Expert: "Authorities Do Not Intend to Solve Credit Issue"

Baku/14.04.18/Turan: The credit issue that arose in the country several years ago turned into a headache not only for borrowers, but also for creditors. Before the devaluation of the manat in 2015, banks for their own insurance mostly issued loans in dollars. Unsuspecting citizens signed contracts, which indicated that the debtor would pay the loan at the rate established by the bank. The double fall of the manat that burst like a bolt from the blue sky sharply increased the amount of borrowers' debts, dragging them into bondage. Taking a thousand dollars in the bank, and expecting to return 800 manat with interest, the citizen was now due to pay 1,700 manat, not counting high bank interest. Many people refused to pay, someone sued, but the state, having proclaimed by the Supreme Court that the debts should be paid at a new rate, sided with the banks. People did not pay, banks sued, but the problem of the decision was never found.

Just a few days before the presidential elections at the Milli Mejlis session, the MPs discussed the issue of problem loans. MP Siyavush Novruzov proposed to investigate the real reasons for getting loans: "Someone takes a loan to buy a car, and someone - for a farm. If a loan is taken to buy a car, then let the borrower go and repay it. However, people who have taken a loan for a need must have concessions."

The MP added that despite the creation of the Financial Markets Supervision Authority, no work is being done to solve the problem. How should we perceive the MP"s statement - as one of the many pre-election promises or as an indicator that the government decided to move the issue off the ground?

The economist Natig Jafarli believes the problem of loans had to be solved 3 years ago: "Because the decision to devalue the manat was taken by the state, and it was responsible for the process of growth of dollar loans after two major devaluations. There is absolutely no guilt of citizens. They took a loan, looked at the dollar exchange rate and calculated the loan in accordance with their then incomes. We have repeatedly stated that after the second devaluation the probability of growth of problem loans is very high. However, the authorities did not listen to us, and did not take the necessary steps to solve the problem. If the problem had been solved then, the process would have passed more painlessly for both banks and citizens, and cost the state cheaper. Now before the election, certain proposals were made in the direction of resolving the credit problem, but again no real steps were taken. This gives grounds to say that the authorities do not have a serious work plan, a roadmap for solving the problem," Jafarli said.

According to the expert, the probability of solving the problem in the near future is very small: "Because it requires very large funds. To date, according to official data, the amount of problem loans is 0.6% of the total loan portfolio. However, these calculations are not correct. International rating agencies that seriously monitor the situation in Azerbaijan and are well informed about the country's banking system, state the amount of problem loans equal to 30% of the total loan portfolio. According to initial estimates, it is necessary to raise AZN 5-6 bn to solve the credit problem in the country. Until financial sources are found to solve the problem, it will not be solved. At the moment neither in the state budget nor in the budget of the State Oil Fund there is a financial source for paying loans to citizens. Three years ago, we proposed that the responsibility be divided among the three parties. That is, the state had to take a third of the responsibility for itself, another third had to be taken by banks, in return, the state had to offer them tax breaks, and the last third would fall on the shoulders of borrowers with a deferral of payments for a period of 5 years. However, for the time being, all the cargo is borne by citizens. Therefore, the number of litigations between banks and borrowers exceeds tens of thousands. Approximately 70% of all lawsuits are just complaints on problem loans. The fact is that without the participation of the state, the problem of loans cannot be solved. This must be done either at the expense of the state budget, or at the expense of the State Oil Fund, so that citizens can breathe freely, and banks can start normal activities. Now banks have turned into a big currency exchange point, they cannot carry out normal banking activities, and earn almost only on currency exchange. Therefore, to correct the situation, the state cannot avoid certain steps, it will have to do it," the economist stressed.

Jafarli also noted that in the event of new devaluation, the problem of loans will worsen even more: "However, the probability of devaluation in the near future is small, because the price of oil is quite comfortable for the Azerbaijani economy and the financial sector of the country. In Azerbaijan, there is a very primitive economic model, dependent on oil. So a rise in price of black gold by 40% compared to last year calmed the authorities. For three months of this year, from the increase in oil prices, $ 700 million of additional income was received. However, in the case of a new wave of falling oil prices, the probability of which is high by the end of the year, and the appreciation of the dollar, the likelihood of which is also very high, there will be a certain probability of devaluation. In addition, devaluation is also observed in neighboring countries - the value of the ruble (RUR), tenge (KZT), and lira (TL) has decreased. This also puts pressure on the Azerbaijani economy and the manat. However, in Azerbaijan the manat rate is regulated administratively, and the authorities will not arrange its sharp decline. By the end of the year, the manat can fall by a maximum of 10-15%," N. Jafarli summarized. -0----