FMSB: Liquid funds exceed normative requirements

Liquid funds of Azerbaijan's banks exceeded the normative requirements by 4 times, Rufat Aslanli, Chairman of the Board of Directors of Financial Market Supervisory Body told ANS TV channel.

“Excess liquidity is currently observed in the banking sector of the country. Liquid funds in the banks’ correspondent accounts and cash offices exceed set standards fourfold. If banks do not issue loans they do not get income. No business voluntarily refuses income. The problem is that the projects that apply for a credit should be profitable and stable. Banks issue credits should they are sure of the project’s success”

He also mentioned that as much as 73 percent of bank credits were presented to business. “Certain part of the credits was issued within the framework of the projects implemented in Azerbaijan by foreign investors.”

Commenting on the issue of bad loans in the country’s banking sector Aslanli said that certain actions should be taken to solve the problem.

“Softened credit conditions may extend opportunities of borrowers for the credit payments. Of course, banks face with the decrease of income nevertheless they are secured against losses. Losses which were triggered by the changes in the economic situation are divided between borrowers and banks. Majority of banks have already implemented the process of credit restructuring. Currently we monitor the process of credits payment,” he said.

Insurance market

Commenting on the issue of stability enhancement in the country's insurance sector he said that the Supervisory Body is planning to take measures in this direction starting from the second half of 2016. He mentioned that the authority has already made an assessment of the sector and took a decision on creating competitive environment in the reinsurance market.

“Insurance business stands for the transfer of financial risks. Risks are being submitted to the insurance companies which in their turn present one part of risks to the reinsurance companies. By submitting risks abroad we present a considerable part of proceeds for financing of foreign economy. Funds of the reinsurance companies partially return to the country only in the case of insurable events. Therefore we are interested in capitalized and stable reinsurance companies which may operate in competitive environment.”

Funds collection in reinsurance sector amounted to 1.32 billion manats ($0.85 billion) in 2015. As much as 56 percent of the total volume of collections fell to a share of foreign companies while 44 percent accounted for local companies. Reinsurance payments totaled 23 billion manats ($14.9 billion), while 25 percent of the sum fell to a share of foreign companies.

Currently, 25 insurance and one re-insurance company operate in Azerbaijan.

The volume of insurance payments carried out via 25 insurance companies in the country amounted to 76.3 million manats ($49.8 million) in January 2016, according to Azerbaijan Insurers Association. The volume is 21.3 percent higher than the rate shown in the same period of 2015.

The amount of payments carried out by insurance companies were at the level of approximately 13.4 million manats ($8.7 million), which is 29.4 percent higher as compared to the rates of January 2015.

As many as 164 foreign reinsurance companies as well as 8 foreign brokers are registered in Azerbaijan. Unprofitability rate on reinsurance operations currently amounts to 8 percent for foreign companies while the rate for local companies is 28 percent. The figures are considered to be the signs of favorable conditions for foreign companies.

Banking sector

The chairman also said that the authority has developed an individual program on strengthening financial stability for every bank of the country.

“We observed no serious problems in the banking sector as a result of thorough investigation in the sphere. However, we have developed a special program for each bank of the country taking into account processes that occur in the global and the country’s economy.

Touching upon the issue of share of the banking sector in the country’s GDP Aslanli said that the assets of the banks amount to 67 percent of the GDP, as much as 80 percent were formed as a result of devaluation as main part of the assets is kept in the foreign currency. However, Aslanli mentioned that most real ratio is 34 percent of the country’s GDP.

CBA switched to a floating rate of manat, the national currency of Azerbaijan on December 21, 2015 following intensifying external economic shocks. The exchange rate between the manat and US dollar changed from 1.0499 to 1.5500 after the shift.