Our Analytics 19 may — 13:00

There's breakthrough, but where are loans? (Topical comment on banks)

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BY MAMMAD EFENDIYEV

The financial and technological summit held in Baku (Fintex Sammit), held as part of the Financial and Digital Technologies Week (May 13-17), was remembered by many interesting events. The summit was devoted to the transition to a modern banking system, the latest trends in payment ecosystems and innovative payment solutions, information security in the digital environment and other topics. But, perhaps, the greatest interest, at least to the Azerbaijani consumer, was caused by the message about the improvement in the country situation with bank loans.

So you can take the statement of the Chairman of the Board of the Financial Markets Supervision Chamber Ibrahim Alishov that in the first quarter, the country's banks issued loans worth 1.7 billion manats. According to him, this is a fairly high figure. Unfortunately, the head of the Chamber did not indicate how much this is higher or lower than the similar indicators for the previous year or two, noting only that Azerbaijani banks have significantly expanded lending. True, according to the same Chamber, as of April 1 of this year, the loan portfolio of banks in the country amounted to 12.7 billion manats and more than 13% of this amount was issued in the first quarter. But in any case, the figure he cites is really impressive. This means that the country's economy began to receive support in the form of slightly forgotten bank loans. Alishov did not cite the structure of loans, although he did not forget to emphasise that the level of dollarisation of deposits in banks 'is rapidly decreasing.'

Ibrahim Alishov

The president of the Association of Banks of Azerbaijan Zakir Nuriyev called the more likely reason for the positive changes in the banking system. According to him, the process of recovery of banks, their capitalisation, improvement of corporate management systems and other measures are long-term. These processes are continuing, and the most important of these factors is the presidential decree on problem loans. At present, both the capitalisation of banks and their stability have increased, and they again received the possibility of active lending to the economy. Banks have formed liquid assets that represent long-term funds, and banks will be able to spend these funds on loans and long-term loans to small and medium businesses. And this, in turn, will strengthen, capitalise and profit the banks.

Alishov gave this a slightly different explanation: he says, for more than a three-year period of the Chamber's operations, capital injections in the amount of over 1.8 billion manats were made in banks. Today, the adequacy of capital of the banking sector is already 20.2%, which speaks of the sustainability of the sector. And that is why Moody's rating agency has rated Azerbaijan as one of the best countries in the region in terms of the sustainability of the capital of the banking system. But another thing is interesting: does this almost 2 billion sum include injections made by his predecessor Rufat Aslanli to save Standard Bank? If yes, then all the success has been achieved with only half of the specified amount. But less than 1 billion manats in three years would hardly be enough for the recovery of the entire banking system of the country. According to the same Chamber, the loan portfolio of banks in the country as of April 1, 2019 amounted to 12.7 billion manats.

Yes, you can challenge every argument of the speakers, if they, of course, raise doubts. But the statement made at the forum by the director of the Analytical and Communication Centre for Economic Reforms Vusal Gasimli can so dumbfound Azerbaijani lenders, that we urge them to give proper assessment to his words. He noted that one of the important tasks is to create an effective credit reporting system. And it is not by chance that last year Azerbaijan rose by 100 positions on the indicator of the loans availability 'Doing Business' and occupied the 22nd line. And in the future, an effective credit reporting system will be improved on the basis of artificial intelligence. In this area, Azerbaijani banks are able to carry out large-scale work, because it not only eliminates information symmetry, but also represents new tools, new values.

In general, it sounds nice, well, okay. But it is only puzzling how Azerbaijan can take the 22nd position on the indicator of credit availability. No, we do not at all wish to accuse Gasimli of misinterpreting the facts. According to the Doing Business credit accessibility indicator, we are in the 22nd position, as can be seen by looking at the official website. But it also states that this indicator considers two different sets of indicators: the effectiveness of credit registries and the effectiveness of legislation on collateral and bankruptcy regarding the availability of credit. But one thing is a legislative base and quite another is practical implementation. Yes, the authorities have done everything possible to facilitate access to credit for people. But whether banks want this and why they lend money out sparingly, for some reason nobody wants to touch this question. And the expert, unfortunately, decided to keep silent about this.

But the expert of the International Finance Corporation (IFC) Sacin Bansal indicated a real way to expand lending, particularly in the regions. According to him, for every 100 thousand citizens in the country there are 7 banking branches, which is a very low figure. He sees a way out in using the experience of agency banking, for which purpose can be used post offices. And he offered banks to cooperate with Azerpoct (Azerpost). Of course, if for every 100 thousand people there are seven bank branches, it is difficult to use banking services for residents of remote settlements. Cooperation with Azerpoct can be a profitable and effective solution, since it will help in issuing loans, which will be an additional income for both Azerpoct and banks as a whole. By the way, banks already use such methods in some countries of Asia and Africa...

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