Baku, Azerbaijan, April 18
By Kheyraddin Nasirzade – Trend:
Presently, the main problem of the banking sector of Azerbaijan is connected with the impossibility of fully providing the Azerbaijani economy with low-interest loans, Samir Aliyev, expert at the Azerbaijani Support for Economic Initiatives Center, told Trend.
“Ordinary citizens and private entrepreneurs cannot take a loan on favorable terms,” he said. “Even if they receive a loan, it will be issued on tough conditions because banks are not interested in issuing loans with low interest rates.”
“When considering the structure of bank assets before devaluation, 70 percent of bank assets accounted for loans, while today this figure is 40-43 percent,” Aliyev said. “This means that banks decided to change the policy. If earlier investments in securities reached 1-2 percent, today the banks’ investments in securities exceed 20 percent. But as the loan portfolio as a whole has decreased, the income of banks has decreased."
“There are several internal and external factors that led to this situation,” he said.
Aliyev referred the tight loan conditions to the internal factors.
Among external ones, he singled out five factors, namely, a high level of risks in the economy, in particular, in the country's agriculture due to a number of unresolved issues in the field of agricultural insurance; an excessive amount of collateral amid the loan amount; the tightening of conditions by the Financial Market Supervisory Authority (FIMSA); the devaluation factor, due to which all borrowers who are in the category of individuals with problem loans deteriorated their credit history.
Aliyev stressed that the credit history of all problem loans will be restored in the Central Credit Register.
“Finally, there are a big number of citizens who officially do not work in any companies or institutions and at the same time they are solvent, but they cannot be bank customers,” he said.
Aliyev also touched upon another very important issue related to the current preponderance of the volume of the attracted deposits over the banks’ loans, which automatically casts doubt on the bank’s liquidity as with the growth of debt obligations, banks incur losses and face difficulties while returning deposits.
“After solving the issue with problem loans, theoretically, banks can reduce interest rates on loans, but in reality, this reduction will be a maximum of two percent because banks will be unable to withstand greater decrease due to rather excessive deposit interest rates,” he said. “The inflation level should be decreased to reduce interest rates on deposits.”
“A decrease in interest rates on deposits may cause a negative reaction of depositors, which can lead to an outflow of deposits from banks, which in turn will adversely affect their liquidity,” Aliyev added.
“If Azerbaijani manat continued to maintain its position in the foreign exchange market, the majority of citizens would transfer their deposits from foreign currency to national currency,” he said.
“But as investors are not sure about tomorrow, they prefer to open deposits in foreign currency, despite the interest rates in national currency are much bigger today,” Aliyev said. “In turn, the participation of banks in operations on deposit auctions and notes is passive financing.”
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