The Azerbaijani Central Bank (CBA) stated that its foreign exchange reserves have been increasing for three consecutive months. The foreign exchange reserves increased by four percent in May. Foreign exchange revenues were obtained from both the management and the market.
As of June 1, foreign exchange reserves of the Central Bank of Azerbaijan (CBA) reached $4.284 billion compared to $4.121 billion as of May 1, $4.066 billion as of April 1 and $5.017 billion as of January 1, 2016, according to the CBA.
For comparison, the CBA currency reserves reached $15,193,400 billion (an absolute record) as of August 1, 2014. The de facto current level of reserves is equivalent to the index as of April 2008 ($4.261 billion).
The CBA foreign exchange reserves increased by $163.7 million in May (+ 3.97 percent) and decreased by $732.4 million (-14.6 percent) for 2016. The CBA foreign exchange reserves reduced by $10,909,100 billion (-3.55 times) from August 1, 2014 to May 1, 2016.
- Bank Standard’s liquidity and capital position has recently weakened due to the deterioration in the bank’s asset quality. To assess the situation, the Board of Directors of Azerbaijan's Financial Market Supervisory Body decided to appoint a temporary administrator in Bank Standard May 3. Preliminary testing showed that the bank's shareholders, its management do not have enough resources to solve the bank's problems. Therefore, a temporary administrator was appointed to restore the financial stability of the bank. Taking into account the systemic importance of the bank, it will be restored. The Supervisory Body will work out an appropriate program to restore the liquidity of the bank and ensure its long-term sustainability. At present, necessary funds were allocated to resolve the liquidity problems.
Bank Standard was established in 1995. At present, the bank is one of the largest private commercial banks in Azerbaijan, which is among the leaders in terms of deposits.
- The CBA increased the lower limit of the interest rate on liquidity operations from two percent to four percent and lowered the upper limit from 17 percent to 15 percent in May. The rate has not changed and remained at the level of seven percent.
A decrease in the upper level of the percent corridor is stipulated by the actual level of inflation, formed as a result of the latest trends in the national economy, changes in the volume and structure of aggregate demand, the main cyclical and structural factors affecting the inflation and the stabilization of inflation expectations. At the same time, the basis for a decrease in the upper level is the tendency in securities yield and interest rates in the interbank foreign exchange market.
On the other hand, the CBA plans to conduct operations on liquidity sterilization to achieve growth of money supply. This stipulates an increase in the lower level of the interest rate corridor. This will also increase the attractiveness of deposits in national currency, its credibility and balance the foreign exchange market.
The operations on interest rates at the level of the lower and upper levels of the percentage corridor are carried out to attract and provide liquidity for a period of 1-7 days. The banks can use repo and reverse repo transactions for a period of one to seven days without any limit for short-term liquidity management.
- The Supervisory Body approved new rules and prudential framework in consumer lending in the national and foreign currency in May. The Supervisory Body upheld the decision dated April 4 on a moratorium on the issuance of consumer loans in foreign currency to the individuals who do not have foreign exchange earnings and bank deposits. However, to reduce the loan burden of the borrowers, the Supervisory Body resumed restructuring of foreign currency loans.
Moreover, Azerbaijan introduces a ban on mortgage loans in foreign currency.
These decisions entered into force May 6, 2016:
At the same time, to ensure the stability of the banking system, a decision was made to apply more stringent prudential framework in the credit risk management in relation to the banks. The reserves for possible losses and strengthening of capital buffer are planned to be gradually increased.
- The Centralized Credit Registry Service, which operated previously under the CBA, passed under the Supervisory Body.
The Service has been operating in Azerbaijan since March 2005. Currently, some 37 banks operating in the country, as well as 37 non-bank credit organizations, joined the registry service.
Currency market and manat rate
The CBA does not interfere in the regulation of the manat rate against the US dollar. The CBA will remain faithful to the policy of floating rate of the national currency. The rate of national currency is based on supply and demand on the foreign exchange market, as well as on the basis of internal and external fundamental factors.
The CBA may intervene [through currency interventions] in the rate regulation only if there are serious problems. Minor fluctuations in the exchange rate of manat are not such a problem for the CBA to intervene in the regulatory process. Similar fluctuations of the rate are observed in the currencies of many countries, including Russia, Kazakhstan and other countries. This is a normal process.
The CBA holds auctions for the sale of currency twice a week on Tuesdays and Thursdays. Along with the CBA currency interventions, the Azerbaijani State Oil Fund (SOFAZ) also sells dollar assets to the banks. The exchange rate of manat is set on the basis of inter-bank transactions on the foreign exchange market.
The manat rate has greatly strengthened against the US dollar in May for the first time since early 2016. So, the official exchange rate as of May 31 was set at 1.4906 manat against 1.5072 manat as of May 1 and 1.5610 manat as of December 31, 2015.
Azerbaijani monetary market
The money supply rate (M2) (cash in circulation (outside the banks) and remainders in the national currency on the accounts of legal entities (excluding credit organizations) and physical entities) reached 9.601 billion manat in May 2016 increasing by 4.3 percent for the month but decreasing by 13.1 percent for the year, the Azerbaijani Central Bank’s (CBA) report said.
According to the report, the amount of cash money supply (M0) decreased by 14.1 percent for the year from 6.493 billion manat to 5.578 billion manat. M0 increased by 5.2 percent compared to the previous month.
As of early June 2016, Broad Money Supply (M3) totaled 20.630 billion manat or almost 8.8 percent more compared to the same period of 2015 and by 0.3 percent more than in the previous month, the report said.
The transaction money (M1) decreased by 7.4 percent for the year and reached 7.747 billion manat increasing by 4.5 percent compared to April, the report said.
Parameters of monetary market, in billion manat:
|
Volume, May 2016 |
|
|
Money mass in extensive understating (М3) |
20 629,7 |
|
Money mass on manat (М2) |
9 600,7 |
|
Cash in manat (М0) |
5 578,4 |
|
Non-cash in manat |
4 022,3 |
As of June 1, 2016, the bank reserves in Azerbaijan amounted to 2.078 billion manats, which is by 2.5 times more compared to May 2015 (849.2 million manat), the CBA’s report said.
The expanded monetary base in Azerbaijan totaled 8.344 billion manat as of June 1, 2016.
In annual terms, the monetary base in Azerbaijan increased by 4.5 percent. For comparison, as of late May 2015, this figure was 7.984 billion manat. The monetary base increased by 10.35 percent in Azerbaijan compared to early 2016 (7.561 billion manat).
As of June 1, 2016, the monetary base in manat amounted to 7.642 billion manat versus 7.597 billion manat as of June 1, 2015.
In the mentioned period, the volume of money in circulation amounted to 6.244 billion manat, while this figure was 7.129 billion manat as of June 1, 2015.
The ratio of the mass of cash in circulation to the monetary base was 74.8 percent as of June 1, 2016, decreasing by 14.5 percent compared to the same index as of June 1, 2015.
Azerbaijan’s loan market
The credit portfolio of Azerbaijani banks slightly decreased by 2.99 percent up to 18.197 billion manat in May 2016.
Azerbaijani banks decreased lending for the economy by 11.1 percent compared to May 2015.
The banks issued over a half of loans worth 9.676 billion manat (53.2 percent) in the national currency, while the rest part – 8.521 billion manat (46.8 percent) in foreign currency.
This ratio hit 73 and 27 percent in early 2015. But the share of foreign currency loans began increasing, reaching 49.3 percent as of the year after the February devaluation of the manat.
However, the Supervisory Body has established a moratorium on the issuance of consumer loans in foreign currency to the individuals who do not have foreign exchange earnings and bank deposits since April 2016 and imposed a ban on mortgage loans in foreign currency since May. Moreover, some banks have started to convert dollar-denominated loans into manat ones. As a result, the share of manat loans began to grow gradually. For comparison, some 50.9 percent of the loan portfolio of banks accounted for the loans in national currency in March 2016 and 51.8 percent in April.
The volume of overdue bank loans increased by 9.6 percent and reached 1.514 billion manat in Azerbaijan in May 2016 compared to April.
The share of the loans in the loan portfolio of banks was 8.3 percent compared to 7.4 percent as of late April.
As of June 1, 2016, the volume of short-term loans amounted to 3.89 billion manat (including overdue loans worth 530.8 million manat) decreasing by 7.4 percent for the year (a 4.9 percent growth) and 13.9 percent per annum (a 2.4 percent growth).
The volume of long term loans decreased by 2 percent for the month and 10.3 percent up to 14.306 billion manat for the year (including 983.4 million manat of overdue loans).
The credit portfolio of the state banks in Azerbaijan reached 5.834 billion manat with the specific weight of 32.1 percent, while private banks issued loans worth around 11.814 billion manat with a specific weight of 64.9 percent. Some 4.707 billion manat of the amount account for the banks with foreign capital.
The remaining 3 percent accounted for the share of non-bank credit organizations which issued 548.9 million manat. This index remained unchanged for the last two months.
There are 37 banks, including two state-owned, and 157 non-bank micro-finance organization, including 109 credit unions in Azerbaijan.
Azerbaijani banks slightly increased the industry and production lending by 0.3 percent up to 1.2 billion manats in May 2016 compared to April, the report said.
According to the report, the sector lending index has increased for the first time since early 2016. The volume of loans issued for industry and production, was nearly 1.9 billion manats in January 2016.
In total, the issuance of loans in that sector has decreased twofold for the year compared to May 2015. Some 6.7 percent of loans issued in the country account for industry and production, the report said.
According to the report, the largest part of the total loan portfolio of banks - 38.1 percent accounts for the consumer lending.
The retail loan volume decreased by 3.5 percent up to 6.9 billion manats in May compared to April and by 13.8 percent for the year, the report said.
According to the report, the construction and real estate sector (15.3 percent or 2.78 billion manats) ranked second in the total loan portfolio of banks. The trade and services (14.4 percent or 2.62 billion manats) ranked third.
Some 6.8 percent (1.24 billion manats) accounted for the loans issued in transport and communication, 2.3 percent (427.4 million manats) - agriculture and processing, 1.6 percent (288.3 million manats) - energy, chemistry, and natural resources, the report said.
As of May 2016, the total volume of lending for the construction sector and real estate in Azerbaijan reached 2.033 billion manat, increasing by 4.1 percent compared to the same period of 2015, but decreased by 2.4 percent compared to the previous month.
According to the report, the private sector is the major recipient of loans for the construction. Some 1.975 billion manat or 97.3 percent of all loans in this category accounted for the private sector. The remaining funds were provided by state-owned enterprises.
Some 79.2 percent (1.611 billion manat) of loans were issued for the construction sector in the long term period, while 20.8 percent (422.7 million manat) - short-term period.
Some 89 percent (1.434 billion manat) in the structure of long-term loans accounted for loans in the national currency, and only 11 percent (176.3 million manat) - in foreign currency. As for the short-term loans, some 74.6 percent (315.3 million manat) were issued in foreign currency, and the remaining funds (25.4 percent or 107.4 million manat) - in manat.
At the same time, the total amount of loans issued to the legal entities, operating in real estate reached 743 million manat as of late May 2016. All loans were issued for the long term period and almost all 99.7 percent or 741.1 million manat were in foreign currency.
The loans given to the population in Azerbaijan's districts totaled 2.955 billion manat as of May 2016, or 16.24 percent of the banks' total loan portfolio and 12.5 percent less than in the same period of 2015, the report said.
The loans worth 18.197 billion manat were issued in Baku. The loans in national currency (manat) amounted to 9.676 billion manat.
For comparison, the loans amounting to 17.090 billion manat were issued in Baku in May 2015. Some 9.277 billion manat of this amount accounted for the loans in national currency.
The average interest rate on loans throughout the country was 10.2 percent in May 2016, while in Baku this index stood at 11 percent.
The lending volume in the Absheron economic district totaled 605.8 million manat at an average rate of 16.3 percent.
In other economic districts the lending index was as follows: Aran – 777.3 million manat at a rate of 21.4 percent, Mountainous Shirvan – 109.4 million manat at a rate of 21.4 percent, Ganja-Gazakh – 625.4 million manat at a rate of 19.2 percent, Guba-Khachmaz – 207.1 million manat at a rate of 20.4 percent, Lankaran – 253.3 million manat at a rate of 22 percent, Shaki-Zagatala – 199.46 million manat at a rate of 21.1 percent, the Upper Karabakh – 52.85 million manat at a rate of 18.6 percent, Kalbajar-Lachin – 0.87 million manat at a rate of 16.5 percent, Nakhchivan – 123.2 million manat at a rate of 13.6 percent.
Azerbaijani banks reduced the average interest rate on loans in national and foreign currency in May 2016.
The average rate on loans issued in national currency amounted to 12.43 percent in May compared to 12.85 percent in April.
The average interest rate on loans reached 14.05 percent in May 2015.
The average rate on loans in freely convertible currency made up 10.19 percent in May 2016 compared to 11.41 percent in April 2016 and 12.64 percent in May 2015.
The legal entities received manat loans on an average rate of 8.28 percent in May compared to 8.84 percent in April 2016 and 9.76 percent in May 2015.
The average rate on bank lending to the corporate clients in freely convertible currency amounted to 5.73 percent in May 2016 compared to 7.68 percent in April and 8.8 percent in May 2015.
As of May 2016, the average rate on manat loans to physical entities amounted to 16.72 percent compared to 16.91 percent in April and 18.46 percent as of June 1, 2015.
The average rate on bank lending to the individual customers in freely convertible currency was 19.3 percent compared to 19.33 percent and 20.96 percent accordingly.
Mortgage lending
Some 4.2 million manat were allocated from the state budget to finance social mortgage through the Azerbaijan Mortgage Fund (AMF) in May compared to 10 million manat in the same period of last year.
According to the report, all the funds were fully used to refinance the mortgage loans issued by the banks earlier.
Some 18.7 million manat were allocated for social mortgage from the state budget in 2016.
No loans were issued by the banks in May, while the mortgage lending amounted to 47 million manat in the same period of 2015. The mortgage bonds were not placed.
The average monthly amount of the loan, issued by the AMF authorized banks, reached 40885.5 manat in May (this figure amounted to 40.524 manat in May 2015), the average term of the loan - 280 months (279 months), the average annual interest rate - 6.7 percent (6.74 percent a year earlier), the average monthly payment - 296.6 manat (297.3 manat).
In general, the AMF’s authorized credit organizations issued 17,997 mortgage loans worth more than 730.8 million manat from 2006 up till now.
According to the new mortgage loan issuance order, approved in June 2016, an ordinary mortgage loan will be issued only to Azerbaijani citizens and only in the national currency for a term from 3 years to 25 years, while preferential mortgage - up to 30 years to purchase a residential area, owned by the citizen. Interest rates on conventional mortgage must not exceed eight percent, while 4 percent per annum in preferential mortgage loan.
The maximum amount of the mortgage loan (including preferential) is determined by Azerbaijan Mortgage Fund JSC and must not exceed the cost of repaired housing with an average of 100 square meters in zone #7 in Baku. Annual interest rates on the loan are determined by the company’s Supervisory Board.
The amount of preferential mortgage loan must be 85 percent of the cost of purchased housing by the date of the loan issuance, except for cases when a borrower appeals to decrease the loan amount. The amount of conventional mortgage loan must not be less than 75 percent and more than 85 percent of the cost of purchased housing by the moment of the loan issuance, except for the cases when a borrower appeals to decrease the loan amount.
The monthly payment for a mortgage loan must not exceed 70 percent of a debtor's monthly income. The age of the borrower must not exceed the retirement age according to the legislation. An agreement on life insurance is required.
The family members of war victims, national heroes, internally displaced persons, civil servants with at least a three years' experience, teachers of secondary schools with at least a five-year service term, PhDs, doctors of science and those having special merits in sport as well as the military with at least a three-year service term can use the preferential conditions. Each family having the right to such a mortgage can only use the opportunity.
At present, the authorized banks of the Azerbaijan Mortgage Fund are 28 banks.
The participants of the mortgage market are 19 insurance companies [in total, 25 companies] and 16 appraisal organizations.
Azerbaijan’s banking sector
he economic cycles, seasonal factors and the attitude of investors, dictated by a variety of causes, impact on the dynamics of deposits.
The total volume of deposits increased by 2.6 percent in May and 24.6 percent for the year, by reaching $23.148 billion. Some 18.697 billion manat or 80.8 percent of the funds were in a freely convertible currency, while the remaining funds - in manat.
The share of deposits in foreign currency began increasing in a total portfolio of banks after the devaluation in February 2015. So, some 51.7 percent of the banks' deposit base was formed in January 2015 through the deposits in foreign currency. However, as of 2015, this figure reached 81.6 percent.
The highest level of dollarization is observed in the structure of deposits of financial institutions. As of May, some 86 percent of all deposits of legal entities were stored in foreign currency. The non-financial organizations stored only 77.2 percent of deposits in foreign currency. The physical entities stored 80.9 percent in foreign currency.
The Azerbaijani financial and non-financial organizations in May 2016 increased deposits in domestic banks by 0.6 and 7.7 percent up to $6.222 billion and $9.361 billion for the month, respectively.
The deposits of financial institutions increased by 1.3 percent, while non-financial institutions - almost doubled for the year compared to May 2015.
Amid the growth of deposits of legal entities, the deposits of the population continue to decline. The deposits amounted to 7.566 billion manat in May 2016, which is 1.55 percent less than in April and 0.5 percent - in May 2015.
The population’s deposits, attracted to Azerbaijan’s banking system from the country’s districts (except for Baku), totaled 469.4 million manat in May 2016, that is, 6.13 percent of the total bank deposits, the report said.
The volume of deposits in Baku was 7.102 billion manat, while some 1.216 billion manat (17.13 percent) accounted for the deposits in the national currency.
The foreign currency savings of the residents of Azerbaijani districts amounted to 232.7 million manat (49.57 percent of total deposits in the districts) in the reporting period.
As of May 2016, the average interest rate throughout the country and Baku hit 5.9 percent.
Thus, the Absheron economic region is still the leader on such indices as attracting the population’s deposits by the banks (142.4 million manat, average rate – 6.5 percent per annum).
During this period, the volume of deposits in the Aran economic region – 73.86 million manat at a rate of 5 percent, Mountainous Shirvan – 11.63 million manat at a rate of 6.5 percent, Ganja-Gazakh – 101 million manat at a rate 5.8 percent, Guba-Khachmaz – 29.37 million manat at a rate of 6 percent, Lankaran – 39.72 million manat - the rate of 6.8 percent, Sheki-Zagatala – 27.31 million manat - the rate of 4.6 percent, Upper Karabakh – 9.6 million manat – 3.5 percent, Kalbajar-Lachin – 0.02 million manat – 10.8 percent, Nakhchivan – 28.5 million manat – the average rate of 3.5 percent.
The average interest rate on deposits in Azerbaijani banks increased in national currency but decreased in foreign currency in May 2016 compared to April 2016, the report said.
The average rate on bank deposits in manat made up 7.78 percent in May 2016 compared to 7.77 percent in April 2016 and 8.81 percent in May 2015.
The average rate on deposits in foreign currency amounted to 5.42 percent as of June 1, 2016 compared to 5.84 percent in April 2016 and 8.38 percent in May 2015.
The banks drew deposits of legal entities in manat in the amount of 5.49 percent per annum in May 2016 compared to 5.55 percent and 5.95 percent in April 2016 and May 2015 accordingly.
The funds on the accounts denominated in the freely convertible currency brought 3.17 percent to legal entities in May 2016, 3.42 percent in April 2016 and 4.03 percent in May 2015.
As of June 1, 2016, the average interest rate on deposits of physical entities in manat made up 8.95 percent compared to 8.94 percent as of May 1 and 9.66 percent as of June 1, 2015.
The interest rates on deposits of physical entities in foreign currency are as follows: 6.94 percent in May 2016, 7.08 percent in April 2016 and 9.5 percent in May 2015.
Payment card market
The total turnover on payment cards via ATMs and POS-terminals in May 2016 amounted to 1.050 billion manat (6.8 percent more than in the same period of 2015) and the total number of transactions – 7.046 billion or by 0.31 percent less for the year, according to the report.
The number of transactions on debit cards equaled 6.156 billion units totaling 914 million manat during the reporting period.
Of the total number of transactions, 4.59 million transactions amounting to 806 million manat were implemented on debit cards via ATMs within the country, and around 568,000 transactions amounting to 59 million manat via POS-terminals.
As much as 890,000 transactions worth 136 million manat were made on credit cards in May 2016.
Of the total number of transactions on credit cards, 197,000 transactions worth 53 million manat were implemented via ATMs and there were 277,000 transactions worth of 32 million manat via POS-terminals.
The number of payment cards in Azerbaijan decreased by 10.73 percent in May and reached up to 5.422 billion units compared to the same period of 2015.
Of the total number of cards, 4.681 billion units accounted for debit cards, in particular, 2.478 billion - social cards, 1.529 billion - salary cards, 674,000 - other cards. The number of credit cards was 742,000.
As of June 1, 2016, as many as 2,573 ATMs operated in the country of which 1,421 are located in Baku and 1,152 in other cities and districts of the country. The total number decreased by 97 units or 3.63 percent for the year compared to May 2015.
The number of POS-terminals amounted to 73,945 units of which 42,708 are installed in Baku and 31,237 units in other cities and districts as of late May 2016.
The number of POS-terminals has decreased by 4,379 units or 5.59 percent for the year.
Stock market
The total turnover of exchange transactions on all instruments at the Baku Stock Exchange reached 1.46 billion manat in January-May 2016, that is, 4.3 times less than in the same period of 2015.
The volume of the state securities market increased by over 16 times during the period and totaled 240.23 million manat, while the turnover of corporate securities market decreased by 27.8 times and reached 39.05 million manat, the Baku Stock Exchange said.
The volume of derivatives market decreased by 4.3 times and reached 1.18 billion manat.
The Baku Stock Exchange started to trade derivatives on a commodity basis on July 21, 2014.
The margin trading allows investors to buy and sell securities and financial instruments purchased from a broker under special conditions through a temporary trading limit.
Comparative table on the trades results in the state and corporate sectors at the Baku Stock Exchange:
|
Market segments |
Jan.-May 2016 |
Jan.-May 2015 |
||
|
Volume of transactions (AZN) |
Number of deals |
Volume of transactions (AZN) |
Number of deals |
|
|
I. State securities market |
240 232 568,18 |
99 |
14 914 881,15 |
5 |
|
State bonds of finance ministry |
240 232 568,18 |
99 |
14 914 881,15 |
5 |
|
Initial placement |
147 462 637,49 |
67 |
0 |
0 |
|
secondary market |
92 663 930,74 |
32 |
14 914 881,15 |
5 |
|
Notes (Central Bank) |
- |
- |
0 |
0 |
|
Initial placement |
- |
- |
0 |
0 |
|
secondary market |
- |
- |
0 |
0 |
|
II. Market of shares |
6 059 297,87 |
727 |
130 977 876,20 |
1787 |
|
Initial placement |
5 072 000,00 |
6 |
128 183 981,97 |
67 |
|
secondary market |
987 297,87 |
721 |
2 793 894,23 |
1720 |
|
III. Debt market |
32 985 876,27 |
48 |
952 916 727,73 |
357 |
|
Mortgage bonds (Initial placement) |
- |
- |
11 057 751,00 |
4 |
|
Mortgage bonds (secondary market) |
15 014 457,08 |
7 |
810 441 047,44 |
98 |
|
Other corporate bonds (initial placement) |
4 013 779,85 |
22 |
12 787 355,20 |
40 |
|
Other corporate bonds (secondary market) |
13 957 639,34 |
19 |
118 630 574,09 |
215 |
|
- including market makers |
- |
- |
140 228 045,87 |
155 |
|
IV. Repo transactions |
0,00 |
0 |
102 415 647,16 |
86 |
|
Repo transactions of the Central Bank |
- |
- |
32 217 600,76 |
30 |
|
Other repo transactions |
- |
- |
70 198 046,40 |
56 |
|
V. Derivatives market |
1 179 371 045,97 |
16750 |
5 079 112 288,18 |
30213 |
|
- Currency |
1 140 987 199 |
14 532 |
5 006 052 781,26 |
26859 |
|
- goods |
38 383 847 |
2 218 |
73 059 506,92 |
3354 |
|
Total |
1 458 648 788,30 |
17 624,00 |
6 280 337 420,42 |
32 448,00 |