Weekly economic review (Dec. 21-24)
Azerbaijan offers solution to foreign currency debtors
The government of Azerbaijan has submitted a proposal to help foreign currency debtors in connection with devaluation of the country's currency rate, head of the Azerbaijan Banks Association Zakir Nuriyev said.
The Central Bank of Azerbaijan switched to the floating rate of the national currency (manat) from Dec.21, 2015. As a result, the exchange rate of the US dollar and euro to manat rose by 47.6 percent and 47.9 percent and stood at 1.55 manats and 1.685 manats, respectively on the mentioned day.
The proposal is to cover the difference arising in the result of banks' recalculation of payments on foreign currency loans in accordance with the new rate of Azerbaijani manat at the expense of funds of the Central Bank of Azerbaijan, Nuriyev said.
It is possible to cover the difference arising in the result of banks' recalculation of payments on foreign currency loans by means of 3 billion manats formed as a result of the revaluation of foreign exchange reserves of the central bank after the devaluation of the manat, he said.
"Namely these funds were planned to be allocated to cover the difference arising at borrowers of foreign currency loans," said Nuriyev. "The association welcomes this decision. In such cases, the main problem is to determine the source of compensation to the population, so as not to burden the state budget by additional costs."
"But if there is such a source [the Central Bank of Azerbaijan], I think the government should use it," Nuriyev said. "After that, banks can resort to restructuring of loans - increase the maturity of loans, lower interest rates, etc."
He went on to add that another necessary step on the part of the state is a complete change in the deposit insurance system of the population.
"In the next three years, it is necessary that all deposits of population in banks, including those of individuals engaged in entrepreneurial activities without establishing a legal entity, are fully provided," Nuriyev said. "That is necessary to ensure that the current processes don't harm investors. After that, banks will take all the necessary steps based on this decision."
Currently, 43 banks operate in Azerbaijan.