Azerbaijan, Baku, Feb. 18 / Trend L. Abdullayeva /
Azerbaijani banks supported the requirement of the Azerbaijani Central Bank (CBA) to stop rendering banking services in mobile services. Poll results conducted by Trend among Azerbaijani banks showed this evidence.
The CBA sent a letter to the commercial banks on Feb. 5, 2013 with the requirement to stop the activity of these points within three working days or it will resort to sanctions according to the law on 'Banks'.
The International Bank of Azerbaijan (IBA) considers the CBA decision as removing threats to the stability of the banks.
According to spokesman for the IBA Rauf Agayev, the number of appeals over loans to the banks significantly increased. According to the statistics indices, the growth rate of loans in 2012 is far ahead of that of 2011. The growth is also observed in consumer credit which is associated with the simplification of loan issuance procedures by banks.
"Of course, this has a positive impact on the country's economy," he said. "Money circulation increases with the consumption volume growth. Consequently, the gross domestic product of the country also increases. Retail lending has become the most attractive sector for banks because of the very high yield and great market opportunities of consumer credit."
However there is reverse side of the medal.
In the case of impossibility in paying off the loan, the borrower and the guarantor face such a situation when the bank must pay off the loan. For this purpose as is known, the reserve funds generated have been created in the banks to cover credit risk. The more risky credit policy conducted by the bank, the greater insurance reserve it must create, by using funds from its own profit. There are many cases where the bank is unprofitable.
"So, after the CBA last decision, the control over the issuance of consumer credit will be tough," the IBA representative said. "This measure is enforced. Moreover, delivering loans at mobile points is considered as a non-prudential practice, the rapid growth of issuing unsecured loans in the future could be a threat to the stability of the country's banking system."
He said that the development of the European debt crisis has become possible because of the simultaneous effect of a number of complex factors. The ease of access to loans which led to the issuance of a significant number with high risk is among them.
"Banks are trying to attract the attention of borrowers by significant advertising campaigns and various preferences and discounts," Agayev said. "They offer loans to the population regardless of the place of work and existing loans in other banks, and formalise them by using only ID. Afterwards, as people say, they are urgently looking for the borrower who has failed to pay up on time."
Today, any self-respecting bank seeks to complicate the conditions for obtaining consumer loans (cash loans without collateral and sureties, cash loans with no income verification, etc.), and introduces modern scoring systems to eliminate insolvent borrowers still under loan application.
"Some banks avoid long term financing of economic projects," he said. "The reason is that they are unable to participate in such projects due to lack of their own resources. Therefore, these banks are not only interested, but have to provide people with household loans in small and large amounts."
According to Parabank marketing specialist Tural Hasanov, the CBA requirement is very relevant now, despite a belated reaction to the violation of Azerbaijani legislation by some banks.
The activity of branches, subsidiaries and representative offices of any bank in Azerbaijan must be based on the following definitions in the law on 'Banks' dated January 16, 2004 in terms of rendering the services.
"We see clearly defined, permitted activity of a 'Representative office of the bank' in the law," Hasanov said. "It is being violated at the moment by some banks in Azerbaijan, rendering unauthorised services in their mobile representative offices. Therefore, I consider the CBA requirement as lawful, justified and well-regulated by Azerbaijani legislation."
While operating in the Azerbaijani territory for 21 years, Parabank did not render any services at mobile points prohibited by the Azerbaijani legislation. At present, Parabank has no mobile points, Hasanov said.
Bank Standard also welcomes and supports the CBA initiative, directed to intensify the verification of borrowers, as well as the quality of service being rendered to them by banks.
Director of the Retail Business Department at Bank Standard Elchin Abdullayev said that several banks have been recently conducting a rather aggressive credit policy. They often do this at rates much higher than credit rates in the market. Delivering loans at high rates and areas with unsuitable places for this activity increases the risk of the whole banking sector in Azerbaijan, as the banks often do not have the opportunity to thoroughly check the creditworthiness of the borrower.
"According to this impossibility, the rates at which the loans are delivered to the citizens can reach very high amount," he said. "As a result, the risks in the banking sector start to increase."
Moreover, the banking activity requires certain standards of business in the first place to ensure the quality of services rendered to customers.
"We are sure that it is necessary to conduct banking activity within the CBA requirements for potential customers of the banks to fully get necessary information about loans, rates and to assess their ability to repay these loans," Abdullayev said. "All market participants, rather than a few aggressive players delivering loans at very high rates will benefit from this."
Following the CBA requirements sent to all banks, DemirBank has withdrawn its staff from points of sale. "Customers wishing to pay for purchases using credit contact the nearest branch of DemirBank and get a loan during one day if they correspond to the bank's requirements."
Before the CBA last requirement, DemirBank staff informed then about credit products which can be used by customers when buying certain goods at the points of sale and potential customers may give information about themselves.
"Further procedures and lending were implemented at the bank branches,"Abdullayev said. "According to the law on 'Banks', DemirBank renders banking services only at branches."
According to Unibank, the bank withdrew staff from the mobile points of sale in connection with the expiration of contracts with trade networks.
A survey is underway.