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Azerbaijan-based banks to tighten loan terms

04 November 2008 13:11 (UTC +04:00)

According to APA-Economicsâ€™ survey, loans are becoming more expensive under tighter terms in the U.S., Europe and Asia due to low liquidity, deteriorating financial positions of banks and potential borrowers and other negative trends.
However, there will be different reasons for this in Azerbaijan.
95% of U.S. banks have already increased the cost of a credit, 85% have tightened terms.
National Bank of Azerbaijan warned commercial banks about the emerging difficulty in borrowing from external sources and recommended to be cautious.
After the warning, banks halted consumer lending for a period of time.
Following the restoration of business and consumer loan lending, banks are likely to tighten loan terms by raising interest rates, the amount of collateral security and requirements for a borrower. Currently, banks require collateral nearly twice the size of a loan since the global financial crisis began exactly on the real estate market.
The National Bank of Azerbaijanâ€™s recent decision on discount rate cut and compulsory reserve requirements took on November 3.
The central bank passed a decision last week to cut the key interest rate to 10% from 12%, reducing the interest rate ceiling to 15% from 17% and the interest rate floor to 1% from 3%.
Besides, under the decision, compulsory reserve requirements on banksâ€™ liabilities in national and foreign currencies dropped to 9% from 12% and compulsory reserve requirements on banksâ€™ external liabilities fell to 0% from 5%.
The central bank said in a statement that it resorted to an influential package of measures to protect financial stability amid the financial situation.
The key rate cut is aimed at loosening monetary policy.
Thus, the central bank helps banks to solve the problem of liquidity, by making funds cheaper and reducing reserves.