Azerbaijan, Baku, May 7 / Trend /
Trend Analytical Centre Expert Leyla Abdullayeva
The planned increase in the maximum amount of insurance compensation through Azerbaijan Deposit Insurance Fund (ADIF) should improve the situation on the deposit market of the Azerbaijani banks. On May 8, the parliament will examine amendments to the law on Deposit Insurance, under which the maximum amount of insurance compensation through ADIF will be increased from 8,000 to 30,000 manat.
Countries that have already increased the amount of insurance compensation, achieved noticeable results. For example, in 2008, the Kazakh government took steps to improve the guarantee amount from 700,000 tenge (over $5,800) to 5 million tenge (over $42,000), which enabled to increase deposits in the banking system to 53.2 percent for a year. People's deposits increased by 9.4 percent.
Recently, Azerbaijan has experienced the decrease of people's deposits in banks. According to the State Statistical Committee, deposit base dropped by 15.5 percent in March and the decline was 14.3 percent compared to March 2008.
The main point is that on the backdrop of global crisis, there is a situation where population has European depositors' "panic". Besides, while observing devaluation processes in neighboring countries, people who has deposits in national currency, beware that the country will follow their example. Therefore, they fear to lose their interests. Depositors of banks decide to withdraw their deposits investments at all without any reasons.
The situation is further exacerbated by the restriction of bank loaning in the country.
Businesses that could previously receive loans from banks for their business now are deprived of this opportunity to some extent. Therefore, they withdraw their deposits and direct them to develop their business.
However, investing in bank deposits in Azerbaijan is one of reliable means to increase their capital at the moment, because an average citizen of Azerbaijan currently has no other alternative to invest their small savings. Unprofitable investments in real estate due to low prices, the risk of starting a business leave the hope to increase their income on deposit.
Majority banks in Azerbaijan are included in the deposit insurance system that will enable depositors to receive their savings without any problems. There are 46 banks in Azerbaijan, including 41 members of ADIF. Since early 2008, the Fund insures deposits in member banks up to 100 percent, under the condition that deposits do not exceed 6,000 manats and it was planned to reach this amount to 8,000 manats on Jan. 1 in 2010.