Our Analytics 9 march — 11:32

What is happening in our economy? (New look at old problems)



We have been writing a lot and in detail about how the International Bank of Azerbaijan (IBA), headed for a long period by now incarcerated Jahangir Hajiev, inflicted huge damage on the banking system and the economy of the country as a whole. But, as it turned out, the banking system is still experiencing great discomfort from Jahangir Hajiyev's multi-billion 'pranks.' As noted recently at the annual conference of the Fitch international rating agency held in Baku by Deputy Executive Director of the Chamber for the Supervision of Financial Markets Asim Zulfugarov, in general, the assets of Azerbaijani banks last year, albeit slightly, increased.

Internation Bank of Azerbaijan headquarters

Yes, the assets of the country's banking sector grew by 10 million manats. Of course, for three dozen banks this amount is small, but still the growth that we have been waiting for. There is, however, a fly in the ointment, which somewhat spoils this generally positive picture. It turns out that even this small growth does not take into account the restructuring of the IBA. And it is difficult to say when will the country's economy and, in particular, its banking system be freed from J.Hajiyev's 'gifts' and sigh freely. After all, he kept an account for billions of dollars, which really shook the economy of the country and especially its banking system. Already three years have passed, IBA comes to life and today about 25% of the total loan portfolio of Azerbaijani banks falls on its restructured loan portfolio. At the same time, IBA problem loans account for 18% of the total loan portfolio of the banking market.

But we will not again focus on the criminal acts of Jahangir Hajiyev and his team. Despite everything, the banking sector is developing, its liquid assets have already reached 6.7 billion manat, which is 24% of total assets. Capital growth in the sector continues. By the end of the last year, the process of reducing the aggregate loan portfolio of banks gradually stopped. In general, 11 banks of the country completed 2017 with losses, and 19 banks with a profit. And now the strategic task of the country's banking and financial system is precisely to ensure the efficiency of the banking sector and strengthen financial functions.

And for this, first of all, it is necessary to reduce financial dependence on the dollar, which requires reducing dependence on the oil factor and finding ways for economic diversification. True, this work is very complicated and takes a lot of time. But Baku has already taken a firm course in the development of many spheres of the economy. And, interestingly, more intensive than other areas we are developing tourism today, which relieved the famous Dubai from oil dependence. And the presence of the Oil Fund, which accumulates excess revenues from oil exports, will seriously contribute to the development of other areas. Yes, the economy of Azerbaijan has already overcome the recession that has been due to the decline in oil prices on the world market in 2014-2016. Moreover, this economic recession led to a revision of budget planning and fiscal policy strategy, so we are already more prepared for the next risks.

And the Central Bank already, it can be said, completely curbed the galloping dollarisation of the economy. Azerbaijanis are clearly losing interest in the dollar. Suffice it to say that last year the net sale of foreign currency by banks amounted to $26.5 million, which is 16.8 times less than in 2016, when $445.4 million was sold.

This reduction in demand for foreign currency is associated with the stability of the manat. The level of dollarisation of deposits is also decreasing. If earlier this indicator was about 80%, then last year it decreased by 10% at once. And the CBA believes that in the short term, dollarisation will continue to decline. As for lowering dollarisation in the long term, this requires a reduction in inflation and macroeconomic stability.

And these are precisely those factors, the improvement of which is predicted not only by the government, but by all international financial structures. Only according to the latest forecasts of the international rating agency Moody's inflation in the next two years will be 5-6 per cent. Confidence in the stability of the exchange rate also reduces inflation expectations. And taking into account the above factors, the CBA intends to further mitigate monetary and credit policy.

In particular, the head of the Central Bank, Elman Rustamov announced such an opportunity immediately after the February interest rate cut from 15 to 13 per cent. But it is forecast not only to reduce inflation, but also to increase the country's GDP by 1.5-2 per cent. Many such indicators may not seem convincing enough. But, you see, compared to 13% inflation and GDP growth of 0.1% in the last year, they look very impressive. The economy of Azerbaijan is growing steadily.

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