Review of monetary sector in Azerbaijan (January 2017)

Currency reserves of the Central Bank of Azerbaijan (CBA) amounted to $5.38 billion in January 2018, which is by $1.05 billion (24.4 percent) more than in the same period last year, according to statistical data posted on the CBA website.

During the month, CBA reserves rose by $46.6 million.

Currency reserves of CBA increased by $1.36 billion or 34.2 percent in 2017 as compared to 2016.

CBA's currency reserves started to decrease in July 2014. The reduction was at a slower pace (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 US dollars in the country.

During 2016, the CBA 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. 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.

In January 2018, the exchange rate of manat to the dollar remained stable. The average rate of manat to the dollar reached 1.7001 manats to the dollar. In general, in January 2018, the exchange rate of manat to the dollar increased over the past three years. In 2015-2016 the exchange rate of manat decreased.

In January 2018, the average rate of manat in relation to the euro was 2.07 manat.

Azerbaijani monetary market

The money supply rate (M2) (cash in circulation outside banks) amounted to 12.27 billion manats as of late January 2018 increasing by 14.2 percent as compared to January 2017, Azerbaijan's Central Bank said in a report.

The amount of cash money supply (M0) increased by 24.6 percent for the year up to 7.38 billion manats, and Broad Money Supply (M3) totaled 22.76 billion manats or by 8.2 percent more compared to late January 2017.

The transaction money (M1) increased by 24.5 percent during the year up to 10.19 billion manats.

Parameters of monetary market, in million manats:

Azerbaijan's loan market

In January 2018, Azerbaijan's credit organizations reduced loan disbursements by 30 percent up to 11,656.1 million manats compared to January 2017, the Azerbaijani Central Bank said in a report.

According to the report, the amount of overdue loans increased by 3.8 percent up to 1,695.9 million manats for the year. The share of overdue loans increased from 9.8 percent to 14.5 percent for the same period.

In 2017, the loan portfolio of banks and non-banking credit organizations amounted to 11,656.1 million manats. As for overdue loans, the amount of overdue loans varied from 1.6 billion manats to 1.89 billion manats for 2017.

Lending in national currency amounted to 6,899.9 million manats in 2017 (a 17.9 percent decrease for the year) with a specific weight of 59.2 percent.

Lending in foreign currency amounted to 4,756.3 million manats (a 1.8-fold decrease for the year) with a specific weight of 40.8 percent.

The amount of short-term loans amounted to 2,156.2 million manats, long-term loans - 9.5 billion manats.

Distribution of the loan portfolio by economic sectors (in late January 2018):

Meanwhile, 16 percent (1,861.9 million manats) of all loans in the country accounted for state banks in Azerbaijan, 80.5 percent (9,380.3 million manats) - private banks, 3.6 percent (413.9 million manat) - non-bank credit organizations.

Thirty banks operate in Azerbaijan, including two state-owned banks and over 120 non-banking credit organizations.

In January 2018, 1.977 billion manats accounted for the lending to the Azerbaijani districts, which is almost 20 percent less than in January 2017, the Central Bank of Azerbaijan (CBA) said in a message.

During the reporting period, 16.96 percent accounted for the share of districts in the total loan portfolio of banks.

According to the CBA, loans worth almost 9.679 billion manats were issued in Baku at the end of January 2018, which is 4.9 times more than in the districts. Almost 5.329 billion manats accounted for the loans in the national currency in Baku (55.06 percent of the total lending volume in Baku) and in the districts - 1.57 billion manats (79.4 percent of the total lending volume in the districts).

The average annual interest rate on loans in the country was 11.8 percent, in Baku - 10.7 percent in January 2018.

In January 2018, a lending volume declined in all Azerbaijani economic districts compared to January 2017, except for the Upper Karabakh economic district, where 18.3 percent-growth was observed for the reporting period.

Azerbaijani banking sector

The volume of deposits of legal entities and individuals in Azerbaijani banks totaled 20.86 billion manats in late January 2018, which is 10.14 percent less than in January 2017, according to a report of the country's Central Bank.

Despite the annual reduction, the deposit base of banks began to recover gradually and has been increasing for the third month in a row. In October 2017, the deposit base of banks totaled almost 19.7 billion manats, while in late 2017 this indicator was 20.6 billion manats.

Deposits in national currency amounted to 5.49 billion manats (26.3 percent of all deposits), and freely convertible currency - 15.37 billion manats (73.7 percent).

Deposits of individuals amounted to 7.497 billion manats (an increase of 3.2 percent per year) in the period, the majority of which are deposits in foreign currency - 66.26 percent or 4.967 billion manats.

Total volume of deposits of legal entities in Azerbaijani banks amounted to 13.36 billion manats, which is 13.64 percent less than in January 2017.

As of Feb. 1, 2018, the volume of deposits of financial organizations of Azerbaijan amounted to 1.937 billion manats as compared to 5.753 billion manats in 2017. Deposits of non-financial organizations totaled 11.428 billion manats as compared to 9.715 billion manats in January 2017.

As of late January 2018, the population's bank deposits in Azerbaijani districts (except for Baku) totaled 554.36 million manats, which is 7.4 percent more than in the same period of 2017, according to the report of the Central Bank of Azerbaijan (CBA).

For comparison, as of late January 2017, 6.67 percent of all bank deposits in the country accounted for Azerbaijan's districts.

Almost 72 percent (398.96 million manats) of all deposits in the districts of the country account for savings in national currency. In January 2017, this figure was about 50 percent (257.04 million manats).

As of early February 2018, the volume of population's bank deposits in Baku amounted to 6.94 billion manats, including 2.13 billion manats in national currency (30.7 percent).

The average annual deposit rate throughout the country reached 4.4 percent, and on Baku - 4.3 percent in January 2018.

Distribution of bank deposits in Azerbaijani districts:

Financial activity of banks

Capitalization of Azerbaijani banking sector totaled 3.8 billion manats in January 2018, which is 84.5 percent more than in the same month of 2017, according to a report of Azerbaijan's Financial Market Supervisory Authority (FIMSA).

The report says that the country's banks made a profit of 86.7 million manats in January 2018 as compared to the loss of 496 million manats in the same month of 2017.

As of late January 2018, revenues of Azerbaijani banks amounted to 237.3 million manats, while expenses totaled 150.6 million manats.

The interest income of banks for issued loans exceeded 91.9 million manats (130.9 million manats in January 2017), and interest expenses on deposits totaled 31.8 million manats (35.3 million manats).

Operating profit of banks amounted to 58 million manats in January 2018. Meanwhile, the Azerbaijani banks paid 1.9 million manats as income tax.

Payment card market

The turnover of payment card transactions carried out via ATMs and POS-terminals amounted to 1.1 billion manats in Azerbaijan in January 2018, which is by 22.6 percent more than in January 2017, said the report of the Central Bank of Azerbaijan (CBA).

According to the report, the total number of payment card transactions reached 8.1 million in January 2018 (25.4 percent-growth compared to January 2017).

The number of debit card transactions reached 7.16 million totaling 997 million manats during the reporting period. Meanwhile, 4.3 million debit card transactions worth 788 million manats were carried out via ATMs, and 707,000 transactions worth 93 million manats via POS-terminals.

The number of payment cards rose by 8.9 percent to 5.82 million in January 2018 as compared to the same period of 2017.

As of February 1, 2018, 2,439 ATMs operated in the country, 1,314 of which are located in Baku and 1,125 - in other cities and districts of the country. The total number of ATMs has decreased by 22 or 0.9 percent for the year compared to January 2018.

As of late January 2018, the number of POS-terminals amounted to 65,181 in the country, 36,801 of which are installed in Baku and 28,380 in other cities and districts of the country. The number of POS-terminals has decreased by 5,983 or 8.4 percent in Azerbaijan for the year.