By Nigar Abbasova
The problem of non-performing loans remains among the most complicated challenges that the banking sector of Azerbaijan is facing.
Regional Manager at the International Finance Corporation (IFC) Rufat Alimardanov believes that the problem may be tackled through the creation of a specialized institution on asset management.
Alimardanov, talking to Trend, clarified that such institutions have a number of advantages, including the aggregation of resources and their assessment in a centralized agency, provision of conditions for the application of sequential and standard methods of asset management, as well as creation of opportunities for more ordered restructuring of different economic sectors.
As for disadvantages, he mentioned that those are political pressure in case of a lack of sovereignty and proper corporate management.
He noted that the institution may be endued with additional authorities allowing to accelerate return of the troubled loans.
“The existence of non-performing loans in the portfolio of banks is an obstacle for crediting operations. Transfer of such loans to specialized agencies may allow banks to get rid of risky assets, clean up their balance and properly implement crediting operations,” he said.
Commenting on other obstacles hampering crediting, he said that unpredictability of the exchange rate, which in turn results in the increased volatility, is also among the biggest challenges.
“This decelerates economic activity in short and even midterm perspective, influencing on trade, certain directions of imports and construction. Moreover, it delays implementation of projects in private sector, as investors prefer taking of wait-and-see approach, waiting for more stable situation and adaptation to new realia.”
Talking about the measures required for the stabilization of the situation, Alimardanov said that the government has already taken certain steps to improve the macroeconomic situation, stimulating business activity.
“The experience of Belarus showed that such measures can turn into a locomotive of the growth during a certain period. To achieve more sustainable growth, it is necessary to improve the business climate, and in some cases facilitate certain procedures.”
He further said that ASAN Service can be a bright and most obvious example of success. “It is important to move on with the improvement of the regulatory system. There is no magic tool. A number of conditions required to make the system of crediting more effective,” he added.
Alimardanov mentioned that the experience of international experts in this area may also be effective for tackling the problem, noting that successful results have been achieved in the USA and Ireland.
The Financial Markets Supervisory Body (FMSB) and the World Bank (WB) earlier discussed an action plan for reforms in the field of banking supervision. The sides also discussed the issue of non-performing loans and deposit insurance and outlined the challenges ahead within the framework of ensuring financial stability and the corresponding action plan covering the reforms in the spheres of supervision, regulation and law.
As of late October 2016, the share of nonperforming loans in Azerbaijani banks amounted to 8.7 percent.
Within a year, the volume increased by almost 5.66 percent.
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 canceled in early 2016.
Later, the licenses of DekaBank, KredoBank, Parabank and Zaminbank, Atrabank, Caucasus Development bank and Standard Bank were revoked due to their failure to meet necessary requirements specified in the relevant legislation.
Some 32 banks are currently operating in the country.