Deposits of CBA Become Main Source of Income for Commercial Banks

Commercial banks, having sharply reduced their lending, started buying up notes of the Central Bank and investing funds in the accounts in the deposits of the country's main bank. To date, CBA deposit auctions have become the main source of earnings for financial and credit organizations of Azerbaijan.

“Banks have money in their accounts, and they do not risk issuing loans to the population because of the difficult financial situation, as well as the prospects for a new devaluation. The main source of good income was the deposit auctions of the issuer of the national currency, i.e. the Central Bank. The recently increased demand for CBA auctions is explained by the fact that these deposits, in contrast to loans, are guaranteed against risks,” said Akram Hasanov, a member of the Bar Association and author of a book on banking law.

Despite the guaranteed opportunity for banks to avoid risks with short-term investments, the process itself can hardly be called normal, the interlocutor said.

“The central bank should promote banking injections into the economy and lending to its real sector, but instead the regulator of financial flows creates all conditions for raising funds in its own deposits and debt securities. Thus, the main bank is trying to reduce the money supply in circulation to prevent further fall of the manat and inflation. As a result, today all the money revolves in the banking system itself and the economy has remained without funds. Having entrusted money to the CBA, banks receive stable and guaranteed income - in other words, they live at the expense of this,” the bank expert said.

Demand at the last CBA deposit auction held on April 3 exceeded the offer by 49.2%. The central bank took 100 million manat from banks, but the demand was higher than the offer - 149.2 million manat. The average weighted interest rate on deposit transactions concluded within the auction amounted to 14.76%. At an auction on March 27, the CBA raised 300 million manat, while at an auction on March 31, another 200 million manat. The CBA deposit auction is held on the trading platform Bloomberg. The auctions have been held from June 13, 2016.

In addition, the Financial Markets Supervisory Authority registered at the beginning of the week the issue prospectus of short-term notes of the Central Bank in the amount of 50 million manat. It is reported that 500 thousand notes worth 100 manat with a circulation period of 28 days will be issued within the framework of the issue.

Short-term notes and deposit auctions are an instrument of monetary policy for regulating the money supply in circulation. -0-