Weekly economic review (Jan. 1-5)

Analysis Materials 8 January 2018 17:35 (UTC +04:00)

New rules approved for currency exchange in Azerbaijan

The Financial Market Supervisory Authority (FIMSA) of Azerbaijan has approved a new procedure for currency exchange operations.

Under the new order, which has already entered into force, the exchange offices are not allowed to provide other services rather than currency exchange services. A special license is required to provide currency exchange services.

The currency exchange points can function at a separate kiosk or building, including at railway stations, hotels, ports and airports. Furthermore, in addition to the exchange rate itself, a license (or a copy) for currency exchange operations, the hotline number of the FIMSA for complaints and appeals, as well as the schedule of the currency exchange office operation should be placed on a prominent location.

The currency exchange in such places is carried out only in cash.

The sale of currency equivalent to more than $500 or purchase of currency equivalent to more than $10,000 is possible only with the provision of an identity card.

Azerbaijan’s share in AIIB capital stock slightly decreases

Azerbaijan's share in the capital stock of the Asian Infrastructure Investment Bank (AIIB) decreased from 0.2726 to 0.2675 percent, said a message posted on the AIIB website.

This is related to the inclusion of Afghanistan, Fiji, East Timor and Spain in the list of shareholders, shares of which in the bank's capital were respectively 0.0912 percent, 0.0132 percent, 0.0168 percent and 1.8542 percent.

Meanwhile, the volume of Azerbaijan's share in the AIIB capital remained unchanged at $254.1 million.

AIIB was founded in June 2015. Azerbaijan is one of the bank's founding members.

Azerbaijan switches to new system of customs duties

Azerbaijan switched to a new system of customs duties on Jan. 1. The new duties will be regulated by the "Goods Nomenclature of Foreign Economic Activity, Customs Rates for Import and Export."

In this regard, two documents - "Rates of Customs Duties on Goods Imported to Azerbaijan" and "List of Goods Subject to Export Customs Duties and Rates of Export Customs Duties" - lose their force.

Since 2001, the customs rates of 0, 0.5, 1, 3, 5, 10 and 15 percent were applied in the country. Starting from this year, only rates of 0, 5 and 15 percent on imported raw materials and goods are applied in Azerbaijan.

The majority of the goods (raw materials and equipment) are exempt from customs duties starting from this year.

Besides, starting from 2018, the custom duties of 15 percent are applied for the import of finished products to Azerbaijan. In particular, customs duties for import of cars have been raised.

Under the new tariffs, the duty on the import of new cars with an engine capacity of 1,500 cubic centimeters and more is $0.7 per each cubic centimeter, and for used cars with the same engine volume - $1.2 per each cubic centimeter.

Earlier, the customs duty on the import of new cars with an engine capacity of 1,500 cubic centimeters or more was $0.4 per each cubic centimeter, and for used cars - $0.7 per each cubic centimeter.

For new and used cars with an engine capacity of less than 1,500 cubic centimeters, the import customs duty remained unchanged at $0.4 and $0.7 per each cubic centimeter, respectively.

The decision was made to improve effectiveness of foreign economic activity, strengthening state support for domestic production and non-oil exports, protecting the domestic market, as well as switching to a system with fewer customs duties.

Azerbaijan Deposit Insurance Fund accepting claims of DemirBank creditors

The Azerbaijan Deposit Insurance Fund (ADIF) is accepting the claims of creditors of DemirBank OJSC, which has been declared bankrupt.

Creditors can submit their claims to ADIF within 60 days, said the Fund in a message.

DemirBank was officially declared bankrupt upon a decision of the Baku Court of Appeal on Dec. 27, 2017. On that day ADIF became the bank's liquidator.

DemirBank's license was revoked Dec. 23, 2017. The Financial Market Supervisory Authority (FIMSA) of Azerbaijan said the license was revoked due to a discrepancy between the total capital of the bank and the minimum capital requirement set for banks, and the adequacy ratio of the aggregate capital is lower than 3 percent stipulated by the legislation. The bank also lacks the capacity to fulfill its obligations to creditors.

Azerbaijan needs new tools on stock market

Use of classical stock market tools has not reached the desired level to form new ones on their basis, said Vugar Namazov, chairman of the Baku Stock Exchange (BSEX).

Bonds and shares are considered as classical stock market tools, while relatively new tools include futures, options, forward contracts.

Namazov told Trend Azerbaijan yet needs a well-shaped entrepreneur thinking that will enable to admit bonds as an alternative tool to attract financial resources.

"Our key task today is to develop classic tools. Later on it is possible to speak about new production tools, or financial engineering tools. It is necessary to upgrade stock market, the institualization of which will allow for trading with futures. Another example is a shares market, that would enable us to trade with share of investment funds in future," Namazov underlined.

The total turnover of exchange deals with all tools at BSEX exceeded 9.57 billion in January to October 2017, thus exceeding the last year figure by 2.2 times.

The amount of state securities made up 3.8 billion manat, or up by 8.4 time on year on year, the turnover of corporate securities market reached 1.37 billion manat, or up by 4 times, the volume of derivative instruments made up 4.4 billion manat, or up by 22.2 percent.

Azerbaijan’s collection agency expanding activity

Automation of activity of Azerbaijan's Baku Collection Agency (BOA) allowed to significantly increase the number of clients served, Samir Mustafayev, director of the agency, told Trend.

He noted that the workflow automation system based on which the company has been operating for two months, made it possible not only to automate most processes, but also cut costs.

"The system is fully automated and separates the clients with overdue debts from those paying debts in a timely manner," said Mustafayev. "In addition, the so-called mechanism of censorship is integrated into the system. The mechanism reacts in case if the tone of collector's voice increases during phone conversation with a client. When the tone is raised to a very high level, the system automatically finishes the conversation."

He noted that presently, the agency has a call processing center that allows working with a larger number of debtors.

"More than 70 people work in the center," Mustafayev said. "If earlier our employees themselves called the debtors, now this process is automated. As a result, the volume of returned debts increased."

He added that the system is constantly updated and improved.

Non-bank credit organizations in Azerbaijan unlikely to get new financing sources soon

Non-bank credit organizations (NBCOs) in Azerbaijan will not be able to receive loans from the Central Bank of Azerbaijan (CBA) in the near future, a source in the country's financial market told Trend.

The CBA lends only to banks, but for the past two years, microfinance institutions have asked the CBA to lend to them as well, according to the source. After two devaluations in February and December 2015, the financial situation of the NBCOs worsened and they couldn't borrow loans at high interest rates from banks.

In the current macroeconomic conditions, the CBA considers it inappropriate to issue loans to the NBCOs, the source noted.

"Banks were receiving loans from the CBA at 3-7 percent per annum [in 2015 and 2016], and then reselling them to NBCOs," the source said.

"As a result, customers of NBCOs received loans at even higher interest rates. At the same time, some foreign creditors refused to lend to NBCOs because of the high risk of their closure. Thus, the NBCOs were in difficult condition of limited financing in Azerbaijan in the last few years. That's why it was decided to apply to the CBA in order to get the opportunity to obtain loans at the CBA's discount rate."

Presently, the CBA is pursuing sterilization policy and reduces the money supply in the country, according to the source.

"The issuance of new loans and, thus, expansion of the money supply will be contrary to the current policy of the CBA," the source said.

Another source in the financial market told Trend that the NBCOs cannot achieve creation of a specialized fund that would issue loans in national currency, either.

"Due to the high cost of loans in Azerbaijan, NBCOs apply to foreign creditors, but they, in turn, provide loans in foreign currency, which is also unprofitable for the NBCOs," the source said. "In Azerbaijan, there is still no effective mechanism that would allow foreign financial institutions to issue loans in national currency. If a fund for lending to microfinance institutions had appeared in Azerbaijan, this would have helped NBCOs to improve their situation. However, negotiations with the Financial Market Supervisory Authority haven't yielded any results yet."