Azeris Scouring for Dollars in Vain as Banks Run on Empty

(Bloomberg) -- Azerbaijan is in the grip of a fresh currency crisis.

Dollar sales in the Azeri capital have all but seized up as demand from households still reeling after two devaluations last year leaves most banks running on empty. The manat plunged the most globally against the U.S. currency on Friday before recouping losses.

The biggest lenders visited across downtown Baku since Friday either stopped sales completely, without giving a reason, or limited transactions to $100 to $500 per person. Drowned out by the din of customers clamoring to buy dollars, a cashier at Demir Bank on the capital’s central Nizami Street said the lender -- which has capped individual sales at $100 -- had trouble keeping up.

The run on the manat reflects Azerbaijan’s failure to restore people’s confidence and risks snowballing into more pressure on banks, which already endured a frenzy on the foreign-exchange market last year as savers fled deposits in the national currency. The share of dollar savings is now at almost 80 percent of the total, according to S&P Global Ratings.

“The sale of foreign exchange is something banks themselves decide,” said Rufat Abbasov, an aide to the head of the Financial Markets Supervisory Authority, which regulates the banking industry and not the currency market. “We can’t interfere.”

After losing more than half its value against the dollar in 2015 in the biggest drop worldwide, the manat is down more than 4 percent this year. It plunged 2.5 percent on Friday, before rebounding 3.1 percent to 1.6314 by 7:15 p.m. in Baku on Monday, according to data compiled by Bloomberg.

Emptying Coffers

The central bank burned through more than two-thirds of its reserves last year to support the manat as oil prices collapsed, before shifting to a managed free float in December. The currency has continued to wilt in the past two months as authorities failed to satisfy the appetite for dollars in full.

Demand for dollars is currently several times the amount being offered, according to Abbasov, the banking regulator adviser, who attributes it to a seasonal uptick in the economy.

“We were expecting this to happen because economic activity intensifies at the end of summer and the beginning of autumn,” he said. “This is the time when many companies make payments to their foreign partners.”

Not Enough

The sovereign wealth fund known as Sofaz offers only $50 million in auctions held twice a week, which hasn’t been enough to supply banks. Demand for dollars was 12 times the amount offered at an auction on Thursday, according to Marja, a financial news portal in Baku.

The wealth fund is the biggest source of foreign currency available to the Azeri authorities. Sofaz, which receives most of the government’s oil-linked revenue, had more than $35 billion in assets at the end of the first half. The central bank’s reserves in July slipped for the first time since February to $4.2 billion.

The central bank also raised its key interest rate three times this year to the highest since 2008 as part of an effort to “strengthen trust” in the manat and encourage savings in the currency.

Currency Run

So far, nothing has worked. The latest bout of demand for dollars started in the past several days, with banks quickly running down their stockpiles, according to traders in Baku.

The press services of the nation’s biggest lenders including International Bank of Azerbaijan and Pasha Bank didn’t immediately respond to requests for comment. Nikoil Bank hasn’t stopped dollar sales even though some of its offices may run out of dollars, its spokesman, Rashad Cumshudov, said by phone on Monday.

The restrictions by banks gave a boost to sales in the black market. A trader near the Narimanov metro station on Friday offered $1 for 1.7 manat, compared with the rate of 1.62 manat, which is set by the central bank. Banks are allowed to buy and sell foreign currency within 4 percent on either side of the official exchange rate.

“In the past four days, I haven’t been able to buy the $500 I need urgently,” said Ruslan, who would only give his first name, when leaving a bank office in Baku’s central district of Narimanov on Friday. 

To contact the reporter on this story: Zulfugar Agayev in Baku at zagayev@bloomberg.net. To contact the editors responsible for this story: Hellmuth Tromm at htromm@bloomberg.net, Paul Abelsky, Torrey Clark