WB works to reduce number of bad loans in Azerbaijan

/By Azernews/

By Nigar Abbasova

The World Bank (WB) is working with the government of Azerbaijan to reduce the number of bad loans in the banking sector of the country, Mercy Tembon, World Bank Regional Director for the South Caucasus told Trend news agency.

“Currently, the bank is rendering technical support to the financial sector of the country. We have a relevant team that assists the country in the development of the banking sector. The government switched to the floating rate of the national currency (manat) following the double devaluation, which occurred in February and December 2015. Moreover, certain number of banks has been closed in the country due to liquidity problems. Therefore, the bank is working with the government on the reduction of the number of bad loans, which in its turn will allow mitigating the problem of shortage of liquidity,” she said.

She also mentioned that the support is rendered by means of the International Finance Corporation (IFC), which is a member of the World Bank Group. The corporation is the largest global development institution focused exclusively on the private sector in developing countries.

“IFC cooperates closely with banks to raise funds as the banks need capital to increase the level of liquidity. It is necessary to acquire a working system, which will allow augmenting the capital. IFC team works with certain banks, which are in need of recapitalization. The corporation also works to attract investors so that they invest financial means in the private sector of the country,” she added.

Earlier, Tembon said that the government of the country is in the right direction in its bid to tackle problems connected with bad loans and liquidity of banks.  

The volume of overdue loans in May 2016 amounted to 1,381 billion manats ($876.5 billion manats). The figure is 10 percent higher than the rate shown in April 2015, according to the Central Bank of Azerbaijan (CBA).

The volume of overdue loan increased by 34 percent as compared with the rate fixed in January 2015 (prior to the first devaluation of manat). Overdue loans account for approximately 7.36 percent of the credit portfolio of the banks operating in the country.  

Currently, 33 banks possess licenses for the implementation of banking activity in the country. CBA abolished licenses of EuroBank and Azerbaijan Credit Bank in 2015.  Licenses of six banks including AtraBank, Caucasus Development Bank, Bank Technique, Ganja Bank, Bank of Azerbaijan and United Credit Bank were cancelled in early 2016. Recently, the licenses of DekaBank, KredoBank, Parabank and Zaminbank have been revoked due to their failure to meet necessary requirements specified in the relevant legislation.

CBA switched to a floating rate of manat, on December 21, 2015 following intensified external economic shocks. The bank abandoned its dollar peg thus allowing the currency to tumble by almost a third. The exchange rate between the manat and U.S. dollar changed from 1.0499 to 1.5500 after the shift. The decision was triggered by the necessity to bring the currency market and the exchange rate of the manat into line with oil prices. The value of manat is currently determined by demand and supply on the forex market.

Azerbaijan joined the World Bank in 1992. In addition to financing several developmental projects, the bank is also providing the country with analytical and advisory services.

Official exchange rate of the Azerbaijani manat against the U.S. dollar was set at 1.5787 manats for July 27