Review of monetary sector in Azerbaijan (January-April 2017)

The average interest rate on deposits in Azerbaijani banks decreased in national currency and foreign currency in April 2017 compared to April 2016, the report said.

The average rate on deposits in manat amounted to 12.26 percent in April 2017 compared to 12.31 percent in March 2017 and 12.85 percent in April 2016.

The average rate on loans in foreign currency amounted to 8.43 percent in April 2017 compared to 8.69 percent in March 2017 and 11.41 percent in April 2016.

The legal entities received manat loans at an average rate of 8.75 percent in April 2017 compared to 8.77 percent in March 2017 and 8.84 percent in April 2016.

The average rate on bank lending to the corporate clients in foreign currency amounted to 5.49 percent in April 2017 compared to 5.6 percent in March 2017 and 7.68 percent in April 2016.

As of April 2017, the average rate on manat loans to physical entities amounted to 15.76 percent compared to 15.8 percent in March 2017 and 16.91 percent as of April 2016.

The average rate on bank lending to the individual customers in foreign currency was 16.40 percent compared to 16.72 percent and 19.33 percent accordingly.

Mortgage lending

In April, the amount of a preferential mortgage loan in Azerbaijan increased from 85 percent to 90 percent of the cost of housing as part of mortgage. This is stipulated in the presidential decree on introducing changes in the “Procedure for granting a mortgage, including a preferential mortgage loan through the funds of the Azerbaijan Mortgage Fund”.

In April 2017, Azerbaijan Mortgage Fund (AMF) issued loans worth 16.1 million manat, which is by 80.5 times more than in April 2016.

According to the CBA report, in April the volume of refinancing of loans issued by banks earlier amounted to 5.6 million manat. Since the beginning of the year, 16.5 million manat has been transferred from the state budget to the AMF.

The average monthly amount of the loan delivered by the AMF’s authorized banks was 42,187.6 manat in April 2017 (40,883.1 manat in April 2016). The average period of the loan is 280 months (280 months a year earlier). The average annual interest rate is 6.66 percent (6.7 percent a year earlier). The average monthly amount for payments is 302.7 manat (296.7 manat a year earlier).

In general, AMF’s authorized lending institutions have issued 19,153 mortgage loans worth 802.7 million manat since 2006 and up till now.

According to the new mortgage loan issuance order, approved in June 2016, an ordinary mortgage loan will be issued only to Azerbaijani citizens and only in the national currency for a term from 3 years to 25 years, while preferential mortgage - up to 30 years to purchase a house, owned by the citizen. Interest rates on conventional mortgage must not exceed eight percent, while 4 percent per annum in preferential mortgage loan.

The maximum amount of the mortgage loan (including preferential) is determined by Azerbaijan Mortgage Fund JSC and must not exceed the cost of repaired housing with an average of 100 square meters in zone #7 in Baku. Annual interest rates on the loan are determined by the company’s Supervisory Board.

The amount of preferential mortgage loan must be 85 percent of the cost of purchased housing by the date of the loan issuance, except for cases when a borrower appeals to decrease the loan amount. The amount of conventional mortgage loan must not be less than 75 percent and more than 85 percent of the cost of purchased housing by the moment of the loan issuance, except for the cases when a borrower appeals to decrease the loan amount.

The monthly payment for a mortgage loan must not exceed 70 percent of a debtor's monthly income. The age of the borrower must not exceed the retirement age according to the legislation. An agreement on life insurance is required.

The family members of war victims, national heroes, internally displaced people, civil servants with at least a three years' experience, teachers of secondary schools with at least a five-year service term, PhDs, doctors of science and those having special merits in sport as well as the military with at least a three-year service term can use the preferential conditions. Each family having the right to such a mortgage loan can use it only once.

Around 25 out of 32 banks in the country, as well as 16 insurance companies [in total 21] and 11 appraisal organizations are the authorized banks of the Azerbaijan Mortgage Fund.

Azerbaijan’s banking sector

As of April 2017, the total amount of deposits of physical and legal entities drawn by the Azerbaijani credit organizations amounted to 22.15 billion manat.

The deposit base of banks increased by almost 4 percent in April 2017 and decreased by 1.8 percent per annum.

The amount of deposits in the Azerbaijani national currency – manat reached 5.57 billion manat as of April 2017, 2.63 billion manat of which accounted for demand deposits, 2.94 billion manat - term deposits, the report said.

According to the report, the deposits in freely convertible currency reached 16.58 billion manat including 5.32 billion manat - demand deposits, 11.26 billion manat - term deposits.

Thus, as of May 1, 2017, 25.1 percent accounted for the deposits in manat, 74.9 percent of the total deposit base of banks accounted for foreign currency.

According to the report, the physical entities' deposits exceeded 6.87 billion manat in April 2017.

Most of the physical entities' deposits accounted for the ones in the foreign currency – 76.7 percent or 5.27 billion manat, the report said.

According to the report, the population’s deposits decreased by 0.6 percent for the month and by 10.7 percent per annum.

The total volume of the legal entities’ deposits in Azerbaijani banks reached 15.28 billion manat or by 2.8 percent (14.87 billion manat) more than in April 2016, the report said.

As of May 1, 2017, the amount of the Azerbaijani financial organizations’ deposits reached 5.13 billion manat compared to 6.18 billion manat as of May 2016.

The amount of the Azerbaijani non-financial organizations’ deposits reached 10.15 billion manat compared to 8.69 billion manat as of April 2016.

The population’s bank deposits in Azerbaijani districts (except for Baku) totaled 518.83 million manat in April 2017, that is, 7.5 percent of all deposits, the report said.

According to the CBA report, the share of bank deposits in districts was 6.87 percent (527.6 million manat) in April 2016.

As of early May 2017, the amount of deposits in Baku amounted to 6.35 billion manat, while the deposits in the national currency – 1.3 billion manat.

According to the report, the national currency savings of the residents of Azerbaijani districts amounted to 309.5 million manat or 59.7 percent of all deposits in the banks in the districts in April 2017 compared to 46.5 percent of all deposits in districts in April 2016.

As of April 2017, the average annual deposit rate throughout the country reached 4.5 percent while 4.4 percent in Baku.

Distribution of bank deposits in Azerbaijani districts:

The average interest rate on deposits in Azerbaijani banks decreased in national currency and foreign currency in April 2017 compared to April 2016, the report said.

The average rate on deposits in manat amounted to 7 percent in April 2017 compared to 6.82 percent in March 2017 and 7.77 percent in April 2016.

The average rate on deposits in foreign currency amounted to 3.88 percent in April 2017 compared to 4.10 percent in March 2016 and 5.84 percent in April 2016.

The banks drew deposits of legal entities in manat in the amount of 4.04 percent per annum in April 2017 compared to 3.97 percent in March 2017 and 5.55 percent in April 2016.

The funds on the accounts denominated in the foreign currency brought 2.91 percent to legal entities in April 2017, 2.94 percent in March 2017 and 3.42 percent in April 2016.

As of May 1, 2017, the average interest rate on deposits of physical entities in manat made up 11.04 percent compared to 10.81 percent as of late March 2017 and 8.94 percent as of April 2016.

The interest rates on deposits of physical entities in foreign currency are as follows: 4.55 percent in April 2017, 4.88 percent in March 2017 and 7.08 percent in April 2016.

Financial activity of banks

The banking sector of Azerbaijan completed the first four months of 2017 with a net profit of 148.1 million manat, according to a banking sector outlook of the country’s Financial Market Supervisory Authority (FIMSA).

It should be recalled that the Azerbaijani banks completed the January 2017 with a net total loss of 496 million manat, while in February 2017, they made a profit of 50 million manat, and according to the results of the 1Q17, the total net profit amounted to 123.4 million manat.

In 2016, the Azerbaijani banks’ loss totaled 1.67 billion manat.

During the period, revenues of the banking sector on loan interest amounted to 504.4 million manat, and interest expenditures on deposits totaled 131.9 million manat. Net interest income of the sector amounted to 342.6 million manat and operating profit totaled 364 million manat in late April 2017.

The funds deducted from the sector for the creation of special reserves to cover possible risks on assets decreased by almost fivefold and amounted to 243.7 million manat as of April 2017 compared to late 2016.

Total volume of capital of Azerbaijan’s banking sector amounted to almost 2.75 billion manat in January-April 2017, according to a banking sector outlook.

Total capital volume of Azerbaijani banks has increased by 44 percent since early 2017.

The sector’s total assets amounted to 30.78 billion manat as compared to 31.44 billion manat in late 2016.

As of late April, the banks’ cash amounted to 1.25 billion manat (1.08 billion manat – as of the year), while investments in securities – 438.6 million manat compared to 414.6 million manat as of late 2016.

Azerbaijani commercial banks’ liabilities to the CBA increased by 4.4 percent for the year, amounting to 6.586 billion manat as of May 1, 2017, says a CBA report for January-April 2017.

As compared to early 2017, the liabilities decreased by 6.5 percent and as compared to late March 2017, the liabilities increased by 0.2 percent.

As of late April 2016, liabilities of commercial banks to the CBA amounted to 6.307 billion manat, while as of early 2017 they amounted to 7.046 billion manat.

The volume of foreign liabilities of the CBA remains unchanged and totals 2.2 million manat.

International reserves of the CBA grew 12.1 percent over the year - from $4.120 billion to $4.619 billion.

In January-April 2017, net liabilities of the CBA to the Azerbaijani government decreased by 3.6 times and totaled 1.581 billion manat.

The net liabilities of the CBA to the Azerbaijani government amounted to 5.755 billion manat in late April 2016.

As of late April 2017, some 560 branches and 140 bank offices in Azerbaijan, according to a survey of the country's banking sector.

For comparison, some 561 branches and 137 offices of 32 banks operated in the country in March.

During the reporting period, 32 banks operated in the country, two of which were state-owned banks. A half of the banks have foreign capital. The share of foreign shareholders exceeds 50 percent of the authorized capital in seven banks. There are two branches of foreign banks operating in the country (Bank Melli Iran and National Bank of Pakistan).

According to the survey, as of late April, 16,214 people worked in the banking sector of the country, whereas a month earlier 16,312 employees worked in the banking sector. Some 16,947 people have worked in the banking sector at the beginning of the year. The number of employees of the banking sector has decreased by 4.3 percent since the beginning of this year.

Payment card market

The total turnover on payment cards via ATMs and POS-terminals amounted to 1.1 billion manat in Azerbaijan in April 2017 or by 13.7 percent more than in April 2016, said the Azerbaijani Central Bank’s report.

According to the report, the total number of transactions with payment cards reached almost 7.39 million units increasing by 12.6 percent for the year.

The number of transactions on debit cards reached 6.53 million units totaling 979 million manat during the reporting period.

Of the total number of transactions, 4.57 million transactions amounting to 846 million manat were implemented on debit cards via ATMs within the country, and 728,000 transactions amounting to 80 million manat via POS-terminals.

As much as 864,000 transactions worth 125 million manat were made on credit cards in April 2017.

Of the total number of transactions on credit cards, 191,000 transactions worth 43 million manat were implemented via ATMs and there were 288,000 transactions worth 38 million manat via POS-terminals.

The number of payment cards in Azerbaijan increased by 1.7 percent in April 2017 and reached up to 5.53 million units compared to April 2016.

Of the total number of cards, 4.88 million units accounted for debit cards, in particular, 2.55 million - social cards, 1.65 million - salary cards, 0.69 million - other cards. The number of credit cards was 647,000.

As of May 1, 2017, as many as 2,493 ATMs operated in the country of which 1,357 are located in Baku and 1,136 in other cities and districts of the country. The total number decreased by 60 units or 2.4 percent for the year compared to April 2016.

The number of POS-terminals amounted to 70,162 units of which 39,836 are installed in Baku and 30,782 units in other cities and districts as of late April 2016.

The number of POS-terminals has decreased by 3,342 units or 4.5 percent for the year.

Stock market

The total turnover of exchange transactions on all instruments at the Baku Stock Exchange exceeded 2.6 billion manat in January-April 2017, that is, by 2.6 times more than in January-April 2016.

The volume of the state securities market totaled 504.69 million manat (2.6 times more for the year), while the turnover of corporate securities market reached 830.53 million manat (23.2 times more).

The volume of derivatives market exceeded 1.28 billion manat (65.3 percent more).

Comparative table on the trades results in the state and corporate sectors at the Baku Stock Exchange: