New financial products may emerge in Azerbaijan due to changes in manat rate

Business Materials 12 March 2015 17:28 (UTC +04:00)

Baku, Azerbaijan, Mar.12

By Azad Hasanli - Trend:

Adjustment of the national currency exchange rate in Azerbaijan can contribute to the emergence of new financial products, such as hedging of foreign currency risks, member of the Board, Chief Investment Officer of PASHA Bank Taleh Kazimov told Trend March 12.

Hedging of currency risks is the conclusion of forward transactions for the purchase or sale of foreign currency in order to avoid price fluctuations. The currency hedging generally refers to the protection of funds from adverse movement of exchange rates, which is to fix the current value of these funds by trading on the currency market.

"Our country has a strong financial steadiness, and while the exchange rate is not always stable in European countries and can change several times a day, it does not change for at least a day in our country," he said. "Now, while planning their activities, businessmen will also think about the risks associated with changes of the exchange rate. In this situation, hedging instruments make it possible to minimize the risks of loss for the customer associated with these processes."

Bank customers should always take into account possible currency risks, according to Kazimov. For example, during processing the loan, one needs to understand that the corresponding contract is not tied to the exchange rate.

"When the bank provides a credit, it is the bank that should primarily take responsibility and manage the risks, not the client," he said. "This is one of the principles of PASHA Bank's approach to servicing its customers."

It is known that on February 21, the Central Bank of Azerbaijan established rate of the manat to the US dollar at 1.05 manat per dollar (compared to 0.7844 manat earlier), which corresponds to the cheapening of rate by 33.9 percent.

"At the same time [as a result of exchange rate adjustment], earnings of the banking sector can be reduced to a certain extent, but nothing changed for the bankers in terms of the specifics of work," he said. "The new realities create certain difficulties as well as opportunities for business development. For nine years, the state had been spending means for keeping the national currency rate, but the situation got slightly more complicated due to the drop in oil prices. The steps taken by both the government and the Central Bank are balanced and right, they confirm what we know what we're doing as a country and move in the right direction."

Before adjustment of the manat rate, at least $500 million was purchased daily on the currency market for several days, which ultimately led to reduction of foreign exchange reserves, which the Central Bank of Azerbaijan had.

Edited by CN

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