Limited access to financial resources causes credit unions in Azerbaijan face hurdle

In 2023, credit unions in Azerbaijan faced a formidable challenge as they concluded the year with a net loss of 0.25 million AZN (0.15 million USD), marking a significant increase of 12.5 times compared to 2022. A closer examination of the Central Bank of Azerbaijan's report reveals several key factors contributing to this financial setback.

In his recent commentary to Azernews, Expert Eldaniz Amirov highlighted a primary issue faced by credit unions—their struggle to attract affordable funds. The inability to secure cost-effective financial resources places these institutions at a disadvantage, hindering their ability to compete effectively with traditional banks. This financial constraint limits their capacity to achieve optimal performance, impacting their overall financial health.

“In general, the problems with blocks are caused by not one but several directions. The first of them is the main reason that they could not attract cheap funds. Therefore, another reason is that the wrong organisation of activities plays its role here. Of course, this does not apply to everyone. This is observed in most cases,” he noted.

Amirov also emphasised the role of organisational mismanagement as a contributing factor to the credit unions' woes. While this may not be a universal issue, it is prevalent in many cases. Flawed organisational structures and practices can impede the efficient functioning of credit unions, affecting their ability to generate positive outcomes. Addressing these internal challenges is crucial for the sector's sustained growth.

“On the other hand, their access to financial resources is not at a high level and does not allow them to compete in this market compared to banks. This naturally does not allow them to achieve high indicators in their activity,” the expert highlighted.

Another significant hurdle faced by credit unions in Azerbaijan is their constrained access to financial resources. Compared to traditional banks, these institutions operate with lower levels of financial support, restricting their competitiveness within the market. The resulting financial limitations hinder their capacity to achieve robust performance indicators, contributing to the observed net loss.

Examining the financial specifics of 2023, credit unions experienced a 4.2% decrease in income, totaling 2.3 million AZN (1.3 million USD) compared to the previous year. Concurrently, expenses rose by 3.2%, reaching 1.3 million AZN (0.76 million USD). Allocations to special reserves increased by 13.2%, amounting to 1.2 million AZN (0.71 million USD), while income tax payments decreased by 50% to 0.5 million AZN (0.3 million USD).

As of January 1, 2024, the total assets of credit unions stood at 13 million AZN (7.6 million USD), reflecting a 3% decline from the previous year. Notably, 11 million AZN (6.5 million USD) comprised net loans provided to customers, marking a 2.65% reduction in the credit portfolio over the last year. During the same period, liabilities decreased by 7.9% to 3.5 million AZN (2.6 million USD), while the balance capital increased by 1% to 9.5 million AZN (5.6 million USD).

The challenges faced by credit unions in Azerbaijan are multifaceted, encompassing issues related to fund attraction, organizational efficiency, and limited access to financial resources. Understanding and addressing these challenges are crucial for the sector's recovery and sustained growth. Strategic measures, coupled with informed decision-making, will be imperative for credit unions to navigate these obstacles and enhance their overall financial performance in the years to come.