Auto Loans Not Affordable for Azerbaijanis

The car market in Azerbaijan is in a deep outage, while Russian exporters have sharply increased sales. As a result of January, exports of cars from Russia in unit terms increased almost 2.5 times compared to January 2016 (up to 3.7 thousand units), in value terms - by 54% (to $ 51.9 million), reports Federal Customs Service.

The main direction for the export of Russian cars is the near abroad, and Azerbaijan is the leader in the export of Russian cars (besides the Eurasian Economic Union countries), according to a report of the company Autostat.

“Starting from the 1990s, the smallest growth rates of the car park in Azerbaijan were registered in 2016. Last year the total number of cars increased by 7,400. For comparison, even in 2000 there was an increase of 10,000, in 2003 - 50 thousand, in 2006 - 70 thousand, and in 2012 the dynamics of growth was at the level of 88 thousand,” said economist Rovshan Agayev.

There is no doubt that the recession of the market is caused by the banking crisis, the fall in the volume of auto lending, unemployment and declining incomes of the population, the expert said, noting that in 2016 the fleet increased by 1,000 cars produced by the Commonwealth countries and by 6,400 other foreign cars.

The spread of the market expansion is as follows: Mercedes (681 units), Hyundai (668), Toyota (505), KIA (457), Ford (329), Chevrolet (324), Volkswagen (300), Land Rover (163), Mazda (159), Ford (149), Audi (144), Mitsubishi (117), Fiat (88), Daewoo (74), Porsche (63), Honda (50), Infinity (20), etc.

With the first collapse of the manat in February 2015, car dealers refused of auto lending. The trend does not mean the complete withdrawal of commercial banks from this market segment - other banks continued to issue loans for the purchase of cars, but under more stringent conditions.

For example, VTB Bank (Azerbaijan) leading the segment for two years so far offers on its website the product Autoexpress with the involvement of a fairly wide range of car dealerships such as KIA Motors Azerbaijan, Performance Center Co, Auto Azerbaijan, Nurgun Motors (Group ), VW Group, Diamond Motors MMC, Lexus Baku, Improteks Motors MMM, Farrukh PCC, Khazar Lada Ltd, Bentley Baku, Cahan Motors, MG Motors, El Motors, Neptun Auto Show, BYD Auto Azerbaijan, and Cahandar MMC.

The bank operates under the formula “first money – then the commodity”. Initial payment for cars with a value less than 30 000 AZN / 28 600 USD is 50%; for cars worth more than 30 000 AZN / 28 600 USD it is 40%. The loan is issued on the security of the car to be purchased at a rate of 21% with the guarantee of third parties. The loan currency announced on VTB's website is AZN, USD or RUR. However experts warn the bank does not lend in the national currency.

Commercial bank loans for used cars are much more burdensome - interest rates and claims for down payment are growing. For clarity, another product of VTB Bank, the Auto Loan of Used Cars, means a 22% rate. The minimum loan for the used car is 3,000 AZN (or the equivalent in dollars) issued with the condition of doubling the initial down payment: from 40 to 80% on the security of the purchased car. The issue of third party guarantees is at the discretion of the bank.

Experts consider risk policy of creditors and growing rates for auto lending one of the important reasons for the recession, along with a drop in the purchasing power of the population. -0-