and corporate clients with international exposure continues to expand. Against this backdrop, PASHA Bank is still continuing to support SMEs.

We generated strong loan growth in 2013, increasing our gross portfolio by 24% to AZN 350,956 thousand (USD 447,363 thousand). In 2012, the gross portfolio amounted to AZN 282,837 thousand (USD 360,532 thousand).

The effective provision rate on the portfolio was 6.2%, compared to 3.1% in 2012. As of 31 December 2013, NPLs increased to 15.24% of the gross portfolio from 10.93% in the previous period. This ratio is based on the Bank's preliminary assessment of its valuation of the portfolio according to regulatory requirements and on the Bank's internal methodology of how NPLs are treated. This is kept under close scrutiny by the Bank's Board and the Credit Committee. The largest part of the NPLs (52%) is related to two corporate customers. One of these customers was performing during the period ending 31 December 2013, but the Bank decided not to change its status from non-performing given the continued unfavourable market conditions in the industry in which they operate. The Bank's management instead decided to wait until they see a positive trend in the scheduled repayments for a period of time. The Bank created a 100% provision for another NPL, which represented 29% of total NPLs.

Remaining loyal to our customers despite the volatile economic environment has helped us to build strong, long-term customer relationships, which are now benefiting our business. This has resulted in strong growth in our customer base with total deposits of AZN 302,817 thousand (USD 386,000 thousand). These deposits were largely placed on demand and term accounts in the proportion of 61% and 39%, respectively, compared to 58% and 42% respectively in 2012.

The Bank's net profit for the twelve months ended 2013 amounted to AZN 12,028 thousand (USD 15,332 thousand), a 26% year-on-year decrease (net profit was AZN 16,211 thousand/USD 20,664 thousand in 2012). The main reason for this reduction was the rise in loan loss provisions as a result of increasing levels of NPLs. Total operating income for the twelve months of 2013 grew by 20% year-on-year to AZN 51,583 thousand (USD 65,753 thousand), compared to AZN 43,142 thousand (USD 54,993 thousand) in 2012.

The Bank's interest income reached AZN 54,772 thousand (USD 69,818 thousand) in 2013, while non-interest income comprised AZN 9,172 thousand (USD 11,692 thousand). As a result, the ratio of non-interest income to the Bank's overall operating income was 18%. As a result of extensive negotiations with international financial institutions, PASHA Bank was able to provide more trade finance services to its corporate clients by accessing a broader range of financial instruments. It can now also obtain better financing terms after receiving a credit rating from two international rating agencies. In parallel to this, the Bank held various seminars and workshops for its clients throughout 2013 to strengthen its capacity to provide clients with timely and professional services. In addition, documentary operations, including post-financing, amounted to AZN 92,505 thousand (USD 117,916 thousand), compared to AZN 101,648 thousand (USD 129,570 thousand) in 2012. PASHA Bank's current target is to grow its trade finance portfolio to AZN 225,502 thousand (USD 287,447 thousand) in 2014.

The Bank generated strong internal capital growth, producing an estimated tier capital adequacy ratio under CBAR capital requirements of 36%, compared to34% in 2012. We remain focused on meeting the required capital levels once BASEL II and BASEL III are finalised while returning capital to our shareholders through dividends. During 2013, the Bank paid dividends of AZN 20,515 thousand (USD 26,150 thousand) to its shareholders, which is 100% of the Bank's total net profit for 2012, with the remaining amount coming from the Bank's accumulated earnings from prior years.

PASHA Bank is working on further increasing its market share in the corporate and SME business by offering competitive and advanced products to clients, with the aim of becoming the market leader in Azerbaijan.

*If not indicated otherwise, all figures are based on the consolidated audited financial statements as of 31 December 2013