"In Azerbaijan, the bankrupt is being finished off"

According to the draft law "On the State Budget" for 2024, compensation payments from the state budget in the amount of 1.7 million manats are provided for solving problem loans to individuals.  

In February 2019, President Ilham Aliyev issued a decree in connection with the resolution of the issue of problem loans to individuals in foreign currency. The goal was to repay at the expense of the state budget the difference in debts of individuals who took out loans of up to $10 thousand formed after two devaluations in 2015.

Then, in order to restructure overdue loan debt, banks were also provided with a preferential loan in the amount of 682 million manats. At that time, the volume of problem loans in Azerbaijan exceeded 1.5 billion manats.

But for what reason are funds being allocated from the state budget to compensate for problem loans? What's the goal now?

An expert on banking and financial issues Akram Hasanov answered the questions from ASTNA.

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Question: Compensation payments from the state budget in the amount of 1.7 million manats are provided for individuals to solve problem loans. Why is this necessary?

Answer: Most likely, this refers to the unfulfilled part of the Presidential Decree of February 2019. Let me remind you that in accordance with this decree, benefits were provided for problem loans in foreign currency, the amount of which does not exceed $ 10 thousand. It probably hasn't been fully implemented yet. 1.7 million manats is a very insignificant amount. I don't think this applies to any new benefits.

Question: Have there been such deductions from the state budget so far?

Answer: It was within the framework of the same Decree. It is possible that in recent years they have not been included in the budget. Because the impression was created that this Decree was fully implemented. But in reality, some citizens continue to complain until now. Therefore, they probably calculated it and included it in next year's budget.

According to the Central Bank, by October 1, the amount of overdue loans amounted to 519.8 million manats, by 2.7% less than in the previous month. The share of overdue loans in the total loan portfolio decreased by 1% compared to the corresponding period of the previous year and amounted to 2.3%. - The author.

Question: How right is it to put this problem on the shoulders of the state budget?

Answer:  Generally wrong. In civilized countries, there are normal bankruptcy laws. The one who cannot repay the debt is declared bankrupt, his name is entered in the list of the bankrupt, and everyone sees this list. And the debt is written off. The losers are the creditor (lost money) and the bankrupt (the name gets on the "black" list, which everyone sees). This has nothing to do with society or the state. One provided a loan, and the other took it. The first, risking, wanted to make a profit, but the borrower went bankrupt. This is called entrepreneurial risk. Therefore, it is wrong to allocate money from the budget. But "barbaric thinking" reigns in Azerbaijan: a bankrupt person is finished off. Even arrested.  Contrary to the decision of the European Court of Human Rights against Azerbaijan in this regard.

On the other hand, the state's taking on a certain part of the losses due to loans in foreign currency is understandable.  Yes, the state is not guilty of devaluation. But the state is guilty of lending people not in manats, but in dollars. There is a logic here.  After the devaluation, a loan in foreign currency is no longer granted to those who have no income or collateral in foreign currency. That's why there is no such problem now.

Question: As you noted, in February 2019, President Ilham Aliyev issued a decree in connection with the resolution of the issue of problem loans to individuals in foreign currency. Then the difference formed after two devaluations that occurred in 2015, the debts of individuals who took out loans for $ 10 thousand, was repaid at the expense of the state budget. Then, in order to restructure overdue credit debts, banks were granted a preferential loan for 682 million manats. But now there was no devaluation. There is no such problem. And there have always been bad loans. Now such allocation of funds is questionable. Perhaps it was a step taken on the eve of the devaluation?

Answer: As I have  already mentioned, this is most likely due to the execution of the same Decree. At that time, there was no complete, correct calculation.  The complaints are still ongoing.

Question: Wouldn't it be better to try to eliminate not the consequence, but the cause of problem loans? 

Answer: Problem loans are everywhere. This is a market economy. Entrepreneurship, there is a credit risk. But, of course, thanks to the right policy and control, it is possible to achieve a reduction in problem loans. And that's the right thing to do.

Question: What should be done to solve the problem of such loans in the country?

Answer: The organization of proper control over credit institutions, first of all over banks, control over ensuring transparency is carried out by the Central Bank. There have been positive changes recently, but there is still a lot of work to be done. The most important thing is transparency. Banks should be transparent, the state register of legal entities, the state register of real estate, etc. should be transparent. Only in this case, public control will increase, and fraudsters will not use dubious schemes.