Central Bank to Lose Right to Issue Targeted Loans

The bill on amendments to the law "On the Central Bank" was discussed at the meeting of the Parliamentary Committee on Economic Policy, Industry and Entrepreneurship. It agreed and submitted to the parliament for approval a bill on amendments to the law "On the Central Bank," which provides for the withdrawal from the Central Bank of the function of issuing targeted loans under state guarantees.

We are talking about the repeal of article 49.1 of the law, which states that the Central Bank may issue loans to banks under state guarantees to finance projects of social and economic importance, as well as financial support for the real sector of the economy. The form, rules and conditions of loans are established by the Board of the Central Bank.

"In most countries, Central Banks do not carry out such activities, because it contradicts the legal nature of the central bank, since it can lead to competition with commercial banks, which is fraught with a deviation from the main goal - price stability. It should be noted that due to a number of reasons of historical and economic nature

The Central Banks of developed countries (England, Germany, France, etc.) often carry out deposit-credit and settlement-cash services for corporate and private clients. The fact is that in many developed countries, central banks were initially created as joint-stock commercial banks that served not only the state for a long time, but also corporate and private customers," the banking expert, author of the book Banking Law, Akram Hasanov, answered Turan's request.

The mentioned articles appeared in the law "On the Central Bank" in 2009. In fact, the targeted loans of the regulator were limited to lending to the Central Bank of large companies, mainly state-owned monopolies under state guarantees. Since the law excludes the possibility of direct lending by the Central Bank, such transactions were conducted through commercial banks, where private banks and banks with state capital acted as intermediaries.

"In 2013, four such loans were issued for the amount of one and a half billion. Among the borrowers was AZAL. Moreover, CJSC refers directly to the Central Bank, and the latter, in turn, allocates a loan to a credit and financial institution, say, to the International Bank for subsequent crediting of the Azerbaijani Airlines, dictating the terms of the loan agreement. In fact, the CBA issued AZAL a credit, but did it indirectly. In this case, the principle of competition is violated, as well as its functional role in the credit system, since the regulator is the issuer of the currency and should serve the banking sector," the expert said.

"The problem has become aggravated today in the conditions of devaluation and inflationary processes. Trying to keep further falling of the national currency, the CBA reduces the money supply in circulation, refusing to issue not only targeted, but other loans. Hence are the conflicts between the Central Bank and the Financial Markets Supervisory Authority. The war of interests has reached its peak - the Central Bank, enlisting the support of international financial institutions, is trying to disown the imposed targeted lending functions to keep inflation and the manat rate. However, this position of the regulator has collided with the interests of major officials and monopolies, as commercial banks cannot provide them with such large amounts, and it is difficult to borrow abroad," Hasanov explained, noting that the reason for refusing article 49.1 of the law "On the Central Bank" could be pressure on the country's main bank.

The CBA defends its position by appealing to international standards and relying on international financial organizations on this issue. Moreover, under the conditions of financial crisis, the government is compelled to listen to them. -0-