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ABA: Necessary to adopt law on protection of creditors’ rights in Azerbaijan [UPDATE]

24 November 2017 15:09 (UTC+04:00)
ABA: Necessary to adopt law on protection of creditors’ rights in Azerbaijan [UPDATE]

By Sara Istafilbayova

The second day of the 2nd Banking Forum held in Baku continued discussions concerning credits, bank consortium, and securitization.

Addressing the event Zakir Nuriyev, chairman of the country’s Banks Association (ABA) spoke of the necessity to adopt a law on protection of creditors’ rights in Azerbaijan.

Nuriyev noted that this is exactly the law the development of which the banking sector expects from the Financial Market Supervisory Body (FMSB).

“Until such law is adopted, we will not be able to rapidly develop credit market and provide the necessary financing of the economy,” he said.

Nuriyev went on to say that the rights of creditors should be protected in the same way as the rights of borrowers.

He reminded that at present, banks are required to write off credit debts [formed as a result of two devaluations of Azerbaijani manat in February and December 2015].

However, this approach is wrong, as it may create a precedent in the future, when bank customers will not repay debts, hoping that they will be written off again, he said.

Further, Nuriyev stressed that it is planned to start holding e-auctions on the sale of bank assets in Azerbaijan next year.

The chairman said that at present, an organization, which will be engaged in holding e-auctions, has been already established under the association, but due to certain technical issues it has not yet started to operate.

“We hope that the organization will start operating next year,” Nuriyev said. “I would like to note that the absence of the relevant law creates certain problems for the activity of such organization.”

Addressing the event, Babayev, head of Legal and Methodology Department of FMSB mentioned that banks in Azerbaijan should create a consortium and the state should provide tax benefits to solve the issue of non-performing loans (NPLs) in the country.

“At present, according to our calculations, the volume of NPLs has reached 2 billion manats,” he said. “However, troubled assets cause damage not only because a bank cannot return them, but also because a bank is obliged to create reserves for troubled assets. In other words, the total burden on banks, caused by the growth of troubled assets, may reach about 4 billion manats. These funds could have been used to develop the real sector, and this would have helped create new jobs.”

Babayev stated that solving this problem requires not only changes in legislation, but also institutional reforms, further adding that to solve the problem, FMSB created a special working group.

“We have studied the international experience,” Babayev said. “There are various ways of solving the problem - the so-called London Approach, the Istanbul Approach, the Azerbaijani government may be attracted to solve the problem, or a bank consortium may be established, which will deal with restructuring assets.”

Speaking of a law on securitization he noted that it will be adopted in 2018.

Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt obligations (CDOs).

In turn, head of the Department for the Supervision of Payment Systems of FMSB said that in the future, mobile operators can become serious competitors for banks and payment organizations.

The participation of mobile operators in the payment market will become possible thanks to the new law “On Payment Services and Systems”, according to him.

Further Rustamov noted that it is planned to introduce licensing of payment organizations and issuers of electronic money.

The new law “On Payment Services and Payment Systems” will cover the activities of banks, postal operators, electronic money issuers and other organizations.

As Rustamov noted the bill also provides for the introduction of the concept of "paying agents". Paying agents will play a significant role in deepening financial inclusiveness.

“This will not only expand access to finance, but will also allow us to work with clients more efficiently.”

A paying agent is an agent who accepts payments from the issuer of a security and then distributes the payments to the holders of the security. Also known as a "disbursing agent."

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