Problem loans put pressure on banks

- Akram bey, why do banks collapse? Can the recent statements of the head of the Central Bank explain the real reasons?

- The explanation of the chairman of the Central Bank is very general and does not clarify the real reasons. In general, our Central Bank is non-transparent and avoids justifying its decisions. Because if it goes deep, a lot of questions will arise.

In general, the pain of our banks is known. There are many problem loans. It is much more than stated. This means that they have difficulty fulfilling their obligations, including the return of deposits. How to repay the deposits if the loans are not repaid on time and in full? From this point of view, it is normal for the Central Bank to take measures against such banks. On the contrary, our Central Bank is late in this matter and does not take action on all banks.

What do I mean by a measure? This does not mean the closure of troubled banks at all. It depends on the nature of the problem. If a bank has a lot of problem loans and the collateral for these loans is weak or non-existent, then the bank's management has deliberately robbed the bank. Such a bank, of course, must be closed. An obvious example is Atabank. But there may be another case. The bank has issued mostly healthy business loans, but debtors do not repay them. Loans have sufficient collateral. The bank is going to court. It is clear that it will eventually win the lawsuit, will be directed to the mortgage, will be sold at auction, and the bank will take its money. However, this takes time. In fact, in our judicial system, it takes a long time. Because indebted entrepreneurs can often prolong such lawsuits for years through corruption (sometimes they win the case against banks). During this period, the Central Bank, as the lender of last resort, must provide a loan to such a troubled bank in order to fulfill its obligations in a timely manner. The bank must also repay its loans slowly and pay off the Central Bank's debt. Currently, a clear example of this is the AGBank.

Well, what is happening here? The Central Bank is closing Atabank, which was supposed to close at least a year ago, only now. It solves this along with the fate of the other three banks. As if the problems of the latter are the same as Atabank. In fact, this is not the case. As a result, if there are healthy ones among those 3 banks, of course, they are starting to have problems due to the panic of their customers. When the Central Bank appointed temporary administrators to four banks on April 27, it already knew that it would close two of them the next day. So what was the need for this comedy? It would close those two banks once and for all, that’s all. It seems that the Central Bank wants to achieve some subjective intentions by including the other two banks. Otherwise, for example, at least 20 banks have the same problems with AGBank. Why doesn't it take action against them? In other words, a game is going on!

It is a very profitable and tried-and-tested business to plunder the remaining assets of a closed bank in Azerbaijan. The abolition process of closed banks in our country is carried out in a non-transparent and illegal manner. They sell the bank's property as they wish, make unreasonable concessions to borrowers on their loans, and so on. That is, there are ample opportunities for corruption. Because the creditors of closed banks are not allowed to control the abolition process.

- So won’t the collapse of banks during this quarantine period cause panic? Won't it further reduce confidence in banks?

- Of course, it will cause, or rather it has already caused. For example, I have been demanding the closure of Atabank for months. But during the quarantine period, I stopped these speeches. I told the clients of this bank who applied to me, as well as the clients of NBC Bank, who could not take their deposits, to be patient, no action could be taken during the quarantine period, because there would be panic. But the Central Bank made such an unexpected decision. In addition, AGBank and Amrahbank, whose customers do not have problems, also joined here. It even closed the latter. This also confirms that there are subjective intentions. This step was taken during the quarantine period because the banks did not expect it. But as a result, the state and society have been damaged. It is already a quarantine and crisis in the country and in the world. People lost their jobs, their bank accounts were frozen. No such measures are currently being taken against banks in any country. So, the goal is not the banking system, but a step taken in the name of some personal interests. As a result, distrust in the banking system has already deepened.

- Was it impossible to save these banks? Why does the government not choose consolidation? The President also said in his speeches that no workplaces would be closed during the quarantine period. But with the closure of these banks, many people lost their jobs.

- With the exception of Atabank, it is possible to save three other banks. First of all, AGBank. You just have to give it credit. And it can still be done. Maybe the problem could be solved simply by giving a loan to Amrahbank. The situation at NBC Bank is ambiguous. But the main culprit of its situation is the Central Bank. It closed this bank 4 years ago and restored its license a few days later. It is an unprecedented case in the history of the world! But, of course, the bank was hit hard at that time and customers began to flee. The bank is a very sensitive institution. It is based on trust. Therefore, it is difficult for it to recover from the harsh steps taken by the state against it.

As for the consolidation of banks, this is impossible. The consolidation of troubled banks does not solve the problem but can deepen it. Is it possible to marry two sick people? This is the same issue! Healthy banks can be consolidated.

Moreover, as I said, it was necessary to give loans to at least two of these banks, that’s all. In this case, the call of the President on keeping workplaces would be heeded.

So why does the Central Bank not want to lend? Because first of all, the main issue for the Central Bank now is to protect itself against devaluation. By spending foreign exchange reserves as little as possible. Therefore, it put a stop to lending and left the country penniless. It is afraid that the loan will flow into the foreign exchange market. At present, lending is encouraged all over the world, and vice versa in our country. Because the Central Bank does not want to release the manat, admitting that its exchange rate policy has been wrong for years.

On the other hand, getting a loan from the Central Bank has never been so easy. For example, even during the period of economic growth, even though the Central Bank's discount rate was 2-3 percent, our banks preferred to take dollar loans from abroad at 5-6 percent for some reason. That is why the population and entrepreneurs were given loans in dollars, and after the devaluation in 2015, we experienced the bitter consequences. After all, why should a sane bank take a dollar loan from abroad at 5-6% instead of a manat loan from the Central Bank at 2-3%? Maybe because the loan provided by the Central Bank actually costs them more?..

- Why these banks? In other words, can this step be related to the disempowerment of some officials? Disempowered officials were reportedly behind the closed banks.

- When it is said old officials, only Atabank meets this criterion. Other banks, especially AGBank and NBC Bank, do not meet these criteria. Chingiz Asadullayev, the previous main owner of AGBank, was just a deputy, which was 5 years ago. Most importantly, he was elected a deputy as the owner of the bank, not vice versa! At present, he does not have a controlling stake in the bank. The bank's financial situation is much better than 5 years ago. As I said, the main things here are subjective intentions and personal interests. Probably, this game will be fully revealed in the future.

- There are also versions that the closure of these banks may be the involvement of these banks in dirty things such as money laundering, global corruption or arms sales, support for terrorism that at present, the European Bank for Reconstruction and Development or the World Bank may require their closure as a condition. How reasonable are these versions?

- Is there a bank in Azerbaijan that does not launder dirty money? In a country where corruption is widespread and the shadow economy has a significant share, of course, illegally obtained funds also pass from bank accounts. It is true that, in recent years, our state has taken many measures in this area. Including tax administration and other issues. But the problem still remains. As for arms sales, they are not convincing. First of all, there is no concrete fact. On the other hand, the weight of these banks in the system is very small. Why should international financial institutions be interested in these banks? For years, these organizations have turned a blind eye to the fact that the fight against money laundering in Azerbaijan is only declarative, so why should they be interested in 4 small banks? Finally, the world is currently in such a crisis that these international organizations cannot be interested in us. Furthermore, are those international financial institutions themselves so clean?..

- One of the versions was to prevent the compensation to be given to entrepreneurs who have an account in that bank. Even in one of his recent speeches, the head of the Central Bank expressed his regret to the entrepreneurs and even condemned the entrepreneurs for opening accounts in those banks. What conclusions can be drawn from this?

- The compensation of entrepreneurs does not depend on the bank they are served. They can open an account in another bank and receive compensation. The position of the Elman muallim that you mentioned only shows that the banking system is going through a difficult period. Problem loans and the collapse of banks will increase. Monopolization in the system will intensify. The chief banker actually said to work only with systemically important banks. This call is a promotion of de facto unfair competition. So what is the need for other banks? Let them close them once and for all! Just let the system announce the names of important banks, and let entrepreneurs know what to do. In fact, of course, many people know which banks we are talking about. Entrepreneurs do not want to be served in these banks because, according to the rules of monopoly, they have a low level of service and high prices. Moreover, the administrative resources of those banks are strong. That is, if the entrepreneur has a dispute with that bank, the case will not reach the court. Law enforcement agencies will cut the rebellious entrepreneur down to size, that’s all!

- The closure of banks, the increase in pressure on the manat due to lower oil prices during the quarantine period, the situation of other banks and distrust in them, as well as the recent statements of Elman Rustamov show that the situation is not heartening at all. What do you think? Could there be a threat of devaluation? And what urgent steps should the government take to get the banks out of this situation?

- The threat of devaluation is strong. The state cannot spend foreign exchange reserves indefinitely for the stable exchange rate of the manat. On the other hand, the economy needs money, so lending must be revived. For this, there should be no threat of devaluation so that credit funds do not flow into the foreign exchange market. So, it is necessary to go to devaluation.

But on the other hand, the devaluation will completely kill the chances of repaying dollar loans. In addition, the devaluation will even aggravate the situation of the population and entrepreneurs with loans in manat. As a result, problem loans will increase and banks will continue to collapse.

What to do? First of all, those who created artificial problem loans should be identified and measures should be taken against them to return the money. On the other hand, the Central Bank should provide loans to banks that can repay their loans. All this requires serious and thoughtful changes in the legislation. Most importantly, we need educated and honest staff who can take these steps...