Azerbaijan corporate bond market: alternative tool of bank deposits - REVIEW

Taxation of incomes on bank deposits may increase an interest on the bonds

Baku. January 12. REPORT.AZ/ In Azerbaijan from the beginning of 2015, bank deposits of physical persons were involved in income tax and this has increased the urgency for alternative investment tools. Primarily, the observers sometimes are referring to this rank the corporate bonds with 15% dividends.

According to the results of the preliminary investigation made by the Report News Agency, in the year 2014 five commercial banks (Access bank CJSC, Unibank JSC, Bank of Baku JSC , Parabank JSC and Yapi Kredi Bank Azerbaijan CJSC) based in Azerbaijan have registered their bond emissions and placed them successfully. The average annual return on these bonds amounts to 10.75%. Thus, the annual return in Access Bank was 9% of the securities, Unibank -9.75%, Bank of Baku - 11%, Parabank - 15%, and Yapi Kredi Bank Azerbaijan - 9%. 

The proposed maximum annual yield on deposits in manats placed in banks (at the end of the period), amounted as for Access Bank - 9%, Unibank - 11%, Bank of Baku - 11%, Parabank - 10.5% "Yapi Kredi Bank - 8%, and thus,in average made 9.9%.

It should be noted that, the deposits placed only at a rate of 9% per annum have been insuring by the state at present. 

In accordance with the changes made in the Tax Code of the Republic of Azerbaijan approved by the Presidential Decree dated January 10, 2015, by local banks and branches of foreign banks, interest paid on deposits of physical persons who are part of the income tax revenues of more than 500 manats will be charged.

Tax withholding on incomes from bank deposits will be applied on the interests charged by 1 January 2015 taking into account the relevant rebate (500 manats per year). Due to the report of the Central Bank of Azerbaijan Republic, as of in 11 months of year 2014 income tax witholding of population on deposits amounted to 450 mln manats.

According to 13.2, 16.7, 123.1 and 125.1.2 articles of the Tax Code, the tax rate is set by 10% of the total amount of interest paid on bonds.

Deposits in banks increased by 11% in year 2014 overtakes 7 bln manats. The amount of savings per capita is currently about 1 000 dollars. On December 1 of the previous year, the average interest rate on savings was equal to 8.78%, for legal persons - 5.35% and for physical persons amounted to 9.45%.

Scope of Corporate Securities market in 2014 amounted to 8.634 bln manats.  2,165 bln manats accounted to the placement of corporate bonds, and 1,283 bln manats to the secondary bond market.

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