State and Banks Should Take on Debts on Bad Loans - Expert

Baku / 01.03.18 / Turan: The economic expert Vugar Bayramov offers a mechanism for resolving problem loans that have turned into an insoluble issue affecting a huge group of the population of the country.

In his view, the burden of this problem should be divided among three sides: the state, the banks and the debtors themselves.

The head of the Center for Economic and Social Development, Vugar Bayramov, in an interview with the Chetin Sual (Difficult Question) program noted that the volume of problem loans continues to grow. According to the Central Bank statistics, the total amount of these loans amounted to 1 billion 620 million manat, or 14% of the total loan portfolio of banks.

In international practice this indicator does not exceed 5%, and in developed countries it is about 3%.

According to official data, the number of citizens who took loans in banks is 2.5 million people. This means that almost every family has a borrower.

According to Bayramov, the growth of problem loans was affected by devaluation, but this is not the only factor. Even before 2014, experts pointed to a high interest of bank loans. In some cases, it reached 40-45%. As a result, "bubbles" were formed in the banking sector, and devaluation contributed to the fact that they quickly burst.

"After the first devaluation in March 2015, we proposed to the government a tripartite mechanism for solving the problem. The essence of it is that the amount of the returned debt should be distributed between the client, the bank and the state," Bayramli said.

If the loan in dollars was taken at the rate of 0.78 manat, then 10 thousand dollars before the devaluation amounted to 7,800 manat. Now 10 thousand dollars are equal to about 17 thousand manat. Thus, the difference in the amount of 9,000 manat formed should be covered by the three sides equally.

From the solution of problem loans first of all, the banking sector will benefit. Now there is a decline in both loan and deposit portfolios. Banks have no desire to attract deposits, because there are difficulties in allocating funds.

If a year ago, manat deposits were attracted at 15% per annum, now it is no more than 9-10%, and in some banks it is 6-7%. As a result, the loan portfolio decreased to 11.7 billion manat.

The deposit portfolio is 7.3 billion manat, although a year ago it was 7.7 billion manat. Therefore, in order to improve this sphere, it is necessary to solve the problem with problem loans and toxic assets. Declaring a bank's bankruptcy is not a solution. It is necessary that the Financial Markets Supervision Authority develop a special program for the systemic improvement of the banking sector, the expert stressed. -03B06--