Azerbaijan, Baku, Dec. 26 /Trend, I. Khalilova /
At present, external borrowings from the Azerbaijani private banking sector is about 8% of total bank liabilities, Director General of the Azerbaijani Central Bank (CBA) Rashad Orujov told Trend today.
"This is a fairly low, stable and good level, given the fact that the figure was 20% during the pre-crisis period until 2008", Orujov said. "We have reduced it by 2.5 times."
"The sensitivity to risk in the global financial markets increases with the growth of foreign borrowing by the banking system," he said. "Effectively, the country's central bank controls the process."
The Central Bank has started to timely limit foreign borrowing attracted by local banks and has introduced several regulations on compulsory reserve norms and the volume of attracted loans. At the beginning of the global financial crisis, foreign borrowings of Azerbaijani banks made up 20-22% of their total obligations. But within a year they paid off the loans by approximately $900 million and in two years, $2 billion.
The obligatory reserve norms on domestic sources for attracting funds have been reduced from 12 to 0.5 percent within proactive measures. The norms on external sources of attraction were abolished in 2008 (the index remained at the 5% level during three months in 2008) and was introduced in 2011 at 0.5 percent. This figure has already hit 3% since summer. Along with this, the averaging period on required reserves was extended from 15 days to one month to reduce the burden of maintaining obligatory reserve.
Azerbaijani banks began increasing their levels of foreign investment funds after the global economic situation was mitigated. According to payment balances, banks attracted loans worth $1.102.4 billion between January and September of 2012. During this period, the banking system of the country paid off $758.4 million from previously drawn loans.
In general, the position of the banking sector overseas has improved. It is assessed as stable as the foreign debt of the private banking sector decreased by 2.5 times for four years.
But even after stabilization of the internal and external markets, the effects of raising obligatory reserve norms on foreign loans will not be obvious because the external market will remain attractive in terms of borrowing cost. On one hand, excessive reliance on external debt financing discourages development of the financial system and increases sensitivity to external shocks.
This is the case with any crisis in the banking system associated with external borrowing. Imposing restrictive measures is desirable. On the other hand, it was preferable not to limit, but to create mechanisms that would make foreign loans less profitable than domestic. All variants have their pros and cons, as the Central Bank's preventive measures ensured a high level of adequate capital, capable of covering losses.
Azerbaijani banks also have high liquidity. This ensures timely fulfillment of obligations, including paying off the external borrowings.