INVESTING IN MONEY

According to statistics, the level of the welfare of the Azerbaijani population continues to improve - in the first five months of 2013, the population's nominal income amounted to 13 billion manats, which is 6.8% more than last year. This trend, of course, makes the question of the effective use of the population's free money topical. Against the background of the securities market, which is just beginning to develop, and high real estate prices, bank deposits seem to be the simplest and safest way to invest.

Unprofitable, but attractive

The main advantage of this method of investing, which attracts people, is a guaranteed timely income. And given the fact that consumer confidence in the banking system in Azerbaijan is improving, which is confirmed by the Central Bank, experts and market participants, the recent period has seen a rapid growth in the population's deposits in local banks.

Thus, according to the Central Bank, in January-May 2013, the depositary base of Azerbaijani banks increased by 2.93% and year-on-year - by 12.41%. In comparison with the same period last year, the deposits of individuals increased by 35.69%. This, in turn, is higher than the growth of the assets and loan portfolio of the banking sector. At the same time, the volume of deposits in the national currency is growing rapidly. Over the past 10 years, the share of such deposits in the total portfolio increased by 7 times and exceeded 57%. However, this does not mean that the country's banking sector loses its attractiveness for foreigners. During the reporting period, the volume of deposits of non-residents in Azerbaijani banks increased by 6 times and exceeded $ 600 million. In general, the amount of deposits of individuals increased by 20 times and exceeded 5 billion manats. Thus, today the country has 2 million depositors.

Meanwhile, bank deposits cannot be considered the most profitable among the available financial instruments, but, nevertheless, the interest rates on deposits in Azerbaijan (on average, they range from 10 to 12%) are much higher than in many other countries, including in Europe. According to experts, one of the key factors shaping the high rates is the desire of banks with limited resources to attract deposits from the public. In such banks, a significant part of funds required for the issuance of loans is provided by the deposits. The result is a situation in which the remaining banks also raise the rates in order to avoid losing customers, although, ultimately, higher deposit rates lead to higher borrowing costs. However, experts believe that the expected consolidation of the banking sector will lead to the expansion of the financial capability of participants in this market, and thus, in the coming years we can expect lower interest rates both on deposits and loans.

An important element

It should be recognized that one of the reasons why people choose bank deposits is the work of the deposit insurance system. This mechanism makes it possible (in cases where the bank itself cannot do so) to compensate depositors for up to 30,000 manats. In this case, the funds must be invested at a rate no higher than 12%.

And the first case of bankruptcy in the history of Azerbaijan's banking sector showed the effectiveness of this system. The Azerbaijan Deposit Insurance Fund (ADIF), which started its operations in 2007, started making the first payments only in 2012 when the local Royal Bank went bankrupt. According to the Central Bank of Azerbaijan, as well as a number of international experts, the fund successfully passed the first "test" and proved to be an important element of the policy aimed at ensuring the stability of the sector.

However, the international rating agency Fitch Ratings believes that the amount of funds accumulated in the ADIF is low. In particular, the experts are concerned about the possible closure of some banks in connection with the decision of the CBA on the fivefold increase in the requirements for the minimum total capital of existing banks - up to 50 million manats - which will come into force on 1 January 2014.

After the transfer of 14.7 million manats to agent banks to pay compensation to depositors of Royal Bank, the insurance reserves of the fund are 41.5 million manats. At the same time, 28 million manats, i.e. 65% of the reserves of the fund are invested in government securities with a yield of 4.6%, while 5 million euros have been transferred to Deutsche Asset Management International for management.

According to the ADIF executive director, Azad Cavadov, the closure of a certain number of banks will not create a risk to the deposit insurance system. "2013 was the beginning of new qualitative changes in the banking industry, the ultimate aim of which is to maintain the stability and financial resilience of the system," he said.

We must say that in the process of paying compensation to Royal Bank depositors, the fund gained valuable experience, which formed the basis for changes to the law "On Deposit Insurance". In particular, experience showed that the period of payment of compensation can be reduced from the current 90 to 14 days. In addition, the key aspect of the amendments that are ready and are negotiable is to expand the list of deposits insured by the fund.

From now on, the fund will also insure money in bank accounts opened by individuals in connection with business activities, deposits the size of the main amount of the depositor's debt to the bank and its interest, and the deposits that serve as the depositor's collateral to the bank. The fund said that in the future the issue of insuring the funds of legal persons will also be gradually included on the agenda.

In addition, ADIF started receiving ratings of banks from the Central Bank to switch to a differentiated system of rates in which the insurance premium for each bank depends on its level of financial stability.

In short, all this shows that the country's financial market regulators are ready to take additional measures to stimulate increased interest not only among individuals but also among businesses in the deposit products of local banks. That is why people are increasingly interested not only in depositing a certain amount for a certain period, but also in increasing its size as they see the safety of such investments. So, 19.6% of the above amount of the population's income was used to increase deposits. And this is quite a clear indication of the development of the market.