BY ELNUR MAMMADOV
The fact that loans are very expensive in Azerbaijan is not news for expert community. Now, a representative of the Financial Markets Supervision Chamber Ayten Mammadova for the first time publicly stated: 'We believe that interest rates are high, so we came up with a proposal to reduce them.' According to her, the financial regulator offers to reduce the average interest rate on loans. After resolving the issue of problem loans, this would probably be the most decisive step in the country's banking system towards its recovery, and the development of the country's economy as a whole. Given the high interest in this topic, Azeri Daily decided to continue it.
The representative of the Chamber somehow casually noted that this issue was already under discussion. And it was thought that discussions were going on at the expert level or, at best, between individual departments. But to our surprise the financial regulator has already prepared a corresponding bill, the initial debate of which has already been held in the Milli Majlis (National Assembly). Moreover, the relevant parliamentary committee recommended that the draft be heard in plenary session. But the lively, principled approach of the parliamentarians, numerous questions and proposals ultimately led to the new bill being sent for finalising and coordinating the changes and additions proposed by the deputies.
The task set by the financial regulator really deserves attention. Bank loan rates are quite high. So, in January of the current year, rates for loans to individuals in manats amounted to 17.34%, in foreign currency - 14.55%. For legal entities, the rates were 9.31% and 5.95%, respectively. And the average interest rates on loans in the country amounted to 14.4% for manat loans and 7.89% for loans in foreign currency. All this makes bank loans virtually inaccessible to the population and economic structures. And this factor hinders the development of the economy. It's enough to remember what bitter debates about this are going on between President Donald Trump and the US Federal Reserve.
But neither the Chamber nor any other body can forcefully impose any restrictions on banks. The current legislation does not allow the regulator to limit rates, which is why it took a desperate step: to achieve restrictions (at least the top bar) of bank loans by law. Yes, loans are issued by commercial banks, that is, private entities. But they agree to reduce credit interest only under one condition: a simultaneous decrease in deposit interest. And such a step, as MP Vahid Ahmadov noted in a conversation with Azeri Daily, in general, does little to help the society: help to one category (creditors) will result in damage to another (depositors). Having frightened off the bulk of investors, banks will lose liquidity and will find themselves in a situation when there will be no money to issue loans.
'Believe me, MPs are no less interested in lowering interest rates, which will inevitably lead to a revival of the country's economy,' says V. Ahmadov. 'But this issue is large and comprehensive, which goes beyond the powers of the Financial Markets Supervision Chamber. Well, please tell me how can you set credit interest limits without the knowledge of, say, the Central Bank. After all, the latter regulates the discount rate, below which the limits are simply unthinkable, it also conducts monetary policy, issues loans to the banks themselves. And how many more such issues, without which decision to adopt the law is premature. Therefore, it was sent for revision.'
As for the legality of the introduction of restrictions on the upper and lower levels of lending rates, they are valid in many countries around the world. Among them are the developed USA, Germany, France, our neighbours Turkey, Russia, Kazakhstan, and the underdeveloped countries - Venezuela, Sri Lanka, Benin, Burkina Faso and dozens of other countries of all categories. And such limits are set on the basis of 4 methods. What methods did the Chamber offer?
1. Interest limits are applied for the main areas of loans (business and consumer loans) or for credit products (credit cards, mortgages, cars, etc.).
2. For all loans a single limit is applied (for example, 25% for consumer loans) or for different loan products different limits are applied (for credit cards 25%, and for cars 20%).
3. Absolute and relative limits apply. The absolute limit in the imperative order determines the upper limit of interest rates. A relative limit is defined as the product of a special factor for a benchmark (an indicator used to assess the state of the market or its segments, most often stock indices act as benchmarks) or as the sum of a benchmark with a certain percentage point. As a benchmark, either the interest rate of the Central Bank or the average interest rate in the market is used. In general, the limit should be determined at an optimal level so that it can influence the market. Too high a limit will only play an indicative role, and too low a level will lead to a decrease in the efficiency of the financial market.
4. When setting limits, commission payments and other fees are either taken into account or excluded. When calculating, their limit is applied to the annual effective interest rate or separately to the commission payments. If, however, one does not take into account commission payments and other fees, there are cases of abuse in banks.
Briefly, we note only the advantages of using interest limits. These include facilitating financial affordability, protecting consumer rights, reducing excess debt burden, regulating risk appetites of financial institutions, and increasing the efficiency of operations against the background of reducing administrative costs.
Azeri Daily was also able to find out that the initiator of this issue was again the President of Azerbaijan, Ilham Aliyev: the project is part of a large package of socio-economic problems, the solution of which the head of state attaches priority importance to. How many more initiatives have the head of state conceived, few people know. But all the reform initiatives of the President make life easier for millions of citizens of the country, give them confidence in their undertakings. In the final result, all these initiatives are aimed at reviving the Azerbaijani economy and the entire Azerbaijani society.