Bank system is considered an important element of financial system of Azerbaijan. Today banks leave behind other financial mediators for volume of their assets and capital, as well regional coverage.

At present day developed two-stepped bank system, which is based on market principles, (in the first step is National Bank of the Republic of Azerbaijan, in the second one commercial banks and other non-bank credit organizations) functions in republic. In the first stage of reforms, measures of restructuring and recovery of state banks were taken, institutional formation of private bank system ensured. In this phase low requirements concerning capital, very liberal terms for entering the system were determined and soft regulating instruments were applied to regulate the bank activity. As a result of these processes bank system started to be enlarged in institutional manner and number of private banks increased rapidly.

Measures of intensive recovery of private banks implemented since 2000 in the next stage of bank reforms contributed to consolidation of durability of bank system and improvement of the financial mediation function.

Regular growth of demand of private banks to minimal capital by National Bank and propaganda of consolidation process strengthened capital base of private bank system, ensured enlargement of bank system.

Since 2002 important stage of restructuring of bank system started to be carried out. Taking into consideration entry of big oil revenues in the country, as a logical result of successful oil strategy, and in this base, as the banks were ready to an effective transfer of their financial resources to the strategic goals, development strategy was made for 2002-2005.

Major goals of strategy are effective and safe transformation of oil revenues to non-oil sector, to increase chances of access of population and regions to bank services and in this base to develop financial mediation function of bank system for poverty reduction, strengthen durability and reliability of bank system, ensure free and healthy competition atmosphere in bank services market. Finance-bank sector plays exceptional role in formation of economy diversified in base of great economic power and financial resources of the country and directing resources to capitalization of non-oil sector.

To get strategic targets determined certain duties have been set such as improvement and adaptation to international standards of legislation base of banking, increasing reliability and health of bank system, enlarging possibilities of access to bank services, lifting the level of transparency in bank system and strengthening the market discipline, organizing an effective bank control.

Radical reforms and institutional development in all directions of the bank system have brought to deep quantity and quality changes in the sector. The total result of reforms is formation of the bank system fully conforming to the international standards in financial stability parameters, risk management practice and services spectra.

Banks offer wide range of services and retail bank services rapidly develop. Bank products are offered to customers via the latest technologic means as internet-bank, mobile-bank, automated bank corners.

The radical network of bank system and accesses to financial services are intensively enlarged, banks begin actively operating in the international financial market. Only in 2007, 2 new banks were opened, representations of influential financial institutions of the world – Commerzbank and Citi Bank opened in the country which will bring to application of the most advanced banking technologies in Azerbaijan.

Successful realization of the determined duties kept positive tendencies of development of bank system, further strengthened the role of banks in financial mediation.

Works are underway to develop a new concept for development and modernization of banking.

At present, 45 banks, 530 bank branches function in Azerbaijan. 1 of acting banks was founded with participation of state capital, 23 of foreign capital.

For January 1, 2008, 96 non-bank credit organizations act in republic along with banks, 77 of which are credit allies.

Growth of real money incomes of population, development of trust in bank system, improving the legal bases of protection of interests of creditors and depositors, in particular launch of ‘Deposits Insurance Fund’ were the criteria characterizing rapid growth of deposits of population.

For January 1, 2008, bank deposits of population are 1468 mln AZN. 33% of them are long-term deposits (higher than 1 year).

Along with population, bank deposits of corporative customers increase dynamically. For January 1, 2008, bank deposits of corporative customers are 2 bn AZN.

Growth of confidence of population and economic subjects in bank system enabled improvement of cashless money turnover. At present, number of payments realized through banks is 1473 thousand AZN, sum of payments is 41 bn AZN.

Dynamic development of volume of special and involved funds of the banks has created effective conditions for enlargement of active operations. For January 1, 2008, volume of bank assets is 6727 mln AZN.

Crediting plays special role in structure of bank assets. For January 1, 2008, banks credits to the customers are 4664 mln AZN, which makes 69% of bank assets. Special weight of private sector in structure of credit investments is higher than 86%.