Next-generation finance BSTDB priorities in Azerbaijan amid a global crisis

Over the past five years, country strategies of international financial institutions (IFIs) across the post-Soviet space, particularly in Azerbaijan, have undergone significant qualitative changes. These trends are most clearly reflected in the activities of the Black Sea Trade and Development Bank (BSTDB), whose focus has shifted toward green energy projects, the development of transport corridor infrastructure, the expansion of capitalisation through the issuance of securities denominated in the national currencies of member states, as well as trade financing for small and medium-sized enterprises (SMEs).

The recent wave of global economic and military crises, along with shifting market conditions and fundamentally new logistical realities, is pushing most international financial institutions (IFIs) to revise their financing structures. In the case of Azerbaijan, the new priorities of international donor organisations are based on a significant decline in demand for long-term financing of capital-intensive projects. By contrast, the focus has shifted toward financing projects in zero-waste production, digital transformation, and the development of IT start-ups, as well as building a foundation for Industry 4.0.

Similar objectives have also been incorporated into the agenda of BSTDB, whose financial focus is now directed toward renewable energy and energy efficiency projects, as well as the utilities and water supply sectors, alongside continued support for small and medium-sized enterprises (SMEs). Among BSTDB’s key priorities are also the development of transport infrastructure and the support of Azerbaijan’s logistics initiatives within the Middle Corridor — a strategically important route for many Caspian-region countries, as well as China and Europe.

“Azerbaijan holds a highly advantageous position as a key corridor for energy, transport, and digital connectivity along the Middle Corridor. Given the strategic importance of this route and the associated projects for Azerbaijan—especially in the current geopolitical environment—our Bank intends to support these initiatives financially,” said BSTDB President Serhat Köksal. “Recently, our banking teams discussed several important upcoming initiatives in Azerbaijan, including projects in renewable energy, telecommunications, transport and logistics, as well as other priority sectors.”

According to him, the implementation of infrastructure projects requires strong government support; accordingly, priority will be given to projects carried out within the framework of public-private partnerships (PPPs), enabling the Bank to play a more active role in the development of the transport sector. In particular, this includes projects focused on the development of port infrastructure, railways, logistics centres, as well as the reconstruction of infrastructure in Azerbaijan’s territories liberated from occupation. The Bank’s president also emphasised that the establishment of a PPP Department under Azerbaijan’s Ministry of Economy is further evidence of the promise of this model, and that the positive impact of these steps will inevitably be reflected in the structure of BSTDB’s country portfolio in the coming years.

The effectiveness of the Bank’s partnership with state-owned companies in Azerbaijan is underscored by its recent decision to provide an additional $25 million in financing to SOCAR Trading. The Bank approved this extra tranche under a previously issued $50 million loan to SOCAR’s subsidiary, bringing the total financing volume to $75 million.

This loan is being used to finance advance payments by SOCAR Trading, as well as to support export operations involving shipments of crude oil and petroleum products. The funds are directed toward supplies for the STAR oil refinery in İzmir, as well as for the export of Caspian crude via the Baku–Tbilisi–Ceyhan pipeline to international markets.

It is worth recalling that the Black Sea Trade and Development Bank (BSTDB) was established in 1999 at the initiative of 11 countries—Russia, Greece, Türkiye, Bulgaria, Ukraine, Romania, Albania, Azerbaijan, Georgia, Armenia, and Moldova—with the aim of supporting economic development across the Black Sea region.

Over the entire period of its operations up to and including 2022,  BSTDB allocated approximately €520 million in loans to Azerbaijan for the implementation of around four dozen projects. Overall, the Bank’s assets in Azerbaijan accounted for roughly ten per cent of its total loan portfolio.

The loans provided were primarily directed toward the energy sector (about 35%). These included two loans to SOCAR Trading and SOCAR AQS, as well as financing for the development of the Shah Deniz field.

This was followed by the banking and corporate sectors: more than one-third of BSTDB’s loans allocated to Azerbaijan have been utilised by the private sector, mainly in the non-oil segment, while the remaining share has been directed toward projects implemented by government institutions and state-owned companies.

Overall, within the framework of a new phase of cooperation with Azerbaijan—carried out under the Bank’s medium-term strategy and business plan for 2023–2026—BSTDB has demonstrated consistent operational capacity and financial resilience in advancing its country-focused initiatives.

In particular, as of now, the total portfolio for Azerbaijan approved by the Bank’s Board of Directors amounts to €430.794 million, signed agreements stand at €368.537 million, and the total volume of disbursed funds exceeds €608 million. For its part, Azerbaijan has fully met its obligations to BSTDB and, over the years, has gradually increased its share in the Bank’s capital from 2% to 5%.

A milestone in relations with BSTDB will be the 28th Annual Meeting of the Bank’s Board of Governors, scheduled to take place in Baku in July 2026. This forum will serve as an important platform for further strengthening regional financial cooperation and will outline promising avenues for partnership with Azerbaijan.

One such avenue, within the framework of diversifying BSTDB’s country strategy, is the expansion of its network of partner banks in Azerbaijan. These institutions represent a key channel for providing financing to micro, small, and medium-sized enterprises (MSMEs), as well as for supporting participants in foreign trade through trade finance mechanisms.

A key priority for BSTDB is to expand financing to domestic banks in local currency in order to broaden outreach to SMEs and meet their demand for affordable lending capital. The emphasis here is on optimising credit support for private sector projects and promoting the de-dollarisation of Azerbaijan’s lending market.

Notably, BSTDB became the first global IFI to issue local currency bonds in Azerbaijan. In 2019, the Bank placed corporate bonds denominated in Azerbaijani manats on the Baku Stock Exchange in the amount of 10 million manats (approximately $5.9 million), aimed at supporting private sector financing.

BSTDB’s medium-term plans also include the issuance of manat-denominated bonds totalling around 50 million manats (approximately $30 million). “The issuance of bonds in the national currencies of member states, particularly in Azerbaijani manats, remains on the agenda and is considered a strategic direction in the Bank’s activities,” emphasised Serhat Köksal. According to him, both repeat transactions with partner banks and the establishment of new partnerships are planned to support trade finance and lending to SMEs through local financial institutions.