Central bank: Mitigating reserve requirements for banks will reduce loan rates in Azerbaijan

Business Materials 30 September 2013 20:36 (UTC +04:00)

Azerbaijan, Baku, Sept. 30 / Trend A. Akhundov /
Mitigating the reserve requirements for banks will enable them to reduce the loan rates, director general of the Central Bank of Azerbaijan (CBA) Rashad Orujov told Trend on Friday.

These changes are envisaged in a project worked out by the Central Bank. It includes the new rules of asset classification and creating reserves to cover potential losses.
According to the rules, assets are divided into standard and non-standard. The standard assets include satisfactory and controlled assets, while the non-standard are unsatisfactory, threatening and bad assets. If , according to the current regulations commercial banks should create the reserves to the amount of two per cent of the loan coast included in the category of satisfactory assets and 10 per cent for controlled assets, thus according to the new rules, it is planned to reduce up to one and five per cent, respectively.

"Today it is necessary to adapt to the post-crisis situation, the market situation," he said. "Before the crisis, we tightened the reserve requirements. This eventually had its effect and created a good buffer to deal with the crisis. The situation has stabilised today and there is no need to keep the requirements at the current level."

According to him, the Central Bank discusses the text of the rules with the banking community and will take them in the coming months.

"These rules will impact on reducing the loan cost as mitigating the reserve requirements means less pressure on profitability of banks," he added. "This will give them an opportunity to think about the decline in interest rates."

Furthermore, the current rules do not include a classification of consumer loans. According to the new version of the rules, consumer loans include those loans for covering current expenses, loans for household needs, car loans and credit cards.

According to the classification of consumer loans, satisfactory assets include some loans where the main amount and interest payments are paid off in accordance with the loan agreement, or with a delay of up to eight days, controlled with a delay from eight to 30 days, unsatisfactory from 31 to 60 days, dangerous from 61 to 90 days and bad more than 90 days.