Banks at Death

The international rating agency Moody's downgraded the basic credit rating and long-term deposit ratings of four Azerbaijani banks, the agency said.

Reduced were Khalg Bank, Bank Respublika, Bank of Baku and VTB Bank Azerbaijan. The agency added that "deterioration of the financial foundations of Azerbaijani banks occurred against the backdrop of long unfavorable working conditions and the negative impact of the devaluation of the manat, in particular, a significant deterioration in the quality of assets, and net losses due to increased credit costs, foreign exchange losses, etc.

The conditions for lending are limited by a very high level of dollarization, the lack of liquidity in the local currency, a volatile client deposit base and limited and costly access to capital markets. The agency's forecasts are also disappointing. According to Moody's experts, the pressure on the Azerbaijani banks will continue, given the credit prospects and net losses, a high load on reserves and more stringent regulation, requiring additional capitalization, as well as high dollarization. Is it really necessary to expect bankruptcy and the closure of four more banks in Azerbaijan? What awaits the country"s banking system in the future?

"The risk of bankruptcy or deterioration of the situation is high for all banks in the country. However the leading world rating agencies named only four of them a few days ago," the economist Natig Jafarli said. "Yesterday Mugan Bank was added to their list, as the number of its problem loans reached 20%. This means that the country's banking sector is dying. The state did not render any support, after the second devaluation no "road map" was presented to solve the existing problems, and the whole burden fell on the shoulders of citizens who, in the current situation, cannot return almost doubled loans. Thus, the population cannot return loans, and banks cannot raise money and participate in further lending and creating economic activity. The fact that the Central Bank and the authorities are not taking any action has accelerated the process of the fall of banks. Until the end of the year, we can witness the closure or merger of several banks.

The Azerbaijani government tried not to close banks, but to unite them. But this is not a way out, since not only the assets of these banks are combined, but also their debts. This, in turn, means increasing problems. However, the Central Bank is likely to prefer merger of the banks to their closure to prevent panic. The population does not trust the banks very much. It is no coincidence that only in the first months of the year the population withdrew more than 1 billion manats from deposit accounts. If there is no state support and or assistance from the budget funds and the Oil Fund, and some of the loans of citizens that they cannot pay for the situation are not written off, the situation will only deteriorate, because the banks themselves cannot get out of the situation. They do not have access to foreign markets, where they could take new loans to close the old ones. The deterioration of the situation of banks, in turn, will negatively affect the economic situation of the country. If the situation of banks does not improve, the economy of the country will gradually collapse," Jafarli said.

"There are banks in the country, whose situation is even worse than in these four. They are either not in the rating, or they are so low in the rating that nothing is said about them," the lawyer Akram Hasanov told Turan. "According to my calculations, 31 banks operate in the country, and 15 of them are actually insolvent and have gone bankrupt. The question is if these banks will be declared bankrupt. I believe they will not. These banks do not return deposits for months, and some, for example Ata Bank, do not return deposits for about a year.

In April this year, numerous amendments were made to the Law on Banks. One of these changes was that banks are not allowed to carry out a voluntary restructuring of their obligations. The law clearly states that if the bank has lost its solvency and has actually gone bankrupt, it itself chooses any obligation and appeals to creditors to make concessions either in the interest rate or in the terms, etc. Then a general meeting of creditors is held, and if at the meeting 2/3 of the creditors are willing to make concessions, they apply to all debts. It is even possible that part of the total debt will not be returned.

The question arises, what"s the use of this to the lender, because he loses some of the money. The fact is that the creditors who vote for the concessions are the people of the bank. As I said earlier, banks have not returned deposit accounts for a long time, but this does not apply to individuals. This applies to companies and private entrepreneurs. If you look at the financial statements of banks, it is clear that the main debt of banks is not to individuals who have not recently kept money in banks, but to companies that have not been allowed to withdraw cash from the beginning of the year. This is because the Financial Markets Supervision Authority (FIMSA) is preparing to prevent bank failures at the expense of entrepreneurs. With a high probability, the authorities will not let these four banks go bankrupt, because later the Deposit Insurance Fund will have to return money to investors, which the Fund does not have. Therefore, the mechanism of keeping banks afloat at the expense of entrepreneurs will be used. In this case, citizens will not lose their deposits, the FIMSA will report to the President that it does its job well, and only entrepreneurs who will lose their money will lose," Hasanov added. -0-