Debt Bondage Growing

The Central Bank of Azerbaijan has published another statistics on the situation in the country's banking sector. According to the data, the volume of problem loans in the monthly comparison increased by 145.8 million manat or 9.15%, and on an annualized basis - by 225.6 million manat or 14.90%. The total amount of overdue loans is 1 739.8 million manat, and their share in the total loan portfolio of all the banks of Azerbaijan has reached almost 12%.

Samir Aliyev, an expert with the Center for Assistance to Economic Initiatives, told Turan IA these figures clearly show that the crisis of non-payments for loans is becoming more and more large and tangible - from the field of apocalyptic forecasts and "horror stories" it is increasingly becoming more realistic.

The slowdown in industry and GDP in Azerbaijan since last year (GDP decline in 2016 was 3.8%), the increase in the budget deficit more than six times compared to 2015, the paralysis of the financial system, the economy"s slipping into a coma-depressive state, the weakening of business activity, the growth of hidden unemployment and poverty, and the investment crisis in the real sector exacerbate the solvency problem of the citizens.

The contents of the pockets of the population are emptied by the continuing accelerated rise in prices for essential goods and services: gas, electricity, water, heating, and medicines. This explains the paradoxical fact that, despite the growth of nominal salaries by 6%, and real salaries by 2.1%, the real income of people, with inflation of 13.9%, showed a decline of 3.7% in January -May this year.

According to the expert, the situation with problem loans will worsen as the economic crisis in the country increases. Small and medium-sized businesses are on the verge of life and death, and people are left without jobs and means of subsistence, which leads to delinquency of bank loans. The rapid growth of non-payment of bank loans, aggravated by a recession in the economy, an investment crisis and a drop in the standard of living of the overwhelming majority of the population, can inflict a severe blow to the disorganized national financial system, paralyze bank lending, deepen investment coma, and reduce consumer activity.

Meanwhile, a Milli Majlis member Vahid Ahmadov spoke rather harshly about the effectiveness of the Financial Markets Supervision Authority (FIMSA) measures to stabilize the situation in the banking sector. In his opinion, the creation of this body did not play a positive role in the improvement of this system. On the contrary, 11 banks were closed, although a merger of credit institutions was proposed. Disagreements between FIMSA and the CBA further exacerbate the situation of Azerbaijani banks.

"The current situation of Azerbaijani banks little differs from last year's situation, which indicates that the measures taken did not lead to the expected results. After two devaluations, these institutions still face serious difficulties, although the government has promised to help. What this assistance consists of is not clear. In the parliamentary committee on economic policy, we prepared a 14-page plan to return USD loans to the depositors. But no proposal was accepted or implemented. FIMSA ignored this plan and took ill-considered decisions. The result is before your eyes," Ahmedov pointed out.

Today, the problems of granting loans, attracting investments, and optimizing the financial system remain unsolved. Banks should have solid portfolios so that they can invest in the real economy. However, the danger of the situation is that banks have almost no free financial resources to support business and industry due to capital outflow. People continue to withdraw their savings from banks.

The outlook for the future, according to a common opinion of many experts, is disappointing: the growth of unemployment and the general depressed state of the economy will have a negative impact on people's incomes, and will not allow them to service their debt obligations. All this will aggravate the crisis of non-payments in the banking system and subvert the already shaky state of the banking sector.