Bank confidence fuels deposit growth

Bank confidence fuels deposit growth

Baku, Azerbaijan, Jan.19 / Trend /

Leyla Abdullayeva, Trend Analytical Centre Expert

The confidence of Azerbaijani citizens in the country's banks should increase. An incentive for this is the constant simplification and establishment of an easy system to use with the Azerbaijani deposit insurance fund (ADIF), which currently plans to reduce compensation terms by six times.

ADIF plans to reduce terms of returning insured deposits to savers to 14 days if the bank goes into bankruptcy. At present the Fund has declared a tender for new software. To date there have been three bids which will be assessed in February. At the moment according to the country's current legislation, the terms for making payments are 90 days from the day of the depositor's appeal to the bank fund.

Until recently one of the main reasons for non-active investment of savings was lack of confidence in the country's banking. The introduction of an insurance system has stabilised the financial market, inspired calm and raised a degree of people's confidence in Azerbaijani banking. Depositors in order to insure their deposits make no payments. This falls to the banks.

Due to the deposits' insurance system, Azerbaijanis place their assets in banks and statistics confirm it.

According to the ADIF, annual absolute growth of deposits only increases. Thus, total deposits of individuals in bank members of the Azerbaijani deposit insurance fund amounted to 3.763 billion manat, or 29 per cent more in 2011 compared to 2010. Insured deposits increased by 21 per cent and hit 2.256 billion manat in 2011. Insured depositors numbered 5782 in 2011.

The system of deposit insurance has worked successfully in Azerbaijan for over four years and its results are more and more tangible. The volume of individual deposits increased thrice from August, 2007 until late 2011.

In order to ensure the work of the insurance system, the government established this non-commercial organisation in August, 2007. It ensures payment of indemnity on deposits to individuals and controls the formation of the fund and manages assets of the fund.

A surge of confidence in the banks was observed through such material factors as the gradual increase in sums of insurance coverage. From approving the law for full insurance coverage, it increased from 4000 manat to 6000 manat. In early 2010 it reached 8000 manat and by the end of 2010 in a deepening world crisis in order to assist the banking sector the limit was increased up to 30,000 manat.

Deposits placed in members of the ADIF at an annual rate of over 12 per cent from Jun.2010 are not insured by the Fund and payment of compensations on this is not anticipated.

At present 43 banks of 44 operating in the country are members of the fund. One bank because of non-compliance with the requirements of the Central Bank still operates with limited licence and doesn't have access to receipt of deposits. No single case of a bank's bankruptcy was recorded in Azerbaijan during the Fund's activities and respectively no payments were made from the ADIF.

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