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Azerbaijan to reduce interest rates on credits in 2015

Incomes of banks to be paid to population in 2014 will make 500 million AZN, and banks’ revenues from loans are forecasted to be 430 million

Baku. 20 November. REPORT.AZ/ Central Bank of Azerbaijan intends to take steps to reduce interest rates on credit in future. Discussions are being held with the Ministry of Finance on reduction of loan interests, especially interest rates on business loans. Report informs, Chairman of Central Bank of Azerbaijan Elman Rustamov stressed it in the discussion of budget package for year 2015 at the plenary meeting of Azerbaijan Parliament.

According to his words, reduction of interest rates of business loans to single-digit level is one of the main targets: “We’ll also put several factors in action and take steps to reduce interest rates on loans in 2015”.

Chairman of CBA also clarified causes of high interest rates in the country. According to him, the interest rates on deposits lead to high loan interests: “In 2014, the interest rate on Azerbaijan’s economy makes 14.3%. About ¾ of this is commercial loans. Interest rate on these loans makes 10.8%. That’s approximately 11%. Interest rates on consumption loans, which are ¼ of these loans, make 18%.

However, structure of consumption loans is very complicated. The credits herein are divided into two parts: secured and unsecured. For example, the interest rate on car loans makes 14.8%. Interest rate on mortgage lending through state is 4% and 8%, through banks 9-10%. However, the interest rates on consumption loans reach 35%. Which credits are these? These are unsecured credits. Maybe, many of you, MPs, businessmen and others use credit cards. The credits given on credit cards are unsecured.

Simply, you have an account in the bank and have obtained credit cards. If there is a need for any funds, you may increase your funds on limits imposed on you in accordance with the contract that you signed. Most of the population use such credits. This is accepted as a high risk credit in the world practice. Because this is not based on a pledge, it’s a simplified credit. Such credits are solved through even phone. Herein, unpaid, troubled loans reach 18%. Of course, I don’t intend to defend the banks. If we see the base price of credits, I’d like to touch upon the deposit interests.

The average interest on deposits is about 9.6%. This is too high. Our population places their funds in the banks under the high interest. The interest incomes of banks to be paid to the population in 2014 will make AZN 500 mln. This is a too serious figure and plays an important role in improvement of social condition of the population. Banks’ revenues from loans are forecasted to be AZN 420-430 mln. That’s, the interests on deposits paid by banks to the population exceed their revenues from activity. Today, demand for money and loan is too high. This market is still demand of market, but not a supply of market. If the demand is high, the prices will also be high”. 

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