BAKU, Azerbaijan, May 8
By Eldar Janashvili – Trend:
In the late 2019, the Central Bank of Azerbaijan (CBA), having shortly before that assumed the commitments of the liquidated Financial Market Supervisory Authority, disclosed monetary policy plans for 2020.
The new financial regulator then announced that it would continue to work to implement the conditions for a phased transition to the targeted inflation rate in Azerbaijan as part of improving the monetary policy strategy, as well as continue its active work to ensure synchronized movement in the interest rate corridor of short-term interest rates in the interbank market.
The target inflation rate of the CBA remained unchanged at about (4±2) percent, because the formation of inflation in the target corridor in 2019 provided significant support to economic activity, strengthening confidence in the economic environment.
At the beginning of 2020, a Council for Cooperation with Entrepreneurs was created under the Board of the Central Bank. One of the priority issues raised by this council was the liberalization of the regulation of import operations within the country's currency regime.
At a meeting between representatives of the National Confederation of Entrepreneurs (Employers) Organizations of Azerbaijan and bank managers on January 10, the CBA Chairman Elman Rustamov said that the bank's priority in 2020 is investing in the development of payment systems, innovation, implementation and expansion of the latest financial technologies, including blockchain, while the bank would continue to develop principles of open banking, launch the instant payment system for legal entities and individuals, and revise insurance model of contributions.
Furthermore, the Central Bank of Azerbaijan with the support of the Ministry of Education, Mastercard and Kapital Bank presented Smart Student Card to students of Baku Engineering University in February. It was noted that the use of these cards will be an important support for the formation of a new generation of students with a modern payment culture and the development of the digital payment ecosystem in the country. In the future, the Smart Student Card will be functionally expanded and used in public transport and other services.
In the same month, the CBA and the Italian National Microcredit Agency signed a Memorandum of Understanding and Cooperation. According to the signed memorandum, two organizations intended to cooperate in promoting microlending tools, improving the legal and regulatory framework, as well as monitoring and evaluation mechanisms. At the same time, this cooperation will play an important role in enhancing the exchange of experience with foreign partner organizations in this sphere to develop the microfinance services sector and strengthen control over the activities of microfinance institutions.
Changes to the Rules on conducting foreign currency operations by residents of Azerbaijan, as well as national and foreign currency operations by non-residents were approved upon the resolution of the Board of the CBA on February 20, 2020.
In accordance with the amendments, the deadline for submission of the documents to the authorized bank either confirming the customs declaration or the process of rendering the import services or confirming the import of goods into the country when making an advance payment in connection with the import of goods, was extended from 270 days to two years.
At the same time, the requirement of providing the information on the goods and services which are not imported and the value of which does not exceed $10,000, was eliminated.
In March, Azerbaijan’s economy faced two real challenges. First, the coronavirus penetrated the country, making its own adjustments to the national economy and provoking new solutions to mitigate the impending global crisis, and then Russia and Saudi Arabia rejected from the OPEC + deal to cut oil production, provoking record drops in oil prices - a product that provides most of the economic growth of sovereign Azerbaijan.
In the very first days, the demand of banks at foreign exchange auctions with the participation of the State Oil Fund of Azerbaijan increased many times and exceeded 200 million-300 million manat ($117.6 million-$176.4 million), but in April returned to the usual 50 million-60 million manat ($29.4 million-$35.2 million)
A few days after the failed agreement of the OPEC + contracting countries, Rustamov, speaking at a meeting in Azerbaijan’s Cabinet of Ministers headed by Prime Minister Ali Asadov about the situation in the global energy market and its impact on the country's economy, stated that the country was fully ready for such challenges.
"We have sufficient crisis management experience. On the other hand, during the period of high oil prices, our strategic foreign exchange reserves have been significantly increased. This affords us to possess the means and tools for impacting such situations. The shock comes from outside. That is, it is not caused by the economic, social or political processes in Azerbaijan," the chairman of the CBA board emphasized.
A week later, the Central Bank kept the interest rate unchanged, which until then had steadily lowered with small portions by 25 percent, and raised the lower limit of the interest corridor by 1.25 percentage points, to 6.75 percent.
After the Fund to Support Fight against Coronavirus was established in accordance with the Azerbaijani president’s decree dated March 19, 2020 on measures to protect public health and strengthen the fight against coronavirus infection in Azerbaijan, CBA created a special functional and mechanism to expand and facilitating the possibilities and methods of transferring funds from the population and entrepreneurs, taking into account the mass and intensity of payments and appeals of individual individuals and legal entities.
In order to minimize live communication during the provision of banking services on holidays from March 20 through March 28, commercial banks of Azerbaijan went on vacation; however, the transactions on settlements with legal entities, as well as tax, duty and other public services continued being rendered electronically.
In early April, banks and insurance companies in Azerbaijan were exempted from paying payments to the CBA. Later, on April 25, the Central Bank decided on credit incentives in the banking sector, within the framework of which, for example, it was possible for entrepreneurs to restructure loans of satisfactory quality without deterioration.
Individuals could also restructure mortgages issued via the Azerbaijan’s Mortgage and Credit Guarantee Fund. In case of complete or partial delay in business and consumer loans (principal or interest-bearing debt) until September 30, 2020, credit organizations were recommended not to charge a fine, penalty, or other payments to the debtor and not to worsen the borrowers' credit history.
Besides, the CBA has developed additional support measures for participants in the insurance market, a plan to reduce the impact of the special quarantine regime on the capital market, provides for a number of measures to provide additional incentives in the securities market.
Another important event in the banking sector of Azerbaijan was the cancellation of the licenses of AtaBank OJSC and Amrahbank OJSC and the appointment of AGBank OJSC and NBCBank OJSC as the temporary administrators.
The CBA Chairman Elman Rustamov said that the decision related to implementation of the above mentioned urgent measures was made by the Financial Stability Council only after the parties came to a unanimous opinion that it was impossible to take measures to improve these banks.
"So, monitoring of the activity of Amrahbank and AtaBank revealed a big shortage of their capital. At the same time, Amrahbank management was provided with extra time and additional financing options were proposed. After the refusal, a decision was made to revoke the bank’s license," the CBA head said.
On May 1, the CBA again kept the discount rate unchanged, while lowering the upper limit of the discount rate corridor by one percentage point to eight percent.
Eldar Janashvili, Department of Economy at Trend News Agency