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If Elman Rustamov did not give guarantees, then what guarantees can Zakir Nuriyev give? (Topical comment)

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BY ELNUR MAMMADOV, ECONOMY SECTION

The closure of four banks has become one of the most discussed issues in Azerbaijan. This is understandable, each bank had thousands of customers: individuals and legal entities, hundreds of millions of manats were lost. Especially during crisis days, people need money every day, and then sit and wait until they begin to issue deposits back, and whether they will be issued right away. But commercial structures are completely in panic, no one guarantees the return of their capital. The Central Bank gives on this occasion a thorough explanation that experts greet with hostility. Against this background, a speech by the head of the Association of Banks of Azerbaijan Zakir Nuriyev promised a lot.

Some inadequate reaction of Zakir Nuriev surprised the expert community

Yes, a person directly called upon to investigate and help solve all banking problems could contribute a lot to these discussions and tell a lot of interesting things. But, unfortunately, we did not hear anything new in his statement to the Hədəf program on the AzTV channel. He only stated that at the beginning of the year, among the many tasks of the Central Bank, the most important was the financial recovery of the banking system, that earlier the financial recovery was postponed due to more pressing current problems, but today they have begun to deal closely with this issue due to its importance and relevance. Interesting reasoning. One would think that it was precisely today that the Central Bank 'unloaded' from the accumulated problems so much that it finally remembered the improvement of the banking system.

Although today, as far as one can understand from the alarming messages of the Central Bank, the government, and all international structures, it can be considered the most difficult. The global economy has not yet faced such difficult situation. And it is unlikely that in such a situation, the Central Bank could be so unloaded that it could find free time to solve this problem, for which it did not have enough time before. Moreover, the 'importance and relevance' of the issue is far from over today.

True, Nuriyev himself emphasises this. According to him, as part of the ongoing reform to improve the banking sector and the development of lending, provisional administrators were appointed at Atabank, AGBank, NBC Bank and Amrah Bank on 27 April, and then, on 28 April and 12 May, all four banks were liquidated and filed applications about bankruptcy. Nevertheless, the current situation with the financial situation is not related to the coronavirus pandemic, but is a consequence of accumulated problems for the previous period, which resulted in a critical state of banks at the beginning of 2020.

But this already sounds somehow unnatural. When the chief banker, Elman Rustamov speaks about the problems accumulated earlier, he can be somehow understood. Until the end of last year, supervision over the financial markets of the country, including the banking system, was carried out by another structure: the Financial Supervision Chamber. And the Central Bank formally could not particularly express itself here. But the Association didn't change its function all these years: why didn't it speak about shortcomings in at least one or two banks before, didn't try to improve the situation? There were more than enough signals, it's enough to recall only a series of our articles about the shortcomings in one of the closed banks, Atabank OJSC. For several months in a row we tried to bring the truth to the public, and the Association was silent all this time. Although there, one thinks, there are enough specialists who are well versed in banking nuances and are well aware of the state of all closed banks.

But Nuriev himself immediately recalls that 'according to the recommendations of international financial institutions, in order to maintain stability in the financial sector, it is necessary not to try to hide the problems that arise, but to solve them at the expense of banks' internal reserves.' (Unfortunately, we do not know if these recommendations talk about bringing the issues to the public as well). And he adds that the share of insured deposits from the deposit portfolio of liquidated banks is 99%, and compensation will be made in full at the expense of the Deposit Insurance Fund. At the same time, even the remaining percentage of uninsured deposits, as well as deposits of legal entities and account balances will be compensated by the assets sold.

It is interesting how the head of the Association, an organisation, in principle, public, can guarantee that all deposits, including legal entities, will be compensated by the state structure, which is the Deposit Insurance Fund. And where does he get such confidence, if practice shows a completely different thing: the fund's funds and closed banks' proceeds from the sale of assets are barely enough to compensate only the insured part of the population's deposits. Clients hardly receive uninsured deposits, and a legal entity completely loses the funds accumulated in their accounts. By the way, even the country's chief banker does not give such a guarantee. Apparently, the head of the association has more reliable information, if not to speak of powers.

True, the head of the association himself admits that the return of uninsured deposits is a laborious process. But he immediately claims that the safety of all savings and their full compensation are guaranteed. 'All savings' means that this includes uninsured deposits. And whether it includes funds on current accounts of legal entities is not entirely clear. But, one must agree, the difference between the first and second quotations of Nuriyev is quite large. But we are talking about money, which is equally important for both individuals and legal entities. And one cannot take such a superficial approach to the discussion of painful problems of thousands of bank customers, for whom every word of the head of the association is important.

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