Vulnerability in currency market prevents banks to issue manat loans
By Gulgiz Dadashova
Azerbaijan’s commercial banks faced a number of challenges since the central bank has decided to abandon the national currency peg to the US dollar in mid February.
The Central Bank of Azerbaijan set the manat at 1.05 against the USD, compared to 0.78 earlier. The move aims to strengthen “international competitiveness,” amid pressure on the country’s finances from falling oil prices, according to the CBA statement.
Several banks froze some deals, including issuing consumer loans and mortgage loans. Although the central bank of the energy-rich country refuted rumors the manat will lose value for a second time, the country's loan environment remains under a great deal of stress.
Notwithstanding the type of a loan – household, student and business development – banks turned down many applications for loans in manats. In several banks one can get only dollar loans, even though those institutions previously freely issued manat loans. Those who agree to a dollar loan find themselves in a very difficult situation indeed, as payments will fluctuate with the currency market - tied to the exchange rate.
Bank of Baku, one of the leading local banks in view of consumer loans, has stopped issuing loans in manats. The bank now only issues loans in USD, but with strict limits. Meanwhile, ASB Bank, Bank BTB and Dekabank froze all their loans.
ASB Bank said the issuance of loans would stop only temporarily. It failed to mention when all activities will resume though.
“New procedures for issuing loans are being developed. Maybe the process was stopped due to this. But no official information is available. We hope to revive it soon,” the bank’s call operator said.
Kapital Bank, Bank VTB Azerbaijan, Expressbank, Bank Avrasiya, Günaybank and Atabank reported no problems with issuing loans in manats. All the above mentioned banks continue to issue loans in the national currency.
Bank Standard said that the bank still issues loans in manat, dollar and euro, and that there is no set-limit to bank loans, noting that consumer loans may amount up to 10,000 manats.
Following media rumors that banks had stopped giving loans in manats due to the CBA ban, the central bank issued a statement in which it confirmed it never imposed any restriction on manat loans.
“Banks operating in the territory of the country may freely issue loans in any currency they wish,” the Central Bank reported, refuting rumors on the CBA restrictions.
Earlier Moody’s Investors Service warned that Azerbaijan’s banks may face risks to asset quality after the Central Bank devalued the national currency.
The manat devaluation and move to a more floating exchange-rate regime is credit negative for Azerbaijani banks, because it pressures banks’ asset quality by weakening borrowers’ ability to repay loans, and inflates the size of banks’ foreign-currency-denominated liabilities, Moody’s said.
Meanwhile, several Azerbaijani banks are reportedly in discussions with lenders over loans refinancing issues, said bankers after a steep devaluation of the manat.
In early April, the CBA shifted to manage floating exchange rate. Governor Elman Rustamov noted that the Azerbaijani economy could be badly affected should the central bank allow the national currency to trade freely, as the number of organizations bringing huge funds to the country’s economy is small.
The governor also warned those banks which try to change the term of their loan agreements signed their clients.
"The Azerbaijani population should return a bank loan in the currency in which it was received,” he said. “If the bank changes the terms of the contract without the permission of the client and converts the loan into another currency, it is a very serious violation of the law. In such cases, the central bank will take serious measures. "
The banks issued loans totaling around 18.580 billion manats, including around 13.561 billion manats (73 percent) in national currency and 5.018 billion manats (27 percent) in freely convertible currency as of February 1, 2015, according to the CBA report.
The figure neared 15.485 billion manats (around 11.140 billion AZN in national currency and over 4.344 billion manats in freely convertible currency) as of 2014.
The credit portfolio of the only state bank in the country, the International Bank of Azerbaijan, neared 6.391 billion manats with a specific weight of 34.4 percent, while private banks issued loans worth around 11.629 billion manats with a specific weight of 62.6 percent.
The remaining 3 percent fell to the share of non-bank credit organizations which issued 559.5 million manats, according to the CBA.
The share of consumer loans in a total volume of the banks’ loan investments amounted to 44 percent, or 7.724 billion manats.
Currently, 45 banks, 530 bank branches function in Azerbaijan. One of the acting banks was founded with participation of state capital, 23 of foreign capital.
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