Finance

Finance

Borrowing on factoring and guarantees come to nothing in Azerbaijan

11 February 2009 15:22 (UTC +04:00)

Baku. Vahab Rzayev - APA-Economics. Borrowings through letter of credit, factoring and guarantees totaled AZN 44.15 million in Azerbaijanâ€™s banking system, down 2% on a year ago, said the National bank of Azerbaijan.
Loans lent on guarantees almost came to zero, compared to AZN 17.37 million a year ago. Besides, the amount of factoring transactions dropped to AZN 52 000 from AZN 9.71 million.
However, the letters of credit grew by 3.4 times to AZN 43.63 million. That is to say, he relatively low liquidity brought about a 52-fold fall in factoring and guarantees.
According to the data provided by the National Bank, the banksâ€™ total loan portfolio reached AZN 7 163.2 million as of January 1, up 53% on January 1, 2008. .
A letter of credit could be used in the delivery of goods or the completion of a service. The seller may request that the buyer obtain a letter of credit before the transaction occurs. The buyer would purchase this letter of credit from a bank and forward it to the sellerâ€™s bank. This letter would substitute the bankâ€™s credit for that of its client, ensuring correct and timely payment.
A bank guarantee might be used when a buyer obtains goods from a seller then runs into cash flow difficulties and canâ€™t pay the seller. The bank guarantee would pay an agreed-upon sum to the seller. Similarly, if the supplier was unable to provide the goods, the bank would then pay the purchaser the agreed-upon sum. Essentially, the bank guarantee acts as a safety measure for the opposing party in the transaction.
Businesses couldnâ€™t considerably benefit from bank guarantees in Azerbaijan because of this segment remains undeveloped.