ADB: Long-term lending in Azerbaijan severely reduced due to pandemic

Expanding access to finance and improving the business environment have significantly affected the development of the Azerbaijani economy, reads a final report by the Asian Development Bank (ADB) on “Improving Governance and Public Sector Efficiency Program (Subprogram 2),” Report informs.

“The establishment of the credit bureau made it easier for consumers and companies to obtain credit and will have the benefit of improving financial inclusion through improved financial intermediation. It led to the establishment of the Financial Literacy Council by the Association of Banks, as well as the establishment of the Institution of Banking Ombudsman, the key function of which is to simplify and speed up the procedure for considering mortgage issues between the bank and the borrower,” reads the report.

However, the COVID-19 pandemic and the closure of four major banks (Atabank, AGBank, NBCBank and Amrah Bank) have negatively affected these trends in 2020, though the underlying trajectory suggests likely achievement in 2021 given the large base effects. These trends are supported by high frequency data on lending that illustrates the negative impact of the COVID-19 pandemic on long-term lending.

“The data also suggests that long-term lending bottomed out earlier this year. Aggregate lending, which is closely linked to the outcome indicator, displays a sharp rebound, with outstanding loans in local currency already crossing pre-COVID-19 levels suggesting a likely achievement of this outcome variable,” the ADB added.

The number of local currency loans distributed grew by 15.4 percent in 2019 and 17.8 percent in 2020 compared to the end of 2016, while the number of local currency overdue loans dropped by 4.2 percent in 2020, from 2016, according to the report.

“Meanwhile, the level of dollar deposits decreased from 75 percent in end-2016 to 56 percent in end-2020, showing growing trust in the local currency. In general, the banking and financial sector was one of the main beneficiaries of the reforms,” the report noted.

According to the Central Bank of Azerbaijan, the share of US dollar deposits in the total portfolio of banks at the end of August 2021 amounted to 51.1 percent.

The loan portfolio of banks at the end of August 2021 amounted to 15.608 billion manats (an increase of 7.4 percent compared to the end of 2020). The share of overdue loans in the total loan portfolio decreased to 5.8 percent. This figure was 6.1 percent at the end of last year. The number of loans issued in local currency increased by 11.9 percent compared to the beginning of 2021, and the volume of long-term loans in eight months increased by 6.4 percent to 12.830 billion manats.

There are 26 banks in Azerbaijan, including 12 banks with foreign capital.