Azernews.Az

By Aynur Karimova

The Financial Market Supervisory Body's decision to suspend the issuance of consumer loans in foreign currency since April 5, 2016 for a period of one month will revive the banking sector of Azerbaijan, Jalal Nagiyev believes.

"People are afraid of borrowing loans in USD. The population's income is in the manats, and due to the fluctuations in the exchange rate of the dollar, banks’ customers had to repay more money than they originally were supposed to return. But thanks to the suspension of issuance of loans in foreign currency, this factor will disappear, and thus the confidence of the population [in the banks] will increase," the executive director of ParaBank told Trend.

Given the fact that deposits are mainly issued in USD, [82 percent of the total deposit base as of late January 2016], the affect of this decision on the currency position of banks is very important, according to the expert.

"It turns out that the bank deposits are kept in foreign currency, but they [banks] will issue loans in the manats. Figuratively speaking, the banks will have to maneuver in this field in accordance with their foreign exchange positions. But at the same time, I think that one month is not a long time to seriously affect their currency positions. I expect the Financial Market Supervisory Body to take a decision, on the basis of obtained results, on whether to allow or prohibit issuance of loans in dollars in the future," Nagiyev added.

After the first devaluation of the manat in February 2015, the process of dollarization strengthened in the banking sector.

The data released by the Central Bank of Azerbaijan shows that if in early 2015, the ratio of manat and USD loans amounted to 73 percent and 27 percent, respectively, then in January and February - to 60 percent and 40 percent, and in the second quarter - 55.9 percent and 44.1 percent, respectively.

Accordingly, after the February devaluation of the manat, the share of foreign currency loans began to increase, reaching 49.3 percent in 2015.

As of February 1, 2016, the banks have issued loans worth 21.2 billion manats ($13.89 billion), including 10.21 billion manats ($6.69 billion / 48.2 percent) - in the national currency and 10.98 billion manats ($7.19 billion/51.8 percent) - in foreign currency.

Economist Farhad Amirbayov regards the decision on suspension of issuance of loans in foreign currency as logical, saying that it will lead to increase of a pressure on the banks' balance sheets, and their currency risks will grow.

"The assets of the banks will be formed in the manat as loans will be issued in the national currency and foreign currency liabilities will remain, and hence, the risks for them will increase. It turns out that the population's risks will decrease, while the banks' risks will increase," he noted.

The expert believes that the decision on suspension of issuance of loans in foreign currency should not affect the acceptance of deposits by banks in foreign currency.

"To influence on the banks [to forbid them to accept deposits in foreign currency] in this aspect is wrong and is not needed, because the banks should be able to manage their portfolios of assets and liabilities, foreign currency and other risks," he said.

Thus, this decision is aimed at reducing the currency risks of population, as well as prohibiting the dollarization of currency circulation in Azerbaijan, according to Amirbayov.

Earlier, Chairman of the Supreme Court of Azerbaijan Ramiz Rzayev stated that the banks in Azerbaijan violate the rights of citizens by offering only dollar-denominated loans.

"I think that if a citizen borrowed a loan in dollars, he/she should return it in dollars. If the loan was issued in the manats, it should be repaid in manats as well," Rzayev said, adding that by offering loans only in the USD, the banks violate the rights of the citizens.