The economic crisis, that began since the II half of 2014 and the sharp decrease of oil prices on the world market, undoubtedly, had an impact on Azerbaijan which is a part of the world economy and an oil exporter. The steps taken for the mobile management system, the diversification of the economy, getting rid of the dependence on oil and the development of the non-oil sector gave an opportunity to get out of the global turbulence with the minimum losses.
Yes, a comprehensive approach to addressing the recent global economic downturn was required in Azerbaijan, and a series of reforms in the financial markets, as initiated by the President of the country, did not wait long. One of the most important issues in the financial and banking sector after 2015 was the withdrawal of deposits from banks, and in this regard, the government's flexible response to the incident prompted a comprehensive deposit insurance law in 2016, which was to reduce the effectiveness of the country's financial markets. played an important role in the restoration of time. Starting from the second half of 2017, the process of withdrawal of deposits from banks has stopped and the initial positive trends in the banking sector have begun to show.
Since the second half of 2017, the process of the withdrawal of deposits from banks stopped, and preliminary positive trends began to be observed in the bank sector.
Certainly, the institutional and legal reforms aimed at developing the banking sector, eliminating the problems of capitalization and increasing the share of the sector in the national economy amid these events have required a gradual transformation of the sector's recovery processes and bank-customer relations. As a result of implemented measures, the capital investments in the amount of 1.9 billion AZN were implemented in the sector during this period to ensure the stability of the banking sector in the country. It should be noted that 14 out of 30 banks operating in Azerbaijan have foreign capital and 1 billion AZN of invested capital is accounted for by foreign capital banks, of which 800 million are foreign capital. This factor reflects the positive attitude and confidence of international organizations and foreign investors on the course of systemic reforms, which the government has taken on itself.
One of the key points to be considered during this period is clearly related to lending processes. Looking at the statistics, we see that the volume of lending in the banking sector in 2017 was about 5 billion AZN, in 2018 - 7, .6 billion AZN, and in the first 9 months of 2019 - 7 billion AZN. A total of 14, .5 billion AZN were issued in 2018-2019, of which about 8.1 billion AZN is business loans and 6.4 billion AZN are consumer loans. Only in the first 9 months of 2019, consumer loans totaling 3.2 billion AZN and business loans totaling 3.8 billion AZN were issued, with an average of 423 million AZN monthly and 350 million AZN consumer spending, according to the Financial Markets Chamber. credit was implemented.
Call to allocate credits to real sector
One of the main topics raised at the economic meeting with the President of the country about 1 month ago, was the lack of crediting, especially lending to businesses that play a key role in stimulating business, and consumer loans more than business loans. The President is rightly concerned with the importance of promoting local entrepreneurship, facilitating access to financial resources and facilitating access to loans and, at the same time, supporting real sector financially, which plays a key role in the diversification of the country's economy.
…and reaction!
An adequate reaction was expected from the the Chamber of Financial Supervision after the speech of the head of state at the mentioned meeting. It happened so!
- Significant amendments were made to the “Rules on the Calculation of bank capital and its adequacy” and “Rules on Balancing credit risks on debt-taker and a group of debt-takers”.
- Risks rates of business credits reduced
- Conditions have been created for the formation of responsible debting habits, prevention of consumers’ excessive debting and banks to allocate enough place for business credits and their protection.
- In order to carry out the task of the head of state in the form of active communication with banks, the Chamber of Financial Supervision held a meeting with the participation of the Association of Banks of Azerbaijan, as well as consumer-oriented banks operating in the country. directions were determined, it was decided to reconsider the strategic plans of the banks and submit proposals to the Chamber as soon as possible, and it was considered advisable for banks to conduct credit fairs to promote business loans.
The transfer of banking-customer relations to a new level should mean not only the acquisition of bank loans as a classic financing instrument, but also various alternative financial instruments offered on the market. One of the five strategic goals set by the Financial Markets Chamber is to improve the financial infrastructure as a strategic mega-regulator for regulating the financial markets of Azerbaijan. Analyzes show that in most cases, businessmen in Azerbaijan get loans only by pledging their real estate. It is interesting to note that although only 22% of SMEs' assets are real estate, 76% of the loans secured by lenders are real estate. In this context, the International Real Estate Register of Real Estate (READ) has been established to improve access to SMEs, access to finance, and strengthening the relevant infrastructure.
The register has a number of advantages for both loaders and owners. As such, owners of collateralized financial institutions usually have unified and aggregated information on the borrower's movable property online at any time, provide more complete control of the client's business, and expand the customer base, as well as access to real estate. owns. On the other hand, access to financial resources is increasing for suppliers, competition for cheaper and longer-term involvement of financial resources, eliminating financial paradox and more access to credit institutions. On the other hand, the Register provides financial institutions with centralized transparent information on the movable assets of SMEs, thus obtaining information on whether the property is pledged elsewhere in the banks. In addition, the Registry allows banks to choose better collateral, which is a secondary market, and more easily sell the collateral provided by a bankrupt business entity. The Register, which has more than 600 registered users, now has more than 40,000 notifications. In parallel, there are regular meetings with entrepreneurs in Baku and regions to promote awareness of the process and promote the process of obtaining business loans by pledging movable property of local entrepreneurs.
Microcredit of over 200 mln AZN
Another product that has been shown by foreign capital banks in terms of access to alternative financial instruments is microcredit products offered by microfinance banks in Azerbaijan's financial markets. It is worth noting that over the first 9 months of 2019, a single bank has provided more than 200 million microcredits, and this information is regularly implemented to increase the relevance of business lending.
There are ample opportunities for SMEs operating in Azerbaijan to finance their financial markets through alternative securities in recent times through improved securities markets in line with international standards.
It should be noted that there is a fully free listing consultancy program to inform entrepreneurs about the financing services offered by the securities market and to help raise funds from this market. Looking at the current period, we can see that on the Baku Stock Exchange (BSE) platform shares of about 50 organizations and bonds of 15 organizations are being issued. In total, Azerbaijan's corporate securities market is more than 1.9 billion AZN. Of these, 1.5 billion AZN is the bond market and about 401 million AZN is the stock market.
Another institutional reform that has been implemented to facilitate SMEs' access to credit is the creation of the first private credit bureau in Azerbaijan in February 2018, with the participation of 8 banks. The underwriting costs of bureaucratic banks, which collect and analyze customer credit information from a wide range of sources, including leasing, insurance, utilities, mobile phone operators, and other debt-related databases, are problematic. has significantly lowered its credit portfolios.
Today, in some cases, there is an opinion about high interest rates on bank loans in Azerbaijan. It should be noted that the interest rates in the banking sector of our country are not higher than in neighboring countries. Thus, the average interest rate on bank loans in Azerbaijan is about 22.3%, and on business loans - 8.6%. Of course, this figure is lower in foreign currency business loans, which is 5%. Currently, the percentage of issuance of business loans in national currency is 13.
In addition, in December 2017, a Mortgage and Credit Guarantee Fund was established by the relevant Decree of the President in terms of alternative financing of entrepreneurial activity. During the first 9 months of the current year, the guaranteed funds of the Fund provided authorized banks $ 41 million. Loans totaling 759,000 AZN were issued. The average term of the loans is 28 months and the average interest rate is 16.3%.
This economic course, conducted under the direct leadership of the head of state, short-term institutional reforms to improve efficiency in real sector financing, the creation of the ADB, the DEA and the Mortgage and Credit Guarantee Fund, has already yielded positive results and is no accident. carries out its export to foreign countries. Thus, countries such as Kyrgyzstan, Ukraine and Georgia have already taken serious steps to study and apply the experience of our country in this regard.
The state is beside its citizen
One of the most important decrees signed by President Ilham Aliyev to improve the banking sector was the Decree of February 28, 2019 “On Additional Measures for Solving Problem Loans for Physical Persons in the Republic of Azerbaijan”. About 602,000 people were compensated for the implementation of the decree, as a whole, as of September 30, 2015, 633 million AZN was paid out of the state budget, 323 million of which were paid to citizens, and 310 million - overdue loans. is directed. 494 million AZN was directed to restructuring problem loans. Over 100 million AZN has already been transferred to the correspondent accounts of banks. Looking at the broader framework, this revolutionary Decree will not only support the reduction of non-performing assets, but also the sustainability of the banking sector, and will provide additional funding for SMEs in the coming years.
One of the most troublesome areas of business lending due to the recent risks is agriculture, which will start to implement a new agrarian insurance model in our country next year, and the new model will provide sustainable and effective performance in this area as a result of the accurate assessment of insurance risks. At the same time, given the widespread use of agrarian production in various regions of the country and the entrepreneurial activity, the new insurance model will allow the banking sector of our country to integrate from the center - around Baku and Absheron.
One more innovation
At the same time, within the framework of the Strategic Roadmap for Financial Services Development in the Republic of Azerbaijan, the Chamber of Financial Supervision approved the "Rules for opening, maintaining and closing bank accounts." These Rules were approved to improve the regulatory mechanism for accelerating the digital transformation of banks, the wider application of innovative solutions to digital banking in the banking system, and the strengthening of financial inclusion in the country. Under the new procedure, resident and non-resident legal entities and individuals will be able to open bank accounts remotely without visiting the bank. Note that Azerbaijan is the second country in the world after Estonia to form an electronic resident, and the new rules allow non-residents to carry out business activities without having to come to the country.
In addition, on April 17 of the current year, the the Chamber of Financial Supervision, the SME and the Azerbaijan Banking Association (ABA) signed a Protocol of Intent to support the development of SMEs. As part of this cooperation, a strategic plan has been developed with the participation of banks, and 58% of the funds to be formed on the basis of this strategic plan will be given to SMEs, 23% to small businesses and 19% to large businesses.
Of course, all these reforms will have a positive impact on the process of SME financing in the long run and the gradual increase of the overall dynamics.
The risk for business loans is lower
"As of September 30, assets of the banking sector increased by 6.3% (1.9 billion AZN) compared to the beginning of the year and amounted to 31.4 billion AZN."
This was announced by Ibrahim Alimov, acting chairman of the Board of Directors of the the Chamber of Financial Supervision.
According to him, banks have activated their lending activity and sufficient liquidity and capital buffer have been formed to continue financing. Loans to customers amounted to 13 million 872 million AZN, including 8 million 539 thousand AZN to business entities. Liquid assets amounted to 8 million 213 thousand AZN and assets totaling 31 million 363 AZN. Risk of business loans to small and medium-sized businesses (from 100 to 50 percent in national currency) and business loans for export (non-oil sector) financing (from 75 to 50 percent in national currency, 100 percent to 75 percent in foreign currency) reduced. ”
First in the world for credit availability!
It is encouraging and exciting that the reforms, progress made to ensure the sustainable development of the Azerbaijani economy are well received internationally, and the positive trends and prospects for reform are published by the World Bank, the International Monetary Fund and other leading international financial institutions. reflected in the reports. Thus, in the World Bank's most recent Doing Business 2020 report, Getting Credit is ranked 1st among 190 countries, leaving behind all countries. At the same time, Moody's International Rating Agency, which analyzes global financial markets globally, reaffirmed Azerbaijan's position at a stable Ba2 level, increasing credit-banking sector lending as a result of targeted reforms, lowering financial risks and increasing sector resilience, praised the steps taken. A similar position was also confirmed by another prestigious financial institution, Fitch International, with the BB + rating ranked first in the South Caucasus in the third quarter report of 22 countries in Eastern Europe and the post-Soviet space.
Thus, today, the non-oil sector of the economy, as well as the banking sector, which is one of the main financial providers of development in this area, are facing the new challenges. Obviously, the legal and institutional reforms undertaken to improve the financial and banking sector, as well as practical steps to stimulate the development of this sector, stimulate other sectors of the economy and at the same time, strengthen public confidence in banks.
This confidence is also reflected in the figures: As of October 1, 2019, the savings of the Azerbaijani population in banks in the country amounted to 8,491.3 million AZN. In August of the current year, the volume of deposits of the Azerbaijani population in banks amounted to 8 456.9 million. In the last month, population deposits increased by 34.3 million AZN or 0.4%. In the same period in 2018, this figure was 8,114.9 million AZN. Thus, this year, the volume of deposits increased by 376.4 mln. AZN or 4.6%.
Vusal Mammadov
Analytical Group
