2013 was the year of capitalization of the banking sector, and consolidation is delayed

Nearing the end of the next fiscal year for the banking community of the country and it's time to take stock and share expectations for next year.

Of course, 2013 was a landmark in terms of improvement of the sector for the entire post-crisis period. Based on the statistics for the first 11 months of this year, the banking sector increased by 22 %, banks increased their lending by a quarter while consumer loans grew by 37%. This year there were historical highs in terms of profitability of the banking community. So for the first 10 months of this year net profit of Azerbaijani banks , net of tax reached 286 million manat or 2.2 times higher than recorded in the previous year .

The total capital of the banking sector over the last 16 months that is since the adoption of the Central Bank decision to increase the minimum level of capital to 50 million manat, increased by 1.2 bn or 57%. During the same period, the number of banks with capital exceeding 100 million manat increased from three to 8. In general, the capital of banks having 95% of the assets and deposits of the population exceeds 50 million manat. Despite the fact that the new regulations for the remaining 5 percent had already come into force January 1, 2014, the supervisory authority for reasons of maintaining the financial stability of the bank gave it a reprieve of one year. Inconsistent capitalization of the Central Bank in question has long been criticized by experts. Suffice it to the fact that despite the fact that the minimum size requirements for banks with total capital in July 2007 is 10 million manat still two banks capital remains below 5 million manat. For what reason for so many years the supervisor gives these banks a chance to exist remains unclear. In this regard, aspirations that this was supposed to be a year of consolidation of the banking sector were definitely not justified. A decision on the postponement of the banks and all tends to suggest that this period is likely to repeat the fate of the previous one and no consolidation in the coming year will not be possible mainly due to the fact that in the current situation to push for consolidation the so-called family banks could only decisive stance of the Central Bank, which it had not demonstrated.

One of the features of this year was to deepen and rebirth of consumer credit as such. It is about installment programs of banks such as Bolkart, Worldcard, Albalikart, Paykart etc. In a situation where the banks were forced to furl their items with outlets due to the prohibition of the Central physically they could not in a short time by expanding the network of representative to fill that gap. In such a situation, this kind of lending played the role of a certain "lifeline." But at the same time this was also a problem for owners of these cards because as compared to the classical lending, which requires a certain procedure of processing the loan , including the consumer here is the whole procedure of writing off funds from the card account of the debtor at the moment of purchase in a shop . So assume zero balance in the amount of AZN 2 is not worth anything. But the fact is that the passage of the classical lending procedures under the current income customer would lend to this, the same amount. In this regard, the main risk is the fact that part of the bank during the period of owning a card balance any adjustments as changes occur to the downside income client is not done. This creates an imbalance between solvency and consumer credit . An important role in deepening this creates an imbalance and repeated lending the same client by different banks despite the already existing debt. This situation has not gone unnoticed and the Central Bank to maintain a balance between solvency and consumer lending in the next year will be determined by the new regulatory requirements for banks. In particular will be introduced ratio of debt to income ratio and a maximum limit determined by this factor. Along with this, banks will have to apply a policy of responsible lending , which includes , for example, such components as providing consumers with relevant products to their income .

We can assume that a boom in consumer lending especially multiple lending will decline. But excessive liquidity and growth of household deposits, which over the past 11 months increased by more than a quarter, make the necessary timely placement of these funds and in such a situation sometimes banks do not bother too much on the quality of the loan portfolio generated. One can safely say 2014 in achieving the new strips do not remain aloof from the previous years. -15B -