Azernews.Az

By Nigar Abbasova

One of the most essential tools to stop the process of dollarization in the banking sector of Azerbaijan can be increasing the attractiveness of the national currency, believes Taleh Kazimov, the head of Pasha Bank.

Kazimov, talking to Trend over the challenges the country’s banking sector faces, mentioned that the increase of attractiveness is possible through rising interest rates on manat deposits.

“Drop in oil prices and economic slowdown have influenced the situation in the financial market. One of the main problems, which currently exist, in the sector alongside with the quality loss of the loan portfolio is dollarization of the bank liabilities, the volume of which exceeds 80 percent,” Kazimov said.

The expert noted that currently the customer’s choice mainly depends on the deposits yield.

“Now, the interest rate on dollar deposits amounts to approximately 3 percent while the rates on national currency range from 9 to 12 percent annually. The Central Bank of Russia, for example has increased refinancing interest rate up to 21 percent while the rates on deposits have increased up to 25 percent and even more. The rate increase has allowed termination of dollarization process,” he said.

Kazimov further added that the same process can be seen in Kazakhstan. “The increase of rates on deposits in the national currency has stopped agiotage, which was connected with the conversion of means to USD,” he said.

The head of Pasha Bank also emphasized that the conversion of the obtained funds into USD will be disadvantageous should high interest rates be applied in reference to manat credits. Naming Turkey as an example, he said the interest rate on the lira, national currency of Turkey, was about 50 percent per quarter in early 2000s when the country faced the crisis.

“Following the devaluation of lira investors started to convert the deposits to foreign currency and local banks began to offer deposits with the profitability rate of 50 percent per quarter. Later the banks have decreased the rates to 25 percent and below,” he said.

The tendency is widely used in the world, he said mentioning that the role of the regulator is of great importance in this regards. “Banking sector should have an opportunity to invest in the different financial instruments,” he added.

Kazimov believes that the changes in economic tendencies may also influence investment levels. “Current economic situation does not allow relying on the attraction of huge volume of investments to the country within a short period of time,” he said.

“The government itself or international financial institutes may act as investors in the current situation. Main objective is support of the real sector including financial sphere which in its turn may be a basis for the stabilization of the country’s economy and making it more attractive for new investors,” he added.

“Banks of Azerbaijan has a huge potential for the extension of the business mainly in the corporate segment. The current situation is referred to as a crisis nevertheless it is much more appropriate to hail it as realities of capitalism. Large-scale initiatives which are currently implemented at a state level are aimed at the improvement of economic situation and support of the entrepreneurship. Nevertheless the banks should take into consideration such features as their approach to the risk management, financial control, optimization of expenses to stay resistant to the level of competitiveness and conditions of economic turbulence,” he said.

CBA switched to a floating rate of manat, the national currency of Azerbaijan on December 21, 2015 following intensifying external economic shocks. The exchange rate between the manat and US dollar changed from 1.0499 to 1.5500 after the shift.

Currently, 37 banks and more than 700 bank branches operate in Azerbaijan. Six banks of the country were closed since early 2016.

Official exchange rate of the US dollar and euro to Azerbaijani manat was set at 1.5487 manats and 1.7108 manats, respectively, on July 11.

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Nigar Abbasova is AzerNews’ staff journalist, follow her on Twitter: @nigyar_abbasova

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