"How can banks be trusted in such conditions?!"

At a meeting of the Milli Majlis on June 23, during the discussion of the proposed amendments to the Law "On the Central Bank of the Republic of Azerbaijan", Chairman of the Central Bank Taleh Kazimov said that the interest on loans in Azerbaijan is 10.1% for legal entities and 16.1% for individuals.

The Chairman of the Central Bank of Azerbaijan (CBA)  said that in Georgia the interest on loans for legal entities is 14% and for individuals 18.6%: "Our interest rates on loans are much lower than in neighboring countries. Several factors influence the formation of interest on a loan. Under  high inflation, a reduction in interest on a loan is not considered acceptable."

Over the past few days, Taleh Kazimov has regularly raised the issue of interest rates on loans. A few days earlier, at a meeting of the Milli Majlis Committee on Economic Policy, Industry and Entrepreneurship, in response to claims about high interest rates on loans, he said, "I have not seen that the percentage of bank loans in Azerbaijan was 20-25%."

But what are the real interest rates on consumer loans in Azerbaijan?

Akram Hasanov, an expert on financial and banking issues, comments on the words of the Chairman of the Central Bank in an interview with ASTNA.

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Question: The Chairman of the Central Bank, Taleh Kazimov, said that he had not seen that banks' loan rates in Azerbaijan were 20-25%. What are the loan rates in the country's banks? Do the country's banks really not issue loans with a rate higher than 20-25%?

Answer: Taleh Kazimov worked in a commercial bank, mainly engaged in corporate business. That is, from a bank that collaborates with entrepreneurs. Currently, entrepreneurs are not provided with a loan at 20-25%. And they will not take it. Therefore, the chief banker did not meet loans with a rate of 20-25%. But citizens are given such loans. Moreover, the banking system itself consists not only of banks. There are also non-bank credit organizations. They have high interest rates on loans. I am not talking about loans that pawnshops provide at 50-100%. Therefore, I assume that Taleh Kazimov was talking about business loans.

Question: Why are the loan rates high in Azerbaijan?

Answer: Because credit risks are high. That is, there is a high probability of non-repayment of the loan, problems with its repayment, delays, and in the course of this, credit institutions have to bear additional costs. Additional expenses can be both official (collectors, lawyers, etc.) and unofficial (bribes in court, to an executive official, etc.) The country has a deplorable level of legality, judicial and legal system. A lot of uncertainty. And this is a risk for creditors. Therefore, they include future additional expenses in the interest rate.

On the other hand, for credit institutions (with the exception of large banks), the cost of money is high. Deposits are accepted at 10-12%. The Central Bank provides banks (and not all) with a loan at 9%, and does not provide non-bank credit organizations at all. And when banks add their profits and credit risks to this, the interest rate eventually becomes higher.

Question: The World Bank's Manager for Azerbaijan, Sarah Michael, said that only 10% of deposits are kept in banks in Azerbaijan. According to the figures released by the Central Bank, the volume of deposits of individuals in Azerbaijani banks currently amounts to 12 billion manats. This means that the savings of the population in the country exceed 100 billion manats. Why don't people keep their money in banks?

Answer: Firstly,  because they do not trust banks. And those who trust, do not leave deposits in foreign currency, because the interest rate is low: 1-2%. Despite the high percentage of savings in the national currency, confidence in the manat is low: people are afraid of devaluation. And finally, most do not keep money in the bank because they are afraid. They are afraid that the state will be interested in the source of money because most of the funds were obtained illegally. True, the state has no right to ask such a question, to deprive someone who cannot explain their origin of funds. Because even officials do not submit an income declaration. But who considers the laws? Law enforcement agencies can commit any arbitrariness.

Question: The statement of the representative of the World Bank says that the main reason that citizens do not open bank accounts, often keep deposits outside banks, is the insecurity of banks. What is the reason for insecurity?

Answer: The main reason for distrust is poor control over banks for many years. Over the past 10 years, more than 20 banks have gone bankrupt, billions have disappeared in them. More than 1 billion manats were lost in Bank Standard alone. The central Bank did not exercise proper control, auditors published fake reports, owners and managers robbed banks, issued fake loans, threw money to the wind, etc. Of course, this does not apply to all banks. For example, the reason for the closure of such banks as “AGBank” and “Günay” Bank is still unclear. They had no problems with customers.

But regardless of whether the closure of the bank was right or wrong, its liquidator is the Deposit Insurance Fund - one of the most unauthorized, opaque, and corrupt structures in the country. He also squanders the remaining property. Is it possible to trust banks in such conditions?!

Question: What steps should be taken to improve the banking system of Azerbaijan, reduce credit rates, as well as gain confidence in banks?

Answer: First of all, the laws must be adequate. Currently, the Milli Majlis is going to adopt certain projects in this area. There are positive aspects, but they are not enough. Projects are not submitted for public discussion so that we can have our say. In conditions of opacity, there will be no normal banking system. However, the Central Bank is trying to become more transparent. But, for example, the positions of 2 outsiders have been vacant in its Board since 1996. These extraneous members are designed specifically for public control. As for the liquidated banks, the role of creditors should be strengthened, the Deposit Insurance Fund should be fully transparent. In general, as long as there is no legality, a healthy competitive environment in the country, there will be no serious achievements in the banking system. It is a matter of the system.

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