Review of monetary sector in Azerbaijan (January-March 2017)

The average interest rate on deposits in Azerbaijani banks decreased in national currency and foreign currency in March 2017 compared to March 2016, the report said.

The average rate on deposits in manat amounted to 12.31 percent in March 2017 compared to 12.42 percent in February 2017 and 12.89 percent in March 2016.

The average rate on loans in foreign currency amounted to 8.69 percent in March 2017 compared to 8.81 percent in February 2017 and 11.64 percent in March 2016.

The legal entities received manat loans at an average rate of 8.77 percent in March 2017 compared to 8.86 percent in February 2017 and 8.84 percent in March 2016.

The average rate on bank lending to the corporate clients in foreign currency amounted to 5.6 percent in March 2017 compared to 5.64 percent in February 2017 and 8.31 percent in March 2016.

As of March 2017, the average rate on manat loans to physical entities amounted to 15.8 percent compared to 16 percent in February 2017 and 17 percent as of March 2016.

The average rate on bank lending to the individual customers in foreign currency was 16.72 percent compared to 16.85 percent and 18.91 percent accordingly.

Mortgage lending

According to the CBA report, the banks issued loans worth 12.6 million manat in March 2017.

The total amount of refinancing the loans issued by banks earlier amounted to 1.8 million manat.

The placement of mortgage bonds worth 20 million manat also resumed in March 2017.

The AMF received budgetary funds for social mortgage for the first time in March 2017.

The average monthly amount of the loan delivered by the AMF’s authorized banks was 41,904.2 manat in March 2017 (40,881.3 manat in March 2016). The average period of the loan is 280 months (280 months a year earlier). The average annual interest rate is 6.66 percent (6.71 percent a year earlier). The average monthly amount for payments is 300.6 manat (296.9 manat a year earlier).

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 house, 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 people, 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 loan can use it only once.

Around 25 out of 32 banks in the country, as well as 16 insurance companies [in total 21] and 8 appraisal organizations are the authorized banks of the Azerbaijan Mortgage Fund.

Azerbaijan’s banking sector

The economic cycles, seasonal factors and the attitude of investors, dictated by a variety of causes, impact on the dynamics of deposits.

As of late March 2017, the total amount of deposits of physical and legal entities drawn by the Azerbaijani credit organizations amounted to 21,295.9 million manat.

The deposit base of banks decreased by 2.1 percent in March 2017 and by 7.9 percent per annum.

The amount of deposits in the Azerbaijani national currency – manat reached 5,155.3 million manat as of March 2017, 2,310.4 million manat of which accounted for demand deposits, 2,844.9 million manat - term deposits, the report said.

According to the report, the deposits in freely convertible currency reached 16,140.6 million manat including 4,635.5 million manat - demand deposits, 11,505.1 million manat - term deposits.

Thus, as of April 1, 2017, 24.2 percent accounted for the deposits in manat, 75.8 percent of the total deposit base of banks accounted for foreign currency.

As of April 1, 2016, 19 percent accounted for the deposits in manat, 81 percent of the total deposit base of banks accounted for foreign currency.

According to the report, the physical entities' deposits reached 6,911.4 million manat in March 2017.

Most of the physical entities' deposits accounted for the ones in the foreign currency – 78.58 percent or 5.431 million manat, the report said.

According to the report, the population’s deposits decreased by 2.7 percent for the month, by 7.2 percent in January-March 2017 and by 12.4 percent per annum.

The total volume of the legal entities’ deposits in Azerbaijani banks reached 14,384.5 million manat or by 5.6 percent (15,232.8 million manat) less than in March 2016, the report said.

As of late March 2017, the amount of the Azerbaijani financial organizations’ deposits reached 5,142.3 million manat compared to 6,444.5 million manat as of March 2016.

The amount of the Azerbaijani non-financial organizations’ deposits reached 9,242.2 million manat compared to 8,788.3 million manat as of March 2016.

The population’s bank deposits in Azerbaijani districts (except for Baku) totaled 476.76 million manat in March 2017, that is, 6.9 percent of all deposits, the report said.

According to the CBA report, the share of bank deposits in districts was 6.53 percent (514.98 million manat) in March 2016.

As of early April 2017, the amount of deposits in Baku amounted to 6,434.69 million manat, while the deposits in the national currency – 1,226.8 million manat.

According to the report, the national currency savings of the residents of Azerbaijani districts amounted to 253.67 million manat or 53.2 percent of all deposits in the banks in the districts in the reporting period.

According to the report, the foreign currency savings of the residents of Azerbaijani districts amounted to 46.8 percent of all deposits in the banks in the districts in the reporting period.

For comparison, the foreign currency savings of the residents of Azerbaijani districts amounted to 273.5 million manat or 53.11 percent of all deposits in the banks in the districts in the reporting period.

As of March 2017, the average annual deposit rate throughout the country reached 4.7 percent while 4.6 percent in Baku.

Distribution of bank deposits in Azerbaijani districts:

The average interest rate on deposits in Azerbaijani banks decreased in national currency and foreign currency in March 2017 compared to March 2016, the report said.

The average rate on deposits in manat amounted to 6.82 percent in March 2017 compared to 6.61 percent in February 2017 and 7.85 percent in March 2016.

The average rate on deposits in foreign currency amounted to 4.10 percent in March 2017 compared to 4.22 percent in February 2016 and 6.28 percent in March 2016.

The banks drew deposits of legal entities in manat in the amount of 3.97 percent per annum in March 2017 compared to 3.81 percent in February 2017 and 5.43 percent in March 2016.

The funds on the accounts denominated in the foreign currency brought 2.94 percent to legal entities in March 2017, 3.02 percent in February 2017 and 3.37 percent in March 2016.

As of April 1, 2017, the average interest rate on deposits of physical entities in manat made up 10.81 percent compared to 10.53 percent as of late February 2017 and 9.19 percent as of March 2016.

The interest rates on deposits of physical entities in foreign currency are as follows: 4.88 percent in March 2017, 5.02 percent in February 2017 and 7.75 percent in March 2016.

Financial activity of banks

Azerbaijani commercial banks’ liabilities to the CBA increased by 2.3 percent for the year, amounting to 6.571 billion manat as of Apr. 1, 2017, says a CBA report for the first quarter of 2017.

As compared to early 2017, the liabilities decreased by 6.7 percent.

As of late March 2016, liabilities of commercial banks to the CBA amounted to 6.422 billion manat, while as of early 2017 they amounted to 7.046 billion manat.

The volume of foreign liabilities of the CBA remains unchanged and totals 2.2 million manat.

The CBA’s official international reserves increased by 9.9 percent from $4,065.8 million to $4,402.7 million for the year.

In the first quarter of 2017, net liabilities of the CBA to the Azerbaijani government decreased by nearly 3 times and totaled 2.044 billion manat.

The net liabilities of the CBA to the Azerbaijani government amounted to 5.899 billion manat in the first quarter of 2016.

The total capital of the Azerbaijani banking sector amounted to almost 2.76 billion manat in January-March 2017, according to a banking sector survey presented by the Financial Market Supervisory Authority of Azerbaijan.

The total capital of Azerbaijani banks increased by 44.6 percent in January-March 2017.

As of late March, the banks’ cash amounted to 1.137 billion manat (1.08 billion manat – as of the year), while investments in securities – 338.8 million manat compared to 414.6 million manat as of late 2016.

The Azerbaijani banking sector’s net profit reached 123.4 million manat as of January-March 2017.

According to the survey, the banks’ net loss reached 496 million manat in January 2017, while profit reached 50 million manat in February 2017. The losses of banks amounted to 1.67 billion manat in 2016.

The banking sector's income on credit interest rate amounted to 382.8 million manat, while deposit interest expense - 100.3 percent.

Net interest income of the sector amounted to 259.3 million manat, while operating profit - 310.2 million manat as of late March 2017.

The sector's deductions for the creation of special reserves to cover possible risks on assets decreased by 6.7 times and amounted to 180.7 million manat as of March 2017 compared to the late 2016.

Azerbaijani banks sold foreign currency in cash in the amount equivalent to 899.54 million Azerbaijani manat in the 1Q17 that is by 46.2 percent less than in the first three months of 2016, according to a report.

As before, the greatest demand was for dollars among the banks’ customers. During the three months of 2017, the sale of US dollars amounted to 365.04 million in manat equivalent (a decline of 2.8 times during the year).

The sales of British pound declined by twofold during the year – to 5.09 million in manat equivalent, sales of euro – by threefold, to 52.62 million in manat equivalent.

The smallest reduction was observed in the trade of Russian rubles. Their sales decreased by only 7.3 percent, to 476.79 million in manat equivalent.

A similar situation is observed in the purchase of foreign currency by banks. During the first quarter of 2017, Azerbaijan’s banks bought US dollars for 277.46 million in manat equivalent that is by 3.4 times less than in January-March 2016. The banks also significantly reduced interest in buying euros – this figure fell by 2.6 times to 33.9 million in manat equivalent during the year.

The opposite situation is observed with the British pound and Russian ruble. The banks increased the purchase of British pounds by 17.2 percent – to 1.26 million in manat equivalent and the sale of rubles – by 21.8 percent up to 2.57 billion in manat equivalent.

Payment card market

The total turnover on payment cards via ATMs and POS-terminals amounted to 1.305 million manat in Azerbaijan in March 2017 or by 19.07 percent more than in March 2016.

According to the report, the total number of transactions with payment cards reached 8,446 units increasing by 15.5 percent for the year.

The number of transactions on debit cards reached 7.531 million units totaling 1.171 million manat in the country and beyond the country during the reporting period.

Of the total number of transactions, 5.389 million transactions amounting to 1.014 million manat were implemented on debit cards via ATMs within the country, and around 965,000 transactions amounting to 96 million manat via POS-terminals.

As much as 915,000 transactions worth 134 million manat were made on credit cards in the country and beyond the country in March 2017.

Of the total number of transactions on credit cards, 190,000 transactions worth 42 million manat were implemented via ATMs and there were 329,000 transactions worth 38 million manat via POS-terminals.

The number of payment cards in Azerbaijan increased by 1.14 percent in March 2017 and reached up to 5,496 units compared to March 2016.

Of the total number of cards, 4,855 units accounted for debit cards, in particular, 2,559 - social cards, 1,622 - salary cards, 674,000 - other cards. The number of credit cards was 641,000.

As of April 1, 2017, as many as 2,472 ATMs operated in the country of which 1,340 are located in Baku and 1,132 in other cities and districts of the country. The total number decreased by 88 units or 3.4 percent for the year compared to March 2016.

The number of POS-terminals is 70,795 units of which 39,835 are installed in Baku and 30,960 units in other cities and districts as of late March 2017.

The number of POS-terminals has decreased by 4,768 units or 6.3 percent for the year.

Stock market

The total turnover of exchange transactions on all instruments at the Baku Stock Exchange exceeded 2 billion manat in January-March 2017, that is, by 3.5 times more than in January-March 2016.

The volume of the state securities market totaled 284.14 million manat (almost by twofold more for the year), while the turnover of corporate securities market reached 770.5 million manat (27.76 times more).

The volume of derivatives market exceeded 953 million manat (2.4 times more).

Comparative table on the trades results in the state and corporate sectors at the Baku Stock Exchange:

Some 585 purchase-sale exchange transactions in the amount of almost 225 million manat were registered by the National Depository Center in January-March 2017, which is by over twofold more than in January-March 2016.

The Azerbaijani National Depository Center registered 116 off-exchange transactions in the amount of 185.12 million manat (a 67.7 percent increase for the year) in January-March 2017.

Some 97 transactions on the additional issue worth over 1.12 billion manat were registered in January-March 2017. The volume of such deals increased by almost 5.7 percent in January-March 2017 compared to the same period of 2016.

Volume of transactions as of January-March 2017: