Excessively high interest rates on loans in Azerbaijan are indicative of serious flaws in the country's banking sector, Deputy Director of the UNEC Russian School of Economics, Doctor of Economics, Professor Elshad Mammadov told Trend.
According to him, high rates on loans at 20-30 percent end up leaving, for example, some areas of the manufacturing sector (whose profitability is about five percent) outside of lending.
According to Mammadov, the Central Bank of Azerbaijan should more actively address such issues and regulate bank margins.
He stated that the bank margin makes up about 1 or 2 percent in any national economy, while the banks in Azerbaijan set a very high margin, sometimes reaching 15-20 percent.
"Banks makes excessively high profits on this, which is not a normal practice," he added.
Speaking about liquidity in the banking sector, he noted that it exists – although sometimes the representatives of the sector say that there are funds, but no borrowers to lend.
"This has a fairly simple explanation. The fact of the matter is that building a business, especially on a long-term basis, proves virtually impossible under the high interest rates which commercial banks offer their resources for. Therefore, it is not a coincidence that a huge share of the loan portfolio of commercial banks account for consumer lending, which in turn means stimulation of imports," he said.
Mammadov went on to say that the Central Bank and the Financial Market Supervisory Authority (FIMSA) should work more actively so that the liquidity of the sector and potential resources for forming the basis of investments can be directed to financing the real sector.
“I believe that the Central Bank and FIMSA should promptly implement such a policy through their regulatory mechanisms so that the banking sector starts financing the national economy and, first and foremost, the real sector of our economy,” he said.
According to Prof. Mammadov, the issue of problem loans also arose due to the negligence of the banking sector.
"The President of Azerbaijan, by his volitional decree on resolving the issue of problem loans, actually took upon himself all the costs that arose due to inadequate policy of managing the banking sector. But it cannot keep on being like this. Expecting the head of state to take over the regulation of the banking sector every time is not a way out of the situation. That is what the relevant state authorities are for, those who are supposed to regulate the banking sector. The fact that serious problems have arisen on US dollar loans is a direct consequence of ill-conceived activities in the banking sector," he said.
"Accordingly, banks should learn from the current situation in the financial and credit markets. The fact that the head of state chose to make concessions for wide layers of the population, compensating their damages with the government’s resources, cannot be a panacea or a solution to all problems that exist in the banking sector," said Mammadov.
"To eliminate them, it is first of all necessary for our commercial banks to be guided by the resources of the Central Bank when fulfilling their obligations. The Central Bank should finance commercial banks at low interest rates, and the banks, in return, should finance the real sector of the economy at low interest rates. Only this way can it be possible to increase investments and regulate inflation," he said.
Mammadov concluded that the banking sector of Azerbaijan is in need of the urgent implementation of serious reforms.
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