Baku, Azerbaijan, June 9
By Azad Hasanli - Trend:
High dollarization will remain a serious structural problem for Azerbaijan's banking sector in the coming years, Dmitry Vasiliev, director for financial institutions at Fitch, a global ratings agency, told Trend.
He said that high rates on deposits in national currency may contribute to the inflow of deposits in manats, however, it is difficult to talk about how much one needs to raise the rate on deposits in the national currency so that they become attractive for investors.
As of late March 2016, almost 81 percent of deposits in Azerbaijan's banks was denominated in foreign currency, according to the country's central bank.
The increase in foreign currency deposits began in late 2014 against the background of the devaluation expectations. In September 2014, deposits in foreign currency accounted for about 49 percent of the depository base, but with each passing month, this indicator was slightly increasing and in January 2015, a month before the devaluation, exceeded 51 percent.
The Central Bank of Azerbaijan devaluated manat on Feb.21, as a result of which the exchange rate of manat dropped by almost 34 percent and stood at 1.05 manats per US dollar. Following this, the CBA switched to the floating rate of manat on Dec.21, as a result of which the exchange rate of dollar and euro increased by 47.6 percent and 47.9 percent and stood at 1.55 and 1.685 manats, respectively. As a result, manat's rate against the US dollar dropped by 97.6 percent throughout 2015.
After the February devaluation, the pace of dollarization growth intensified and, despite a slight slowdown and decline in the share of foreign currency deposits in the third quarter of 2015, dollarization again accelerated following the second devaluation in December 2015.
At the same time, Vasiliev believes that the gradual restoration of confidence in Azerbaijan's national currency and a decrease of devaluation expectations is a more important factor.
"The growth of confidence in manat may depend on stability of the foreign exchange rate and predictability of its fluctuations," he said.