FROM CAN TO BANK

Over the last few years a credit boom has been observed among customers in Azerbaijan. The population in Azerbaijan is actively besieging the banks in a quest for loans.

As a result, the banks which are promoting the customer loans sector increasing dynamically, are gaining the most from this. The state of affairs is such that at the beginning of 2014 the Central Bank of Azerbaijan was compelled to permit a tightening up of the conditions for granting customer loans in order to prevent "the market from overheating". According the 2013 data, banks' investments in loans rose by 26 per cent and exceeded 15.4bn manats. Moreover, the amount of loans granted to individuals grew by 44 per cent and reached 6.2bn manats, of which something like 80 per cent went to the customer loans sector. From 2010 to 2013 the volume of loans granted to individuals grew 2.3-fold. 

Naturally such a high demand for loans has not facilitated any lowering of the fairly high interest rates charged on customer loans, although throughout last year this was much talked of. The average interest rates charged on loans last year fluctuated within margins of 30 per cent. This did not however discourage would-be loan-seekers who were prepared to spend half their day in queues at the bank in order to obtain the sum they required. In market conditions demand gives rise to supply so the banks did not appear to see any need to lower interest rates.

Thanks to the "loud and captivating" advertising campaigns, the banks have actively encouraged citizens to take out loans. As a result, the population has become dependent on credit. However, the extent of the population's financial acumen remains lower than average and by no means all citizens really understand what a loan is actually going to cost them. Sometimes, in their eagerness to get a loan, citizens fail to make elementary mathematical calculations and understand whether they can actually afford it.

 In 2013 people began to apply for more mortgages. Against the backdrop of  2012 when the mortgage market was almost at a standstill, only amounting to 75.2bn manats (moreover 30m manats worth of mortgages were only granted in the fourth quarter), in 2013 the issuing of mortgages became a more regular occurrence. Mortgages worth 113m manats were provided last year. 

According to experts' estimates, including those of representatives of international ratings agencies, in the next few years the volume of customer loans in Azerbaijan will grow. It may be said that the population has smelt the "whiff of money" and its appetite for loans has increased. Today the banks have sufficient financial resources to satisfy the demand which is bringing in a decent income. 

You see, the population is not only going to the banks for loans, but also to actively adding to their savings deposits.  At the beginning of 2014, the population's savings amounted to approximately 6.4bn manats; over the last year savings went up by 25.1 per cent, or almost 1.3bn manats. Today the population's savings are almost 30 per cent more than the amount of customer loans issued. So, the banks can completely finance their loans out of the population's savings. 

Although it should be noted that the rate of saving by the population did decline in the second half of last year. In particular, from January to July 2013 deposits of 900m manats were made, while only 400m manats were deposited in August to December. This was due to the fact that from 1 August 2013 the amount of interest guaranteed on deposits by the Insurance Fund was reduced; whereas previously it had been 12 per cent annually, it now went down to 10 per cent.

According to the data of the Central Bank of Azerbaijan, in 2013 the population preferred to make deposits in Azeri currency. In particular, the volume of these deposits for the financial year increased by 31.2 per cent to 3bn 888.3m manats, or 60.8 per cent of all deposits. The rate of growth in foreign currency deposits almost halved: 16.6 per cent to 2bn 507.5m manats.

Not only Azerbaijan's citizens, but also foreigners, trust the country's banks. So, as of 1 January 2014 the country's citizens had bank deposits worth 5bn 620.3m manats, and foreign citizens' deposits amounted to 775.5m manats. In 2013 the deposits of residents increased by 24.2 per cent and those of foreigners by 31.8 per cent.

At the end of last year citizens with savings in the banks got a pleasant surprise. In accordance with a law adopted by the parliament and signed by President Ilham Aliyev, the incomes of Azerbaijani citizens earned from interest on savings in banks and other credit organizations were declared tax-free throughout 2014. 

Tax breaks on the interest paid to the population on bank deposits have been applied since January 1999. Taking into account the total volume of the population's savings banked in deposit accounts, the income from interest and the sum of tax that would be collected, the population is spared the need to pay something like 50m manats to the treasury.

The present situation allows us to forecast a growth in the population's savings in 2014. The growth rates may not be as high as those in 2013, but today, in conditions in which Azerbaijan's financial market is restricted to a certain extent and citizens' options for earning an income are few, the banks remain a tested and reliable source of income.