How is the current situation of banking system in Azerbaijan? In order to find an answer to this question, it’s needed to have regard to some key figures, dynamic of these figures and some comparative figures. In this case, it’s possible to research existing problems and how the banking system meets common economy.
For this purpose, first of all, let’s have regard to assets, loan and deposit portfolios of the banking system. According to the recent statement as of August 1, total assets in the banking system made AZN 29.067 bln, upper AZN 3.884 bln or 15.4% than beginning of 2015. Main growth in the assets was recorded in loan portfolio. Loans given to the clients increased AZN 1.699 bln to AZN 18.874 bln. At the same time, tota loan portfolio amounts to AZN 20.188 bln, up AZN 1.654 bln or 8.9% compared to early 2015.
In the structure of the loan portfolio, consumer loans made 38.5%, down 5.5% from early 2015 because of the consumer loans remained unchanged during 7 months on the background of growth of total loans. At the same time, share of overdue credits rose to 6.4% from 5.3%. However, 6%-level is a lower index than world indicators. At last, it should be noted that share of loans given to clients in total assets is high (65%), which is acceptable index for developing country. Of course, decline of this index would be more positive for banking system because of this factor would demonstrate diversification in bank operations. But, it does not happen yet. Thereby, no serious changes, especially negative tendencies are observed in lending this year.
Same case can be concerned the deposits. Total deposit portfolio increased AZN 2.761 bln or 17.9% to AZN 18.214 bln. As well as, personal savings made AZN 7.605 bln, up AZN 417 mln or 5.8% in comparison to the beginning of 2015. Of course, this index of growth is lower than previous year, but this is great success after manat devaluation. Because the savings could decline after devaluation, but only savings in currencies increased. Consequently, manat deposits fell 2.1 times, currency savings doubled. It’s clear that certain part of this growth is related to technical calculations. That’s the manat went down 33% against USD, 35% against Euro, and the manat equivalent of savings in USD and Euro automatically increased 33% and 35%. Next growth occurred through changing of the savings in manat to USD and Euro. The positive index is that the population still has confidence the banking system and they did not get their savings back. As a consequence, shares of manat and currency savings makes 28% and 72%, while they were 62% and 38% in the beginning of the year.
Another factor, which characterizes banking system, should be paid attention. Because there is a serious change here. However, manat played its role in this factor too. The matter is about foreign liabilities of the banks. The liabilities raised AZN 1.575 bln or 32% to AZN 6.651 bln. The situation in foreign liabilities is acceptable because of foreign liabilities/assets ratio makes 22.5%. After world financial crisis, Central Bank of Azerbaijan pays attention to this sphere.
In general, two points draw attention while analyzing the banking system in Azerbaijan. These points can both characterize system and be introduced as an unsolvable problem.
1). One of the main indicators assessing banking system and its role in economy is bank assets/GDP ratio. This index in Azerbaijan makes 49.2%. For instance, bank assets/GDP ratio made 34.7% in 2013, 30.6% in 2012. So, a growth is observed and this is normal, because of GDP growth rate is not like before, and the assets increase 15-20% every year. However, current index is lower than world practice. This index is 80-100% in the developed countries, even in the big developing countries, In some countries, the bank assets exceed GDP 2-3 times. This shows that the banking system plays great role in those countries’ economy, the economy “feeds” from banking system. Such situation is unattainable in Azerbaijan. Because, the role banks in funding of real sector is too low in Azerbaijan.
2). In the structure of banks’ total loan portfolio, only 11% of credits falls to share of industry and production spheres, 4.7% to share of agricultural and processing sector. Share of consumption loans in this portfolio makes 39%, trade sector – 14%. Moreover, according to the State Statistical Committee, share of bank credits in the investments in real sector is below 5%. All of these show that the banking system is not a financial source for economy. Of course, from the macroeconomic viewpoint, the consumer lending has a great role, because of funding the demand which support productin and trade. But, how is it true that the banking system plays a role of funding retail demand year-by-year? And the situation remains unchanged, banks reject giving loans to real sector. Main reasons for this are great risks, low profitability and long-term repayment. Consequently, the level of profitability in all sectors is lower than interest rate of the loan. All of these cannot be accepted as problems of the banking system, on the contrary, these are fundamental problem of the economy. Banks conduct their policy in accordance with the current situation. Unfortunately, such “current” situation has already changed to the “permanent” situation.
Vahab Rzayev, APA Analytical Center
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