Stagnation in global capital markets can affect development of Azerbaijan’s bank sector

Business Materials 19 January 2009 16:18 (UTC +04:00)

Azerbaijan, Baku, Jan. 19/ Trend , I. Khalilova/ With international capital markets still quiescent, Azerbaijan's banking sector will have difficulty rolling over, never mind increasing, the $2.5 billion it has borrowed from abroad, executive director of the State Oil Fund of Azerbaijan (SOFAZ) Shahmar Movsumov said in his interview with Euromoney. [Banks have already paid 1.1 billion of the debt. The rest of loans will be paid in 2009].

"With reserves of $6.137 billion, the National Bank of Azerbaijan will be able to help these banks renew their debt. But a bigger problem for Azerbaijan's economy might be the real estate bubble," Movsumov said.

International funding (around 25% of total liabilities) has helped asset growth in Azerbaijani banks of up to 100% in recent years. Property prices have rocketed as a population still mistrustful of bank accounts has put their money into houses.

According to Eldar Garibov, chairman of Unibank (one of the top three lenders in the country), about 70% of the banking system's loan portfolio is collateralized by real estate.

"Everyone expects the real estate bubble to decrease. Even with a fall of 25 percent or 30 percent we will still feel good, and the banking system will still feel good," he said.

Nevertheless, such issues show the continuing contingent liabilities of the sovereign wealth fund of this relatively poor if rapidly developing country.

Azerbaijan's real estate market has experienced standstill since fall of 2007 despite the artificial rise in prices. The ongoing global financial crisis has an increasing impact on Azerbaijani market since September 2008.

In 2008, operations on sale and purchase of apartments shrank 40.3 percent compared to 2007. Average prices fell 4 percent and index of prices - 1 percent.

In 2008, term of display of real estate increased 26.7 percent in Azerbaijani market due to the global crisis. Operations shrank 14.2 percent. Elasticity of demand in real estate market was 0.3 percent (1 percent change in prices leads to 0.3 percent change in demand) in 2008 and elasticity of income - 0.6 percent (1 percent change in income leads to 0.6 percent rise in demand).

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