No ban on early repayment of loans in Azerbaijan - Central Bank

Baku, Azerbaijan, Dec.23

By Maksim Tsurkov - Trend:

Central Bank of Azerbaijan (CBA) has not observed cases of failure of acceptance of early repayment on the mortgage or consumer loans by banks, the CBA told Trend Dec.21.

"Such cases are contrary to the Civil Code of Azerbaijan," the bank said. "Thus, in accordance with the Article 744 of the Civil Code, the borrower may partially or fully repay the debt on the loan in compliance with one month notice. On the other hand, the CBA has not observed such cases."

Each borrower in case of failure of acceptance of early repayment by bank can go to court, according to the source. "Protection of the rights of consumers of banking services is one of the permanent priorities of the Central Bank," said the Central Bank. "With this purpose, the CBA has a department for the protection of the rights of consumers of banking services. Citizens may apply to this department on other issues as well. In addition, starting from 2014, on the recommendation of the CBA, departments for consumer complaints were created in each bank, where they can apply on any issue. I should add that in addition to the above mentioned, each consumer can apply to the court."

The bank has the right to include an option on prohibition or the use of certain penalties in case of early repayment of the loan to the loan agreement, but at the same time, the client himself also has the right to include an option of permission of early repayment into the contract, the member of the Parliamentary Committee on Economic Policy, MP Vahid Ahmadov told Trend earlier.

"Everything depends on the conditions of the contract and the bank has the right to take such step to keep its interest income," he said.

A number of countries, such as Turkey, Kazakhstan and Belarus have a legislative prohibition or restrictions on early repayment of the loan, although there is no such a ban in Azerbaijan, banks take measures for demotivation from early repayment.

Chairman of the Board of Rabitabank Elchin Gadimov also believes that the bank cannot prohibit the client to repay the loan ahead of schedule, but it may apply certain penalties.

He said that the problem lies in the fact that when the client returns the money ahead of time, it interferes with the scheduling of fund placement of the bank, and the bank cannot effectively accommodate the money.

"That is, for example, the bank expects that the money given to a customer as a loan, will be returned after a year, and these funds will be used for the return of deposits, payment period of which has already come," he said. "When the customer repays the loan early, unused funds remain in the bank, which creates a certain loss of underearned means. Therefore, it is important that the funds deposited for a year, would be returned during the year as well."

Gadimov said that in connection with this, the bank has to apply certain penalties that vary within 1 to 2 percent of the remaining loan amount, the previously repaid loan amount, etc..

"This option must be specified in the loan agreement, otherwise the bank has no right to apply penalties," he said.

Similar measures are also used in Turkey, where penalty in the amount from 10 to 60 TL is used, which causes dissatisfaction of customers with the banks. But, for example, in Russia, the borrower's right to early repayment of the loan is fixed at the legislative level, and the borrower must notify the bank about the repayment of the loan within 30 days.

Head of Rabitabank said that repayment of the loan ahead of schedule is rather frequent. "Credit culture in Azerbaijan is young," said Gadimov. "People experience some discomfort due to the credit load, and when they receive unplanned funds, premium, bonuses, travel money and so on, they are trying to fully repay the loan in spite of the fines."

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Follow the author on Twitter: @MaksimTsurkov

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