Expert Proposes to Create Problem Loans Fund under Central Bank

If the government does not want to pay compensation to citizens who have taken loans in dollars, it at least should protect them from future devaluations, the expert in finance Samir Aliyev said.

In his profile on the social network Facebook Aliyev said in the current financial situation it would be advisable to create a fund for problem loans at the Central Bank of Azerbaijan. ‘The fund can be one of the mechanisms for the conversion of dollar loans into manats. The main objective of the fund should be to improve the loan portfolio of banks,’ the expert believes.

In his view, for the fund capitalization the Central Bank should allocate finances, while the fund, in turn, should place long-term deposits with commercial banks - for example, for 20 years, at a 3% rate.

‘These deposits will be directed to refinancing of USD loans, and they will provide the conversion of dollar loans into manats,’ wrote Aliyev, noting that a similar mechanism is applied in Kazakhstan in relation to mortgages.

The expert noted that the dollar in respect to manat is increasing, and there is no doubt that this process will continue.

‘This means that in parallel the costs of citizens who have loans in dollars will grow,’ the expert believes.

As of July 1, 2016 the total of consumer loans was 2 billion 247 million AZN and 227.4 million AZN of this accounted for payment cards.

‘The trend of reducing the AZN rate increases the monthly payment burden of the population by at least 40-50 million AZN.

The devaluation of the national currency even by 10% may increase the costs of the population by 200 million manats, and the losses of banks only on deposits could increase by 630 million manats,’ Aliyev said. ------71B