Azerbaijan decreases open currency position limit for banks to 3%

Baku. 2 March. REPORT.AZ/ Open currency position limit of Azerbaijani commercial banks can be decreased from 10% to 3%. Report was informed in banking circles, Financial Markets Supervision Authority (FIMSA) sent respective proposal to commercial banks and asked for their opinion.

Report’s expert group notes that open currency position refers to difference between banks’ claims and liabilities for various foreign currencies. This difference creates risk of loss in conditions of disadvantaged changes in exchange rate. Notably open currency position limit features quantitative restriction set by Central Bank (CBA) to correlation of AZN equivalent of bank’s open currency position to bank’s capital.

At the same time, it is noted that amount of off-balance-sheet claims and liabilities within incomplete transactions are also considered as part of currency position during calculation of claims and liabilities. Because commercial banks indicate some transactions as off-balance-sheet ones at the end of day to adjust with open currency position limit. In other words, they can indicate any transaction as incomplete. The new proposal sets restriction for this and includes off-balance-sheet transactions within overall amount of transactions.

Experts group says that if FINSA reduces open currency position limit to 3%, it will push banks to sell more currency: “It means US dollar rate can drop to 1.65 AZN/USD in banks. But soon after this shortage of cash foreign currency in banks will result in higher selling price. This will stimulate illegal sales. Moreover, we have to note that banks with decreased limit of open currency position will be exposed to significant loss upon any devaluation of national currency. They should be given guaranty of stable currency rate for this”.

“This proposal considered to prevent extra purchase of USD by commercial banks, seems an irrelevant initiative. Demand is created by customers. If the limit is reduced to 3%, banks will be forced to take pre-orders from customers. Urgent demands of customers will be met by “black market”, the experts say.

The expert group considers this step of FINSA as another attempt to boost confidence in national currency: “But we have to note that a longer time and financial stability is needed for this. We need at least 5 years and number of economic reforms to restore confidence of population, whose assets in AZN dropped 2.4-fold after two last devaluations”.