Authorities Weaken Credit Stranglehold

The Central Bank of the country on July 10 announced the steps, which essentially weaken the credit noose that hangs around the neck of half the population.

It is about reducing the discount rate from 3.5% to 3%, starting from 13 July.

According to the official report, the measures undertaken are to strengthen financial support to non-oil sector, small and medium-sized businesses.

In addition, the Central Bank reported on the steps with a view to lowering interest rates on loans. For this purpose, the head of the Central Bank Elman Rustamov held a special meeting with the heads of the country's banks. At the same time, he called for "social responsibility in relation to individuals."

Commercial banks have been instructed to expedite the process of reducing interest payments on loans and reduce payment for various banking services.

Following this, the banks one after another reported a reduction of interest on loans, which together with the insurance payout is 36-39% per year.

After the "recommendations" of the Central Bank, these figures were reduced by banks to 26-29% per annum.

Note that, according to official figures, more than 40% of the adult population of the country has debts on loans. In particular, as of June 1, the consumer loans of the population made up 8 billion manats.

According to experts, in the country the amount of bad loans, whose return is in doubt, are about 1 billion manats. Irrecoverable loans are growing exponentially, because the interest is added to the debt for the timely non-payment.

Experts believe that this process will lead to a social explosion against the backdrop of the economic crisis and lower income levels. There may come a time when debts can completely undermine the banking system, which itself will become a bankrupt due to lack of profitability.

Measures adopted by the Central Bank, however, do not solve the problem of non-performing loans, which can only be written off by the state, at least partially. In addition, the authorities should put an end to the incredibly high bank lending in Azerbaijan, which cannot be found anywhere else in the world. However, in this case, attractiveness of bank deposits will fall much, which bring income of 10-12% per year to another segment of the population and which has no analogues in the world either.

This "unparalleled" banking system is a product of oil revenues. When there were many, this system somehow worked, but with incomes falling threefold it failed.

Therefore, the February devaluation of the manat by 34% can only be the first financial shock. -02B-