Baku, Azerbaijan, July 13
By Anvar Mammadov – Trend:
To date, Azerbaijan’s real economy owes 27.8 billion manats to the country’s banking sector, Head of Azerbaijan Banks Association (ABA) Zakir Nuriyev told Trend.
“Over 67 percent of this amount, that is 18.7 billion manats, account for non-performing loans,” Nuriyev said. “In general, the probability of loan default is 30 percent.”
This is one of the reasons for high interest rates on loans issued by Azerbaijani banks, he added.
“However, one always needs to analyze the reason for such high interest rates,” he said. “The cost of a loan today accounts for 15 percent of the interest rate on loan – this is the interest rate on deposits accepted by banks. Banks’ operating costs account for a maximum of three percent. It is also necessary to take into account the profit margin, which differs depending on a bank.”
“The remaining part (10-30 percent of the interest rate on loan) accounts for the risk premium, which includes the default risk, the mechanism for the implementation of collateral and the risks associated with the exchange rate,” Nuriyev said.
He went on to add that the processes, which have been taking place in recent years in Azerbaijan’s banking sector are the reason for the high share of the risk premium in the formation of interest rates on loans.
As a result, in 2016, unprofitability of bank assets in Azerbaijan was 18.3 percent, he noted.
“It is interesting that after a bank implements liquid collateral, which makes up 170 percent of the loan amount, the bank regains only 45 percent of the issued loan,” Nuriyev said.
“If the collateral is not liquid, the volume of the regained loan is lower, of course. One should keep in mind that a trial proceeding over non-payment of a loan and the execution of a court’s decision take up to five years. For this period banks lose 75 percent of the profit from the loan. Currently, 280,000 cases are in trial proceedings, and 500,000 cases are awaiting execution of court decisions.”