Banks Experiencing Outflow of Confidence

Baku / 05.06.17 / Turan: Aggregate assets of commercial banks operating in Azerbaijan as of May 1 this year amounted to 30 billion 779.2 million manats. Out of them, 28 billion 31.6 million manats fall on total liabilities, and 2 billion 747.6 million manats - on the balance capital of the banking sector.

This is stated in the review of the Financial Market Supervision Authority (FIMSA) on the financial situation in the country. The total volume of household deposits in banks amounted to 6 billion 847.5 million manats, which is more than 12% less compared to the same period last year.

The negative trend of capital outflow from the banking sector has acquired a stable character, as evidenced by the figures. So, while as of January 1, 2017 the volume of deposits of the population was AZN 7,448 million, as of April 1 it fell to 6 billion 911.4 million manats. In general, for January-March of 2017 the bank deposits of the population decreased by 7.2%.

In addition, since the beginning of this year, as a result of the restructuring of this sphere, 9 branches of banks have been closed in the country and 653 employees have been sacked.

"Despite the fact that recently the situation in this area has relatively stabilized and the national currency is strengthening, the level of distrust of the population to these institutions will remain high. Therefore, the volume of deposits continues to decline," Samir Aliyev, an expert at the Center for Assistance to Economic Initiatives, told Turan IA. "It's clear to everyone that these processes are short-term, so people are eager to collect their contributions."

According to the expert, the results of recent online opinion polls showed that today more than half of the country's residents do not trust credit institutions. The reason for this massive mistrust was the devaluation of AZN on the background of the economic recession, as a result of which there was nothing to repay debts on loans. Simultaneously, criminal schemes for issuing large loans to businesses also influenced the liquidity of banks. In general, mistrust of banks is the result of the state's financial policy.

By the way, according to the international audit company Ernst & Young, in the USA 57% of citizens carry savings to credit organizations without fear for the safety of the money. A third of the population (33%) trusts the advice of providers of financial products and services. In Germany, the ratio of "safety of savings - honest consultations" is slightly less than in the United States - 56% and 30% respectively, and in Australia, it is slightly more modest - 51% and 20% respectively.

"In the conditions of economic instability, which led to an increase in the volume of problem assets, as well as tightening of banking supervision by the CBA, many credit institutions began to lack capital to cover losses. All this resulted in a massive "sweep" of the banking sector, which undermined clients" confidence in banks, as they began to lose their funds," the economist and analyst Azer Mehdiyev commented on the situation.

But there is another important point - the lack of banks" reports on their profitability, while the constant negative information background around banks does not contribute to the growth of confidence in these structures, either.

Restoring people"s trust in banks, as Mehdiyev notes, is impossible with just a few loud statements that sounded from the lips of the head of the Central Bank and a number of ministers.

To restore confidence, at least, it is necessary to stabilize the national currency, not through transfers from the State Oil Fund (this is a short-term measure), but by developing the country's economy and increasing revenues to the state budget. This is a transition from the raw oil-based model to an industrial development model. It is necessary to take measures to stimulate the development of the real sector of the economy. If a sound and balanced policy is implemented, then we can manage to save everything and give a chance to the banking system for the future. -0-