OREANDA-NEWS. March 12, 2013. Banks of Azerbaijan supported the directive of the Central Bank to suspend provision of banking services in mobile points. This was proved by the results of survey among the banks of Azerbaijan conducted by Trend.

The Central Bank communicated a letter to commercial banks with the directive to suspend the activity of those points within the period of three working days, otherwise CBA would apply influence means and sanctions in accordance with the Law “On banks”.

International Bank of Azerbaijan (IBA) considers directive of the Central Bank as removal of threat to the stability of banks.

According to Rauf Aghayev, head of public relations department of the IBA, number of applications to the bank for loans has considerably increased over the last years. Following to statistical data, growth rate of loan investments in 2012 take the lead over data of the previous year. Growth is also observed in consumer loan granting which is related with the simplification of loan granting procedure by banks.

Aghayev considers that “undoubtedly, this has positive effect on economy of the country. While consumption volumes are increasing, money turnover and, respectively, gross domestic product of the country are increasing also. Retail loan granting has turned to be the most attractive sector for the banks by reason of extremely high profitability and great possibilities of consumer loan granting market”.

However, there is a reverse side of the medal.

In case of failure to repay the loan, there is a case directly between borrower and guarantor, that loan should be repaid by the bank. For these purposes, there are reserve funds established within the banks for coverage of loan risks. The more risky loan policy bank carries, the more insurance reserve it should establish using its own profit. There were cases when the bank has even been unprofitable.
 
“Therefore, after the last directive of the CBA, control over issuance of loans will be strict. Suchmeasureiscompulsory. Apart from situation that granting of loans in mobile points is non-prudential practice, rapid growth of unsecured loans in the future may pose a threat for stability of banking system of the country” IBA representative said.

According to him, development of European debt crisis became possible due to simultaneous effect of a number of factors, among which we may mark out ease of access to loans which led to issuance of considerable number of loans with high level of risk.

“Banks try to attract attention of borrowers with vivid advertisement campaigns and different types of preferences and discounts, loans are offered to the population irrespective of work place and existing loans in other banks and accepted only on presenting the identity card. And after that, banks can’t find those borrowers delaying the payments” Aghayev pointed.

“Today any authoritative bank strives for complication of consumer loan terms (loans in cash without collateral and guarantors, loans in cash without confirmation of income etc.) and introduces modern scoring systems allowing eliminate untrustworthy borrowers on the stage of loan application”

“Some banks avoid long-term loan granting of economic projects. And the reason is that they fail to participate in such projects due to lack of own resources. Therefore, such banks are not only interested, but also are forced to issue large number of small household loans to the population” Aghayev said.