Analysis Materials 9 November 2005 12:04 (UTC +04:00)

In September the growth pace of deposits in the banking system slowed down, dropping to the level of 2002-2003. As compared to last September the deposits grew 36.6% against 68.5% in 2004. Besides, a rise of deposits of the physical entities slowed down more abruptly than the deposits of legal entities. It is interesting, periodical reviews on the development of the banking sector, published by the National Bank of Azerbaijan (NBA), left untouched this milestone, though such considerable cut in rise of major financial base of the banking sector serves proper analysis and attention. The deposits comprise around 63% of all liabilities of the banking sector.

Among fire and water

The first and the major reasons for cut in growth pace of deposits is the high level of inflation and consolidation of manat. Starting with the third quarter of 2004 the pace of inflation stably exceeds the profitability in deposits in manats and dollar. As a result, the least has become negative, so the preservation of capital in the banks does not bring incomes, but also end in the depreciation of the savings, the similar situation was observed in deposits in dollar, which till the recent period were the lovely form of saving. The consolidation of manat in regard to US dollar erases the interests for them and de-stimulates the saving of dollar. If to take into consideration the statistics of the National Bank, in September every dollar in deposit brought 10.22 points, or approximately 46 manats a year. Meanwhile, with such pace of depreciation, fixed in September, 1 dollar can lose 314 manats. Thus, losses from deposits will be a higher than profits.

For instance, if every 1000 manats on September level of inflation (11.2%) might lose 112 manats a year, being in bank these 1000 manats loses 32 manats. The same occurs to deposits in dollar. In compliance with the September indices, every dollar out of banking system will lose 314 manats, whilst the banking system - 268 manats.

Effect of black Saturday

Cut in growth pace of deposits started in early 2005. They have never fallen in such strong speed, but it happened in September (17 September, Saturday). Obviously, drop in cash dollar due to the above described fundamental factors had negative impact on the dynamic of deposits, caused by speculative factors fall in cash dollar had strong negative impact on the image of the banking system. It might the key reason hindering the rise of deposits.

Our forecasts

Negative impact of the September depreciation of the cash dollar on the dynamic of deposits, but the same time a temporary factor. If the monetary authorities in future succeed to assure the population and business units in inability of some stags to affect on the rate of dollar, the effect of the events will play an essential role in their strategy of conduct. So, in future the dynamic of deposits will depend only on inflation and rate of manat. If the inflation ratio remains to exceed the profitability of deposits, while manat gets consolidated in respect to dollar, low growth pace of deposits can be maintained. However, the government is keen on maintaining the single digit-inflation and cease further drop of manat rate. Anti-inflation actions, implemented upon the exaction of the presidential decree, enabled to keep under control the inflation in the country. Later over 4 months all prices went down in the country and the process continues today. If the process continues through the same scenario, the deposits might bring incomes, which in the end could stimulate the depositors in the implementation of the new deposits.