Financial Market Supervisory Body reveals plans on loans

/By Azernews/

By Aynur Karimova

Azerbaijan is planning to develop a model defining a new vision to lending and legal framework by May, said Rufat Aslanli, the Chairman of the Board of Directors of Financial Market Supervisory Body.

"It's about healthy and responsible lending. I believe that this model will be ready by May, and we will discuss it with representatives of the banking sector and public", he said in an interview with local TV channel.

He noted that currently, there are no restrictions for lending in Azerbaijan.

"Banks can issue both business and consumer loans. Reduced lending by banks is caused by the fact that earlier they were receiving more money, and they were placing in the form of loans. The annual growth of bank deposits amounted to 30-35 percent, while the amount of deposits decreased by 1.7 billion manats ($1.13 billion) since early 2016. Only in March, the reduction was at the level of 150-200 million manats ($997.6 million-$133 million), "Aslanli noted.

Aslanli does not expect aggressive and massive lending by the bank in the coming months, which was observed in 2012-2013.

"Even if that happens, we will prevent it. Now banks must keep more risk-free and profitable loans, and they try to do it," Aslanli added, hinting at possible introduction of certain restrictions on consumer loans.

USD loans

The Financial Market Supervisory Body is also planning to make a decision on loans issued in the U.S. dollar. The Body is analyzing the situation related to USD borrowers.

The Financial Market Supervisory Body has banned issuance of consumer loans in foreign currency since April 5, 2016 for a period of one month.

"The issue on USD loans should be solved on the basis of mutual agreement between the banks and customers. This is my subjective opinion, but our organization is analyzing the situation and the decisions will be made in this regard. Meanwhile, it should be noted that today the banks are afraid to inform public about the positive steps they can take," he noted.

Aslanli believes that providing privileges to borrowers of USD loans means violation of social justice.

"It is not so easy to divide the borrowers into the categories, who do not want to return their debts and who do not have an opportunity to do it. By providing these privileges to the debtors, we encourage them. But we "punish" responsible borrowers of USD loans, who repay their debt at the new exchange rate," he said.

The data released by the Central Bank of Azerbaijan shows that after the first devaluation of the manat in February 2015, the process of dollarization strengthened in the banking sector.

If in early 2015, the ratio of manat and USD loans amounted to 73 percent and 27 percent, respectively, then in January and February - to 60 percent and 40 percent, and in the second quarter - 55.9 percent and 44.1 percent, respectively.

Following the February devaluation of the manat, the share of foreign currency loans began to increase, reaching 49.3 percent in 2015.

As of February 1, 2016, the banks have issued loans worth 21.2 billion manats ($14.1 billion), including 10.21 billion manats ($6.79 billion / 48.2 percent) - in the national currency and 10.98 billion manats ($7.3 billion/51.8 percent) - in foreign currency.

Currently, some 37 banks operate in Azerbaijan's banking sector.

Loans to pensioners

Aslanli also commented on the Body's decision on suspension of lending to pensioners, explaining it with the fact that this category of population enters the group of the high-risk borrowers.

This recommendation is made to those banks, which have a high level of credits issued to the pensioners in the loan portfolio Aslanli said.

"An analysis of structure of problem loans showed that the average monthly income of the pensioners in the group distressed debtors is 160 manats ($106.4), and the amount of monthly payments on the loans granted to them is 104 manats ($69.2) on average. This means that every pensioner should spend about 67-68 percent of his /her monthly income to pay the debt on loans, and should live on 55 manats ($36.6) within a month. I think everyone understands that 55 manats ($36.6) is not enough for a person for one month," he stressed.

The Financial Market Supervisory Body recommended the banks to temporarily suspend the issuance of loans to pensioners from April 22.

The Body announced that this is a temporary suspension and is of a recommendation nature, however did not specify the terms of suspension.

Aslanli believes that issuance of loans to pensioners can lead to negative consequences.

"A pensioner gradually begins to reduce his/her consumption, which can lead to the collapse of his/her life. This is a financial aspect, and it is resulted with that the pensioner stops repaying the loan debt," he added.

As of January 1, 2016, about 1.3 million people get pension in Azerbaijan. More than 60 percent of them receive retirement pension, while 28.8 percent - pension for disability, 11.1 percent - a retirement pension due to the loss of a family supporter. The average amount of the labor pension is 176.03 manats ($117.1), while retirement pension is 196.08 manats ($130.4).

The official exchange rate on April 25 was 1.5036 AZN/USD.