Increasing functions of non-credit credit organizations not to have negative impact on Azerbaijani banks: Central Bank director

Azerbaijan, Baku, June 9 / Trend , N. Ismayilova/  

Increased activity of non-bank credit organizations (NBCO) in Azerbaijan will have a significant impact on the socio-economic development of regions, Chairman of the Central Bank of Azerbaijan Elman Rustamov said.

Parliament adopted bill on non-bank credit organizations at the first reading on June 9. Under law, non-bank credit organizations are divided into two types - with the right to take security deposits and no such right.

"Expansion of banking functions of NBCO will not have a negative impact on the country's banking system. They play their own role in the economy and they will not attract deposits. They will assume the role of agents and will fund business at the expense of borrowed funds," Rustamov said.

He said this work was done only by banks thus far, but there are areas where there is a need for services of non-bank lenders.

"Banks are becoming more stringent in lending, as NBCO offer more soft terms. We believe that such organizations can be opened everywhere."  

The bill defines the legal framework for non-bank credit institutions to provide financial services to population and entrepreneurs to meet their needs for financial resources.

NBCO can be launched by local and foreign legal entities and individuals. The bill also allows NBCO to open branches and representative offices. The license for the operation of non-bank credit organizations is issued by the Central Bank.

NBCO's appeal for a license should be considered within 30 days. In addition, the Central Bank has the right under certain circumstances to refuse the issue of license. The Central Bank also issues permits for the opening of branches.

Capital of an organization, revenues, raised loans and grant funds from legal entities and individuals can be sources of funding.

The bill provides for a mandatory external audit NBCO on the basis of the fiscal year. The external audit should be conducted over five months to complete the fiscal year and the appropriate response to the audit report should be submitted to the Central Bank. NBCO control over the activities is entrusted to the Central Bank.

The first surveillance system provides for regulation of NBCOs which do not attract deposits, while the second is for those attracting security deposits. To ensure the sustainability, the Central Bank decided to open a deposit system on mortgage loans.

In doing so, the deposits should be taken for a period not exceeding the period of credit. However, given that, various activities of credit institutions are subject to various risks, so the prudential requirements for them will be different. Capital requirements and reporting will be different for NBCO that will take security deposits. Currently, the authorized capital for credit institutions is 4,000 manat.

Under the new legislation, NBCO will have to apply the International Financial Reporting Standards and to implement corporate governance standards. In addition, they will have access to the credit bureau which has been launched at the Central Bank since 2005.

The bill was prepared with the assistance of World Bank. Representatives of ACDI / VOCA also attended the working group.

There are 32 microfinance institutions (including 18 banks, funded by international humanitarian organizations) in Azerbaijan.

Total of 46 of the 14 banks are also providing microfinance services. The loan portfolio of microfinance institutions, including banks, amounted to 554.3 million dollars as of on December 31, 2008. Number of active clients exceeds 319,000.  

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