Who Will Cut Banking �Gordian Knot�?

Baku / 21.03.18 / Turan: Discussions on problem loans have flared up in Azerbaijan again. The reason for this was the adoption by the Milli Majlis of the law on writing off unpaid debts of the population on compulsory state social insurance, formed as of January 1, 2006 and not paid to the present time, as well as financial sanctions formed as of January 1, 2015. The document will come into force on April 1 this year.

The state intends to write off a total of 182 million manat of pension contributions. The insurance amnesty revived hopes in society to solve the problem with outstanding loans in a similar way.

MP Vaheed Ahmadov considers this idea promising, saying that after the devaluation, economic tension in the country has weakened, business activity has increased, and the manat rate has stabilized. Therefore, one can seriously deal with "bad" loans, having developed mechanisms for their solution. This is such an important problem, without which it is impossible to begin the recovery of the highly shaken national banking system. Today, many banks are working with losses and experiencing difficulties with liquidity.

Recall that, according to the Central Bank, as of February 1 this year, the overdue loans amounted to 1 695.9 million manat. The volume of such loans increased by 69.2 million manat or 4.25%, as compared to the beginning of the year. The share of problem loans in the total loan portfolio reached 14.5%. This indicator was 13.8% at the beginning of the year and 9.8% at the end of January last year.

By the way, several independent experts call other figures, noting that the share of problem loans in the total loan portfolio reaches 16%, and according to international rating agencies, this figure is in the range of 25-30%. This indicator is 4-5 times higher than the internationally accepted standard. In foreign practice, this figure does not exceed 5%, and in developed countries it is about 3%.

Meanwhile, the head of the Center for Economic and Social Development, Vugar Bayramov, proposed a mechanism for resolving problem loans. The essence of the proposal is to divide the amount of credit debts in equal shares between the state, the banks and the borrowers.

"If a loan in US dollars was taken at the rate of 0.78 manat, then 10 thousand US dollars before the devaluation amounted to 7,800 manat. Now USD 10,000 is equal to about AZN 17,000. Thus, the difference in the amount of 9,200 manat should be covered by three parties in equal measure - 3,000 manat each. From the solution of problem loans, first of all, the banking sector will benefit. Now there is a decline in both loan and deposit portfolios. Banks are reluctant to attract deposits, because there are difficulties in allocating funds," Bayramov said.

However, the independent expert Natig Jafarli in an interview with Turan did not hide his skepticism about the prospects of this enterprise.

According to him, this is a belated solution. If it is even accepted, the effect will be weak. This option was acceptable immediately after the second wave of devaluation, when the share of problem loans in the total loan portfolio was 9%, and today it is approaching 15%.

"To date, huge loan interest has been accumulated, which, together with the principal amount of debt, constitute an impressive amount of non-payment. To resolve the situation, it is necessary to find, first of all, financial sources. Either banks should allocate funds equivalent to the amount of the debt of customers, or it is necessary to apply tax privileges in relation to these structures. But there is another important point - the solvency of the borrower in the conditions of the current inflation. Now people's financial situation is difficult. If the amount of debt is divided into 3 equal shares, it is not ruled out that even with such a formula citizens will not be able to repay their part of the debt. To start this mechanism to solve the problem with loans, you need to find financial sources," Jafarli said. -0---