ATIB: Azerbaijan Government should create a state intervention mechanism to bail out bank system in case of bankruptcy

ATIB: Azerbaijan Government should create a state intervention mechanism to bail out bank system in case of bankruptcy
# 29 April 2009 17:16 (UTC +04:00)
Baku. Nijat Mustafayev - APA-Economics. Given the underdevelopment of the financial market, Azerbaijan’s financial market is not hit hard by the global financial crisis, said a report issued by Azerbaijan Turkey Business Association (ATIB).

In general, however, the crisis had a negative effect on the market and slowed down its growth, said the report.

The report also includes an analysis of the banking sector. For example, , there were 45 banks in Azerbaijan during the preparation of the report (as of 01.10.2008).

“This sector remains still weak and small compared with the banking sectors of neighboring Georgia, Kazakhstan and Russia. The main reasons for this is to do with the fact that there is still low public confidence in the banking sector, preference of cash transactions by trade/catering enterprises for the purpose of tax evasion, a about 50% grip of International Bank of Azerbaijan in the market, a small range of banking products and services, unawareness about banking products and services, low capitalization of banks, immature corporate governance etc<” said the report.

According to the report, the growth rate has started to decline since September 2008.

“According to the latest figures, assets decreased in November for the first time in 15 years. Banks’ limiting consumer lending affected sales of real estate, electrical equipment, vehicles and furniture. While banks are not faced the problem of liquidity, constraints in attracting long-term resources from abroad and the premature withdrawal of deposits by depositors led to a significant reduction in funding long-term projects. This also brought about problems in provision of the businesses with modern new technologies and working capital.

Fearing the impact of the crisis on the real sector and the possibility of mass unemployment, banks severely limited lending short-term consumer loans, a move which continues to affect adversely the consumer market, trade and macroeconomic performance.

In addition, so as to cut spending, some banks moved to limit bonuses and employee benefits and caused discontent among employees. Media continue to disseminate misinformation about banks and the banking sector as a whole, which leads to the erosion of public confidence in the banks,” said the report.

With regard to recommendations for the government, the report suggested the creation of a legal framework for determining the mechanism of state intervention in the rehabilitation or takeover of banks in case of bankruptcy; the improvement of the legislative framework to reduce the time for reviewing applications from credit institutions on the mortgaged property in case of the late repayment of loans; the creation of a mechanism for issuing government guarantee to deposits to enhance the confidence of the population; the establishment of a mechanism for issuing long-term funds to banks through the state budget, in particular through the Central Bank and State Oil Fund etc.

Also, banks are advised to tighten the control system for efficiency, review the procedures and risks of lending, tighten the monitoring of lent loans but not to stop lending, to take account of international financial institutions’ forecasts on the deepening crisis and convert assets to liquid assets even if yield is low or there is a loss to some extent etc.