The European Bank for Reconstruction and Development (EBRD) is lending US$1mn to Azerbaijan’s Bank of Baku, one of the most innovative performers in the country’s growing financial sector, as part of moves to help diversify the Azeri economy away from the dominant oil and gas sector.

As well as the US$1mn credit line over three and a half years to support lending to small and medium-sized businesses, the bank is extending its limit under the Trade Facilitation Programme by US$500,000 to US$1 million to help the bank further develop foreign trade finance services.

Bank of Baku, set up 11 years ago, is Azerbaijan’s seventh biggest bank by assets. The bank, which has made its niche outside the energy sector, has since 2002 focused on SME and retail lending. It has a wide and steadily growing client base.

The EBRD is working with five Azeri banks, including Bank of Baku, to build strong institutions capable of surviving future consolidation in the sector. Bank of Baku had its first US$1mn credit line in 2004 under the Multi-Bank Framework for Azerbaijan, which has been efficiently used. Such opportunities – still rare in a sector just beginning to get longer-term financing in international markets – are helping to further strengthen the bank’s customer base, diversify its funding and compete more successfully with dominant state-owned players in the banking sector.

Technical cooperation funding for the Azerbaijan Multi-Bank Framework is provided by Tacis, the European Union’s technical assistance programme for eastern Europe and Central Asia.