ADIF: Interest rate limit for insured deposits may be eliminated

By Azernews

By Amina Nazarli

Azerbaijan may cancel the uppermost limit of the interest rate for insured deposits of individuals.

Azad Javadov, Executive Director of the Azerbaijan Deposit Insurance Fund (ADIF), told Trend that this can be done through expanding ADIF mandate and amending the relevant legislation.

The ADIF head noted that these steps were discussed during the recent Baku visit of a World Bank mission led by Angela Prigozhina, a WB senior financial sector specialist.

The purpose of the visit was to discuss the second phase of the project to modernize Azerbaijan’s financial sector, which also envisages modernization of the ADIF, Javadov said.

He added that the issue of expanding the Fund’s mandate is likely to be considered after the liquidation process in the closed banks is partially completed.

Under the current legislation, the Fund’s member banks are obliged to pay the ADIF quarterly fees of 0.125 percent (0.5 percent per year) of the total volume of insured deposits they have, Javadov said.

Thus, the Fund annually receives about 30 million manats ($17.6 million) from the fees paid by its member banks.

Javadov said that if differentiated insurance premiums are imposed to banks, the uppermost limit of the interest rate for insured deposits will be cancelled.

"In that case, the amount of the insurance premium can be determined based on a bank’s rating, which is formed based on the assessment of its capital, profitability, liquidity, management and sensitivity to the market," Javadov added. "A number of countries evaluate banks on some additional criteria, but the above mentioned are the main ones. At the same time, the amount of insurance premiums differs in various countries, and if a bank applies a policy of high interest on deposits, this will affect the bank’s rating, and as a result, the bank will pay higher insurance premiums."

The uppermost limit of the interest rate for individuals’ insured deposits in foreign currency is 3 percent. The maximum interest rate for individuals’ manat deposits covered by insurance is 15 percent.

Some 32 banks are currently implementing their activities in the country. The Fund has so far paid compensations worth over 726.58 million manats ($411 million) to depositors of Parabank, Zaminbank, Dekabank, Kredobank, Caucasus Development Bank, Atrabank, Bank of Azerbaijan, Gandjabank, Texnikabank and Bank Standard, which were closed in 2016.

The licenses of all the banks were revoked last year, as their assets were not classified in line with the law, and they didn’t create adequate reserves and their aggregate capital did not meet the minimum requirements.

ADIF has been operating since August 13, 2007.