How ready are Azerbaijani banks for the crisis? | – #ready #Azerbaijani #banks #crisis
The largest economy in the world USAThe failure of several banks in increased. Why? After all bank sector is considered the lifeblood of the economy. Therefore, any problem related to banks creates additional difficulties in all sectors of the economy.
USA Why is the bank closed?
Don’t forget that USAThe reasons that led to the closing of banks in For example, analysts – those investigating the case consider the increase of the discount rate as one of the main reasons for the bankruptcy of “Silicon Valley Bank”. Recent years in the global economy, as well as in the US economy inflation increases. In this case, increasing the discount rate is the main mechanism used by central banks. Thus, central banks by increasing the discount rates credit tries to prevent the increase in the price of its resources, thus reducing economic activity. After all, when the discount rate is increasing credit interest rates rise, as a result economic resources are limited and economic activity is weakened. If economic activity is weak and there is a need to increase economic activity, then central bank, as a rule, lowers the accounting rates. At this time, conditions are created for active lending by banks, which leads to active lending of entrepreneurs and households and an increase in economic activity.
in the United States central bank The Federal Reserve System (FED), which performs its function, has recently been making decisions to increase interest rates. At this time, the profitability of securities also decreases. If it is taken into account that the securities market in the USA is very mature, then the banks mainly invest the funds they attract in the securities market. In this regard, The increase in interest rates has reduced the profitability of banks with a large portfolio of securities, such as Silicon Valley Bank.
There is one more point that complicates the situation with this bank. The bank in question specializes in startups in the field of technology. Last year, the companies operating in that field benefited from a significant amount of cash. This point has both reduced the bank’s income level and raised challenges related to liquidity. “Silicon Valley Bank” 20It is the largest bank to close in the US since the 2008 global crisis.
Banks of Azerbaijan should learn from this
One of the factors causing problems for “Silicon Valley Bank” is to specialize only in companies operating in a limited sector Banks of Azerbaijan is one of the main risks for After all The securities market in Azerbaijan is very poorly developed. This is the main part of the banks’ income credit interest rates, because they perform poorly in other areas than selling loans. The main part of loans are consumer loans – loans given to citizens. It is true that in recent years there has been a sharp increase in the volume of non-cash payments in the country, and the operational income of banks from plastic cards is increasing. However, this type of income is very small compared to the income from credit sales. One of the main reasons why non-cash payments in the country do not increase at any level is the government’s fiscal policy. Many entrepreneurs tax does not take kindly to offers of customers regarding non-cash payments in order to avoid their payments. Under various pretexts, they want to get money from the customer in cash or transfer it to their cards. This is applied in the country tax it is an indication that the policy is not to the hearts of entrepreneurs.
The lack of development of various sectors of the country’s economy, the activity of large companies only in limited sectors reduces the number of business clients of banks. On the other hand, the limited development of small and medium enterprises in the country leaves banks deprived of potential customers. From this point of view, it is clear that the unattractive business environment in the country, serious problems related to competition are the main reasons that reveal the risks related to the banking sector. After all, if the country had an attractive business environment, more local and foreign companies would operate, thus the number of banks’ customers would increase, and cooperation with companies from various fields would be established. Of course, we should not forget that after the devaluation in 2015 Azerbaijan regulations in the banking system were relatively tightened. Applying a limit to loans given to citizens based on the citizen’s salary, dollars restricting their loans forces banks to lend less risky. However, serious risks still remain in the banking sector.
Azerbaijan main risk factors in the banking sector
The issue of trust in banks is always controversial among the population of Azerbaijan. The problems experienced in the 90s, when private banks were newly established in the country, still make banks undesirable for a certain age group. After all, during that period, thousands of citizens deposited their savings in banks trust he did, but he was deceived in the end. Confidence in the banking system was also shaken during the devaluation period in 2015. Just before the devaluation, in 2014, exactly 44 banks were operating in Azerbaijan. National nearly a third of them went bankrupt after the currency devalued twice. Currently, 25 banks are operating in Azerbaijan. This means that in the post-devaluation period, the number of banks in Azerbaijan decreased by almost half.
Now Azerbaijan The main factor that increases risks in the banking system is unfair competition. In the country social payments and public sector salary cards belong to only two banks. The International Bank of Azerbaijan and the president’s family members are shareholders.Capital Bank“a. These two banks receive millions of manats from state institutions every year funds takes At the same time, the majority of the country’s population is salary and social since they receive payments from these banks, they also gain an advantage for lending to citizens. In this regard, about 80 percent of the assets, loan portfolio, and profit in the banking system of Azerbaijan now belong to the state and “Pasha Holding”. As the main income is distributed among these banks, the remaining banks are able to acquire a smaller share of the market. In the “Financial Stability” report published by the Central Bank today, it is also stated that the top three banks in Azerbaijan by the volume of profit had 78 percent of the total profit. These three banks are the state-owned International Bank of Azerbaijan and “Pasha Holding”Capital Bankis “Pasha Bank”.
Another risk characteristic of the banking system of Azerbaijan is related to officials. The experience of previous years shows that Banks run by officials through patronage or informal means, no matter how good their financial performance, face serious risks if that official loses their position. For example, the former Minister of Taxes Fazil Mammadov after losing his position, the indicators of “Ata Bank”, which was once one of the largest banks in the country, weakened and eventually this bank was closed. Former Minister of Transport Zia “Bank of Azerbaijan”, known for its closeness to Mammadov, began to go bankrupt along with the decline of the minister’s career and finally went bankrupt.
Another serious risk factor for the banking sector of Azerbaijan is the structure of liabilities. According to the indicators at the end of last year, more than 80 percent of bank liabilities in the country are deposits. One of the main reasons for this is that foreign loans and funds of the Central Bank occupy a small place in the liabilities of banks. Such a high dependence of the banking system on deposits creates additional risks, because if the expectation of a crisis arises and both citizens and companies try to quickly withdraw their funds from banks, this will lead to serious problems in the banking sector. In this regard, central bank implements a deposit protection mechanism to encourage the population to keep money in banks. Currently 10Deposits placed in banks with an interest rate of 0 thousand manats and an annual interest rate of up to 12 percent are guaranteed by the state. However, banks’ high dependence on deposits remains a risk factor.
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