BAKU, Azerbaijan, October 12. The Central Bank of Azerbaijan (CBA) has made amendments to regulations on agricultural lending and other issues, Trend reports.
It was noted that these changes cover the following areas, which include regulations on "classification of assets and creation of special reserves to compensate for possible losses", "calculation of bank capital and its adequacy", "on prudential norms and requirements related to credit risks, including major credit risks" and "credit risk management in banks" containing requirements related to the characteristics of the agricultural sector and minimization of its potential risks.
The concept of "agricultural credit" and criteria for borrowers have been included in the regulatory framework supporting agricultural lending. Loans granted for the purpose of financing expenses related to the process of production of agricultural products, purchase of production equipment and development projects in agriculture have been included in the concept of "agricultural credit".
"Loans to individuals who are not producers themselves, but are only engaged in processing and trading, would be classified as standard business loans rather than agricultural loans. In addition, criteria such as electronic registration and certain work experience in this area have been defined for the inclusion of an agricultural entity in the concept. At the same time, family farms were included among the borrowers of agricultural credits," the bank said.
Taking into account the peculiarities of agricultural loans, including the seasonality factor, more lenient reserve requirements were introduced.
Capital requirements for agricultural loans were also defined.
Agricultural loans granted to micro-entrepreneurs in national currency were assigned to the 75 percent risk group, and agricultural loans granted to family farms - to the 100 percent risk group. Agricultural loans granted to medium and small entrepreneurs working in the sphere of agriculture remained in the existing 50 percent risk group.
At the same time, the unconditional secured part of the guarantee of funds created by the state and guaranteeing the fulfillment of obligations under bank loans was assigned to the 20 percent risk group. This, in turn, will increase banks' interest in agricultural loans guaranteed by any of the funds, along with other loans.
"The amendments are expected to encourage banks to actively participate in lending to the agricultural sector," the CBA added.