Bank loans in foreign currency should be paid at new exchange rate
By Aynur Karimova
The December 21 devaluation of Azerbaijan's national currency, the manat, has actualized the problems with loans in foreign currency.
Following the decision of the Central Bank of Azerbaijan to allow a freely floating exchange rate, the dollar-denominated debt of borrowers increased by almost 50 percent in terms of the manat, thus, confounding both the banks and the clients. The hot topic of recent days is how to resolve this problem and to find a way out.
Economists offer different solutions to help both the barrowers and the banks. Some experts offer to write off part of the credit debt, or to cover the difference between the old and the new exchange rate of the manat by the banks.
In the latter case, experts propose the banks to apply the experience of the Nakhchivan Bank, operating in the territory of the Nakhchivan Autonomous Republic, - to provide their customers an opportunity to pay the debt in foreign currency with the old exchange rate.
Commenting on this issue, Zakir Nuriyev, the Head of the Azerbaijan Banks Association, said that to apply this experience to other banks is impossible.
"The Nakhchivan Bank’s portfolio of foreign currency loans is only $800,000. It is a small amount, and the Bank has sufficient funds to enable the borrowers to pay for credits with the old exchange rate," he told Trend on December 28, saying that this cannot be applied in all banks.
"We can not apply it to one bank and not to apply to another. Tax issues also arise here. Therefore, other methods should be applied in relation to the rest of the banks," he added.
Other economists warn that if the banks are forced to make concessions to citizens and the debts in foreign currency are paid with the old exchange rate, it will make a colossal blow to the financial and banking sector of Azerbaijan.
They propose to resolve the problems with loans in foreign currency by restructuring the debt for a longer period so that the borrowers could accustom to the new debt.
Customer is always right
Financial expert Akram Hasanov has commented on the question "What happens when you simply can't pay all your debts?"
"No one can bring anyone to criminal or administrative responsibility for non-payment of the debts. This is stated both in international and national laws. One can only carry a material responsibility, and it is applied only by a decision of a court," he told local media. "If you don’t have any land or any other property registered on you, or technical certificate of a vehicle, the bank faces a deadlock situation."
Even if someone has a property registered on him/her, he/she can prolong the process for 3 years with the help of the lawyer.
"Thus, the banks will likely go on the compromise conditions with you," he stated.
The amount of debt can also be deducted from the borrower's official income. If he/she is working on the basis of a labor contract, the bank, based on the decision of the court, may deduct the minimum monthly payment of the debt from his/her wage.
"This means that the bank can compensate the debt borrowed for a period of a year in 10 years," the expert revealed.
Aynur Karimova is AzerNews’ staff journalist, follow her on Twitter: @Aynur_Karimova