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Azerbaijani banks not ready for serious decline in interest rates on loans

Business Materials 18 May 2013 13:41 (UTC +04:00)
Azerbaijani banks are not ready to take first steps toward lowering the rates against the background of rather expensive loans, particularly in retail lending, a member of the Board of VTB Bank (Azerbaijan) Ilgar Novruzov said.

Azerbaijan, Baku, 18 May / Trend L.Abdullaeva /

Azerbaijani banks are not ready to take first steps toward lowering the rates against the background of rather expensive loans, particularly in retail lending, a member of the Board of VTB Bank (Azerbaijan) Ilgar Novruzov said.

"There are objective reasons for this, namely the inability of banks to raise funds from foreign investors on sufficiently favorable terms; unwillingness of the population to place funds at lower interest rates, which entails a rise in banks' funding base; the lack of alternative financial instruments and derivatives; low penetration of loans to GDP and so forth," Novruzov told Trend.

If we analyze the level of interest rates in the credit market of Azerbaijan, VTB Bank (Azerbaijan) offers products at lower rates than other banks on the market, he added.

"Of course, it primarily occurs due to the fact that we, as a fully functional subsidiary of VTB Group, have access to its resources, which are attracted on better conditions than local banks may afford, and it certainly is our competitive advantage," Novruzov said.
Meanwhile, CBA is examining the banking market in order to clarify the situation with interest rates on loans and the reasons for their high level.

According to the chairman of the board of the Central Bank of Azerbaijan Elman Rustamov, there is a trend to lower the interest rates. However, they remain at a high level, especially for consumer loans. According to the research, the CBA will give appropriate instructions to the banks.

According to the bankers, the banks may not lend at a rate below the deposit rate as they must take into account their income and cover potential losses from bad loans. Rates on deposits in Azerbaijan currently form 10-12 percent per annum. This is how the cost of credit resources provided by banks to customers is being formed. In addition to the cost of resources, the bank adds its own margin (a mark-up on the resource) to an amount that covers the loss and generates income for the bank.

Today, banks provide financing services to citizens on average at a rate of 28-32 percent. The effective rate reaches up to 40 percent per annum.

According to the statistics of CBA, banks continue to cut interest rates on loans in local and foreign currencies compared to the same period last year. Thus, the average rate on bank lending to the economy of Azerbaijan in national currency amounted to 14.85 percent compared to 16.09 percent as of April 1, 2012. The average rate on bank lending in foreign currency was 15.3 percent compared to 16.16 percent in early April 2012.

On 1 April 2013, the average rate on bank lending to individuals in national currency amounted to 18.31 percent compared to 18.57 percent as of April 1, 2012. The average rate on bank loans to individual customers in foreign currency was 21.6 percent compared to 22.07 percent by April 1, 2012.

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