Are attractive offers of Azerbaijani banks risky?

Azerbaijani banks, just like before the devaluation of the manat in 2015, again began to actively offer loans to the population, as evidenced by the text messages sent to citizens on banks' behalf.

Banks offer citizens cash loans between 20,000 to 40,000 manats, and many rush to seize the occasion. The total amount of loans received by households in Azerbaijan in 2021 increased by around 28% compared to 2020 to over 8.6 billion manats. Their share in credit investments again exceeded 50% in a long while.

Can such aggressive lending create problems for the banking sector of Azerbaijan by increasing non-performing loans, as they did after devaluation? After a seven-year depreciation of the national currency, the total amount of overdue loans in the country increased by almost 50%, exceeding 1.5 billion manats, and their share in lending gradually increased to 14%. In 2019 alone, after the manat exchange rate stabilized, loan payments normalized, and problem loans began to decline. Therefore, the current credit policy of banks cannot but cause concern.

Banks are being cautious

Economist Akram Hasanov has commented on the current situation to Report. According to the expert, although what banks offer looks attractive, the amounts are still not so affordable. Banks are cautious: “Currently, due to the coronavirus pandemic, economic activity in Azerbaijan is not so high, so banks have begun to issue consumer loans again. But today, banks are quite cautious. Banks that have more administrative tools for lending are demonstrating activeness, for example, by offering large amounts of money to people whose salary account is under control, because if a citizen does not repay the loan tomorrow, the bank will be able to withdraw the entire salary from his or her salary card.”

ID alone not enough

Azizagha Hagverdiyev, chief economist of the Association of Banks of Azerbaijan (ABA) public association, believes that the terms of a consumer loan are not as simple as they might seem at first glance: “ID alone is not enough to get a loan. Along with this, based on the client's permission, the place of his or her work and the financial obligations to other banks are studied.”

The representative of the association does not welcome the expansion of consumer lending.

“The main thing is that the money is spent for its intended purpose.”

According to Emil Aliyev, a specialist at one of the banks, consumer loans in the country are now quite affordable: “Even those who, having arrived from the districts, live in Baku in rented apartments, after working for six months, can take a loan in the amount of 10 times their salary. As for risks, the main thing is that the money is spent for its intended purpose.”