CBA Governor explains impact of rising interest rates and liquidity on lending and deposits

The increase in lending rates by banks is primarily due to the rise in market interest rates. The reason for the increase in market interest rates is also linked to liquidity, Azernews reports, citing Taleh Kazimov, Governor of the Central Bank of Azerbaijan (CBA), as he told at a press conference on the parameters of the interest rate corridor.

He explained that liquidity in the market is decreasing due to the accumulation of funds in government accounts: "Interest rates rise in conditions of low liquidity.

Secondly, every manat in the system has a value. That is, if a person keeps money at home, it potentially loses 9-10% of its value during the year. However, when they deposit those funds in a bank, they gain the opposite this time."

According to the chairman, banks raise their interest rates to attract those funds: "Deposits in large banks were around 5-6%, and in others, around 8-9%. When we started implementing our monetary policy, competition between banks began. As a result, last year there was a 41% increase in the number of unique depositors, 77% of whom had deposits of up to 30 thousand."

"Our lending is not decreasing despite the rise in interest rates. Our portfolio is growing by 18.5%-18.7% on an annual basis. Business loans have increased by more than 17% annually, and consumer loans by more than 20%. Lending continues. We simply took advantage of the opportunity to shape both competition between banks and the value of the manat in the market," T. Kazimov emphasized.

"Banks are using their margins, which are very high—6-8%. It would be better for them to work in large volumes with a low margin.

We do not expect further increases in interest rates. We expect banks to manage their margins effectively, as we believe their margins are already quite high," the CBA chairman concluded.