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Azerbaijani banks refuse from lending in foreign currency on their own

Economy Materials 28 August 2015 20:32 (UTC +04:00)

Baku, Azerbaijan, Aug. 28

By Ilaha Mammadli - Trend:

A decision of the suspended lending in foreign currency by Azerbaijani banks is connected with their desire to hedge against risks, the Central Bank of Azerbaijan (CBA) told Trend August 26.

CBA was commenting on some banks' suspended lending in dollars both in cash and by credit cards.

"The Central Bank did not instruct the banks to lend only in manat," CBA said. "According to the legislation, the banks, operating on the territory of the country, may freely choose the currency for lending. Each bank conducts its credit policy. By this decision, they only want to insure themselves from the risks."

Besides lending in foreign currency, the banks provide customers with an opportunity to convert the existing dollar loans into manat ones. This process is possible by obtaining a new loan in manat and paying off a foreign currency loan by these funds.

Meanwhile, there are still some banks on the market that continue lending both in manat and dollars. Among them is VTB Bank (Azerbaijan). It has resumed lending in local currency since last week.

"The devaluation of the manat on February 21, 2015 affected the sales of dollar loans," he said.

"In this regard, the bank decided to restore lending in manats," the director of retail business development department of the bank Tural Veliyev said.

The country's largest bank, the International Bank of Azerbaijan, has previously decided to issue loans only in manats.

Actions of banks, including the refusal of granting loans in foreign currency, are explained by the situation on the currency markets in neighboring countries, where devaluation processes have been increasing in recent days, and by the desire to protect themselves from risks in case of change of the exchange rate of Azerbaijani manat.

After the February devaluation, on the recommendation of the Central Bank, banks were forced to provide their customers with discounts on dollar loans: interest rates were lowered, the payment period on loans has been delayed in order to reduce the burden to a level that was observed before the change of manat rate.

But even these measures didn't make it possible to avoid an increase in the proportion of bad loans in the banking sector. Cheapening of the manat by 34 percent against the US dollar increased the debts of borrowers who took loans in foreign currency, and they account for more than 43.2 percent (as of July 1, 2015) of all the issued loans in the country.

This, on one hand, led to banks reducing their lending. From February, when the devaluation took place, lending fell by almost two percent to 20.29 billion manats, while consumer lending decreased by 6.3 percent to 7.9 billion manats.

On the other hand, there has been an increase in bad loans, which by late first half-year stood at 1.34 billion manats. Since February, their share rose by 17.6 percent.

For this reason exactly, last week, the central bank adopted a methodological guide for banks and non-bank credit institutions on responsible lending, the main purpose of which is to stop the accumulation of excessive debt of borrowers and to implement a single comprehensive approach to consumer lending.

From now on, the amount of monthly payments on loans shouldn't exceed 50 percent of the borrower's income, while the list of documents submitted for receiving loans gets extended.

In case of failure to comply with all these conditions, the client will be denied to obtain a new loan.

This, of course, will restrict population's access to loans, but will also allow saving the banks from the emergence of new debts.

The official exchange rate for August 28 is 1.0479 AZN/USD.

Edited by CN

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