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

Analysis Materials 13 September 2017 14:14 (UTC +04:00)

Currency reserves of the Central Bank of Azerbaijan (CBA) increased by approximately $870.2 million (21 percent) in July 2017 as compared to June 2016, and amounted to $5,033.1 million.

CBA’s reserves increased by $69 million (1.4 percent) for the month, while by $1,058.7 million (26.6 percent) since early 2017.

Currency reserves of the CBA decreased by more than $1 billion or by 20.78 percent in 2016 as compared to 2015.

CBA’s currency reserves have started to decrease since July 2014. The reduction was at a slower rate (within a range of $20 million to $50 million) at the beginning, but a sharp decline began in December 2014 due to an increase in demand for dollar in the country.

During 2016, the currency reserves increased by 0.9 percent in March, 1.35 percent in April, 3.97 percent in May, 0.7 percent in August and 0.14 percent in November.

Currency market and manat rate

A fully floating exchange rate regime has been observed in Azerbaijan for six months. During this time the CBA did not resort to serious interventions to maintain the manat rate. First, there was a period of destabilization, which was connected with the expectations of the market participants. This led to a significant decrease in the cost of manat.

However, then the market itself settled the rate and it stabilized. Today, the foreign exchange market is a market of supply, rather than demand. The pressure is made to appreciate the manat rate. Taking into account Azerbaijan's strategic goals, appreciation of the manat in the medium term may create problems for the balance of payments, given the current measures to reduce imports and support exports.

USD/AZN rate decreased by 3.9 percent in July 2017.

USD rate increased in January and in early February but began to decrease in mid. February.

AZN/USD maximum rate in the reporting period was 1.92 manat and was set on February 1, the minimum rate - 1.702 manat was set from May 26 to June 1.

AZN/USD rate increased by 3.94 percent in January-July 2017. At the same time, AZN/USD rate increased by 0.7 percent in July 2017. AZN/USD average rate in July was 1.7017 compared to 1.7022 in June 2017.

AZN/EUR rate decreased by 7.07 percent in January-July 2017.

AZN/EUR rate decreased by 2.51 percent in July 2017 (In June, AZN/EUR rate decreased by 2.41 percent).

Azerbaijani monetary market

The money supply rate (M2) (cash in circulation (outside banks) and remainders in the national currency on accounts of non-financial organizations, financial organizations (excluding credit organizations) and physical entities) amounted to 11.34 billion manat in July 2017 decreasing by 0.9 percent for the month and increasing by nearly 12.3 percent for the year.

The indicator of cash money supply in circulation (M0) increased by 18.8 percent for the year – from 5.84 billion manat to 6.94 billion manat. М0 indicator increased by 2.4 percent compared to June.

As of July 2017, Broad Money Supply (M3) totaled 20.82 billion manat or by 1.3 percent less compared to July 2016 and by 0.7 percent less than in late June 2017.

Meanwhile, Transaction Money (M1) increased by 10.6 percent for the year and by 0.3 percent – up to 9.29 billion manat compared to June 2017.

Parameters of monetary market, in million manat:

Monetary market parameters

Volume, July 2017

Money mass in extensive understating (М3)

20,824.4

Money mass on manat (М2)

11,338.5

Cash in manat (М0)

6,937

Non-cash in manat

4,401.5

As of August 1, 2017, bank reserves totaled 3.21 billion manat in Azerbaijan, increasing by 48 percent (2.17 billion manat) as compared to July 2016.

According to the CBA, as of late July 2017, the expanded monetary base amounted to 10.72 billion manat in the country (an increase by 24.3 percent as compared to the same period of 2016). This figure was 8.62 billion manat as of July 2016.

As of August 1, 2017, monetary base totaled 8.33 billion manat in Azerbaijan as compared to 7.64 billion manat in early August 2016.

During the period, the amount of cash in circulation was 7.48 billion manat, while this figure was 6.44 billion manat as of August 1, 2016.

The ratio of cash in circulation to monetary base as of August 1, 2017 amounted to 69.8 percent, decreasing by 0.1 percentage points compared to late July 2016.

Azerbaijan’s loan market

As of early August 2017, the Azerbaijani credit organizations’ loans totaled 12.86 billion manat, which is by 23.1 percent less compared to the same period of last year, the CBA report said.

The volume of loans, issued by the Azerbaijani credit organizations, decreased by 7.4 percent for the month, said the report.

Loans in Azerbaijan’s national currency prevail in the structure of issued loans.

Some 56.5 percent (7.26 billion manat) of all loans account for those loans. During the year, their volume decreased by 15.9 percent. The remaining funds are foreign currency loans (43.5 percent, or 5.6 billion manat), their volume decreased by 30.6 percent compared to July 2016.

This ratio was 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, Azerbaijan’s Financial Market Supervisory Authority 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 2016.

Some banks began to convert dollar loans into manat loans.

In July 2017, the volume of overdue loans in Azerbaijani national currency reached 923.9 million manat, which is by 29.8 percent more compared to July 2016.

The share of overdue loans in Azerbaijani manat reached 7.2 percent of the loan portfolio of the country’s banks and non-banking credit organizations as of June 2017, the report said.

In July 2017, overdue loans in foreign currency amounted to 888.9 million manat, which is by 12.1 percent more compared to July 2016, and the share of these loans reached 6.9 percent.

In general, the total volume of overdue loans in Azerbaijan amounted to 1.81 billion manat (20.5 percent increase for the year) with a 14.1 percent share.

As of late July 2017, the volume of short-term loans amounted to 2.52 billion manat (including overdue loans worth 353.1 million manat), the volume of long term loans amounted to 10.34 billion manat (including overdue loans worth 1.46 billion manat).

According to the CBA, the loan portfolio of the state banks in Azerbaijan amounted to 2.9 billion manat, and their share in the loan portfolio of the country’s banks and non-banking credit organizations was 22.5 percent.

Private banks issued loans worth 9.5 billion manat, and their share amounted to 74 percent. Some 3.83 billion manat of these loans account for the share of banks with foreign capital. The rest 3.5 percent accounted for the non-bank credit organizations which issued 452.3 million manat.

Lending to the fields of energy, chemistry and natural resources in Azerbaijan increased by 2.8 percent in July 2017 as compared to the same period of 2016 and decreased by 30.3 percent as compared to June 2017, according to a CBA report.

The report says that 382.1 million manat accounted for the share of loans in this sector. The specific weight of loans, issued for the projects in the sphere of energy, chemistry and natural resources, was 3 percent. In July 2016, this figure was 371.6 million manat (2.2 percent).

A major part of loans still accounts for consumer loans in Azerbaijan – 4.97 billion manat (decrease by 20.4 percent as compared to the same figure in 2016). The figure decreased by 2.5 percent as compared to June 2017.

The reduction in consumer lending in Azerbaijan began after the first devaluation of Azerbaijan’s national currency – the manat [on February 21, 2015, when the exchange rate of the US dollar against the manat increased by almost 34 percent].

However, a lion’s share of banks’ total loan portfolio – 38.6 percent – still accounts for the share of consumer loans [as of July 2017]. This figure was 37.3 percent in July 2016.

The sphere of trade and services (16.8 percent or 2.16 billion manat) ranks second and is followed by transport and communication (8.2 percent or 1.06 billion manat).

In July 2017, the amount of loans for industry and production totaled 639 million manat (5 percent). Construction and real estate sphere accounted for 4.8 percent (620.8 million manat), while agriculture and processing sphere accounted for 3.5 percent (451.8 million manat) during the period.

The loans worth 2.05 billion manat were issued to the population in the Azerbaijani districts in July 2017, that is, 16 percent of the total loan portfolio of banks, which is by 14.9 percent less than in the same period of 2016, according to the CBA report.

According to the CBA, the loans worth 10.81 billion manat were issued in Baku in July 2017. Some 5.74 billion manat (53.1 percent of total lending volume in Baku) accounted for the loans in national currency.

For comparison: as of July 2016, borrowers received loans worth 14.31 billion manat in Baku, 7.05 billion manat of that amount accounted for the loans in national currency.

The average annual interest rate on loans in the country as of July 2017 was 11.6 percent, while 10.2 percent in Baku.

Districts

Lending volume

Average interest rate

thousand manat

Including manat

Absheron

444,650.3

326,119

15.5

Aran

499,327

356,397.7

21.9

Mountain Shirvan

73,724.1

51,946.9

21.4

Ganja-Gazakh

439,486

314,050.8

18.6

Guba-Khachmaz

145,995.4

112,423.6

19.4

Lankaran

173,234.9

119,424.7

21.7

Sheki-Zagatala

137,703.9

103,031.2

21.4

Upper-Karabakh

36,461.1

31,283.3

17.8

Kalbajar-Lachin

671.7

474.1

14.5

Nakhchivan

102,850.3

101,326.7

9

The average interest rate on deposits increased in national and foreign currencies in Azerbaijani banks in July 2017 compared to July 2016, the CBA report said.

According to the report, the average rate on deposits in manat amounted to 12.9 percent in July 2017 compared to 12.4 percent in June 2017 and 12.37 percent in July 2016.

The average rate on loans in freely convertible currency amounted to 10 percent in July 2017 compared to 9.84 percent in June 2017 and 10.3 percent in July 2016, the report said.

According to the report, the legal entities received manat loans at an average rate of 9.07 percent in July 2017 compared to 8.82 percent in June 2017 and 8.15 percent in July 2016.

The average rate on bank lending to the corporate clients in foreign currency amounted to 6.86 percent in July 2017 compared to 6.89 percent in June 2017 and 6.25 percent in July 2016, the report said.

As of July 2017, the average rate on manat loans to the individuals amounted to 15.93 percent compared to 15.86 percent in June 2017 and 16.71 percent as of July 2016, the report said.

The average rate on bank lending to the individual customers in foreign currency was 16.21 percent compared to 15.97 percent and 18.77 percent accordingly, the report said.

Mortgage lending

Azerbaijan Mortgage Fund (AMF) issued loans worth 16.5 million manat in July 2017, according to the CBA report.

It should be recalled that the issuance of mortgage loans was suspended in the same period last year due to the restructuring of the AMF.

According to the CBA report, in July 2017, the volume of refinancing of loans issued by banks earlier amounted to 12.8 million manat. Since the beginning of the year, 28.8 million manat has been transferred from the state budget to the AMF.

The average monthly amount of the loan delivered by the AMF’s authorized banks was 42,451.3 manat in July 2017 (40,882.6 manat in July 2016). The average period of the loan is 278 months (280 months a year earlier). The average annual interest rate is 6.6 percent (6.7 percent a year earlier). The average monthly amount for payments is 303 manat (296.1 manat a year earlier).

In general, AMF’s authorized lending institutions have issued 19,601 mortgage loans worth 830.35 million manat since 2006 and 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 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 not exceed 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 24 out of 31 banks in the country, as well as 17 insurance companies [in total 22] and 13 appraisal organizations are the authorized banks of the Azerbaijan Mortgage Fund.

Azerbaijan’s banking sector

As of July 2017, the total amount of deposits of physical and legal entities drawn by the Azerbaijani credit organizations amounted to 21.35 billion manat.

The deposit base of banks decreased by 1.2 percent for the month and by 8.2 percent per annum.

The amount of deposits in the Azerbaijani national currency – manat reached 4.77 billion manat as of July 2017, 2.4 billion manat of which accounted for demand deposits, 2.36 billion manat - term deposits, the report said.

According to the report, the deposits in freely convertible currency reached 16.58 billion manat including 5.7 billion manat - demand deposits, 10.89 billion manat - term deposits.

Thus, as of August 1, 2017, 22.3 percent accounted for the deposits in manat, 77.7 percent of the total deposit base of banks accounted for foreign currency.

According to the report, the physical entities' deposits exceeded 6.86 billion manat in July 2017. Most of the physical entities' deposits accounted for the ones in the foreign currency – 73.5 percent or 5.04 billion manat, the report said.

According to the report, the population’s deposits decreased by 0.7 percent for the month and by 12.5 percent per annum.

The total volume of the legal entities’ deposits in Azerbaijani banks reached 14.49 billion manat or by 6 percent (15.41 billion manat) less than in July 2016, the report said.

As of August 1, 2017, the amount of the Azerbaijani financial organizations’ deposits reached 4.77 billion manat compared to 5.86 billion manat in the same period of 2016.

The amount of the Azerbaijani non-financial organizations’ deposits reached 9.72 billion manat compared to 9.55 billion manat as of July 2016.

The population’s bank deposits in Azerbaijani districts (except for Baku) totaled 508.84 million manat as of August 1, 2017, that is, 7.4 percent of all deposits, the report said.

According to the CBA report, the share of bank deposits in districts was 8.2 percent (564.93 million manat) as of late July 2016.

As of early August 2017, the amount of deposits in Baku amounted to 6.35 billion manat.

As of late July 2016, the population kept deposits worth 7.84 billion manat in banks, while as of August 1, 2017 this figure reduced to 6.86 billion manat.

In July 2017, the average annual deposit rate throughout the country reached 4.6 percent and in Baku - 4.5 percent.

Distribution of bank deposits in Azerbaijani districts:

Districts

Amount of deposits (thousand manat)

Average interest rate (%)

Absheron

157,889.8

6.3

Aran

85,199.2

4.9

Mountain Shirvan

11,675.9

5.7

Ganja-Gazakh

109,525.3

6.1

Guba-Khachmaz

36,719.8

5.6

Lankaran

36,575.3

7

Sheki-Zagatala

29,865.5

4.7

Upper-Karabakh

6,727.2

3.1

Kalbajar-Lachin

392.5

7.1

Nakhchivan

34,265.4

2.2

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

The average rate on deposits in manat amounted to 8.83 percent in July 2017 compared to 8.26 percent in June 2017 and 7.71 percent in July 2016.

The average rate on deposits in foreign currency amounted to 3.65 percent in July 2017 compared to 3.71 percent in June 2017 and 5.14 percent in July 2016.

The banks drew deposits of legal entities in manat in the amount of 4.47 percent per annum in July 2017 compared to 4.35 percent in June 2017 and 5.63 percent in July 2016.

The funds on the accounts denominated in the foreign currency brought 2.82 percent to legal entities in July 2017, 2.86 percent in June 2017 and 3.47 percent in July 2016.

As of August 1, 2017, the average interest rate on deposits of physical entities in manat made up 11.64 percent compared to 11.46 percent as of late June 2017 and 8.84 percent as of July 2016.

The interest rates on deposits of physical entities in foreign currency are as follows: 4.3 percent in July 2017, 4.36 percent in June 2017 and 6.33 percent in July 2016.

Financial activity of banks

Azerbaijani banks’ liabilities to the country’s Central Bank (CBA) decreased by nearly three times since early 2017, from 1.7 billion manat to 616.9 million manat, says the CBA report for January-July 2017.

For the month, liabilities to the CBA decreased by 30.5 million manat. Total liabilities of Azerbaijani banks in July totaled 26.87 billion manat (reduction by 2.66 billion manat since early 2017).

The largest part of banks’ liabilities accounted for deposits - almost 16.5 billion manat (6.8 billion manat accounted for deposits of individuals, and 9.6 billion manat accounted for deposits of legal entities). Since early 2017, the volume of deposits has slightly increased, by 0.34 percent, and this happened mainly due to legal entities.

Deposits of financial institutions in banks decreased from 4.5 billion manat to 4 billion manat.

The volume of loans attracted by banks from other banks reached 1.8 billion manat, which is a 6 percent increase since early 2017.

There are 31 banks operating in Azerbaijan, including two state-owned ones.

Payment card market

The turnover of payment card transactions carried out via ATMs and POS-terminals amounted to 1.28 billion manat in Azerbaijan in July 2017, which is by 10.6 percent more than in July 2016, said the CBA report.

According to the report, the total number of payment card transactions has reached 8.09 million in July 2017, increasing by 15.1 percent for the year. The number of debit card transactions has reached 7.32 million totaling 1.16 billion manat during the reporting period. Meanwhile, 4.93 million debit card transactions worth 973 million manat were carried out via ATMs, and 619,000 transactions worth 93 million manat via POS-terminals.

The number of payment cards rose by 2.5 percent up to 5.56 million in July 2017 as compared to the same period of 2016.

As of August 1, 2017, 2,505 ATMs operated in the country, 1,355 of which are located in Baku and 1,150 – in other cities and districts of the country. The total number of ATMs has decreased by 30 units or 1.2 percent for the year.

As of late July 2017, the number of POS-terminals amounted to 69,438 units in the country, 39,585 of which are installed in Baku and 29,853 units in other cities and districts of the country. The number of POS-terminals has decreased by 1,054 units or 1.5 percent in Azerbaijan for the year.

Stock market

The Azerbaijani National Depository Center registered 1,394 stock exchange transactions for the purchase and sale of securities worth 496.93 million manat in January-July 2017, which is by 3.98 times more than in January-July 2016.

Some 260 off-exchange transactions worth almost 471.2 million manat were registered in January-July 2017 (an increase by 3.5 times for the year).

Some 425 transactions on additional emission worth 2.75 billion manat were registered for seven months. The volume of such transactions decreased by 60 percent compared to January-July 2016.

The volume of transactions as of January-July 2017:

Concluded agreements

The number of exchange transactions

Exchange transactions, volume in manat

The number of off-exchangetransactions

Amount of off-exchange transactions

The number of transactions on additional emission

The amount of transactions on additional emission

January

2

183

17,879,720

13

641,720

9

648,562,500

February

3

253

155,609,805

32

184,170,140

34

270,400,100

March

2

149

51,428,900

71

313,018

54

202,992,500

April

4

196

68,580,169

21

4,323,223.4

80

235,991,900

May

3

221

52,125,408

29

270,117,784

86

351,035,010

June

2

174

82,323,634

30

2,750,019

74

518,006,195

July

2

218

68,982,925

64

8,840,871

88

524,714,390

·

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