When a citizen applies for a bank loan, a guarantor is required in many cases. However, over time, people are afraid to be guarantors for each other. Because when a citizen dies or fails to pay the loan, there are guarantors who are in trouble. Steps are being taken to solve this problem. Thus, the life insurance of individuals who take a consumer loan is envisaged. President of Azerbaijan Banks Association Zakir Nuriyev said that this innovation will significantly reduce the demand for guarantees.
I wonder what else this innovation will change in the banking system and in the field of credit?
The bank is freed from the cost, and the citizen falls into the cost
Insurance expert Ilkin Ibrahimov said that the new decision will help to solve long-standing guarantee issues: “The purpose of applying this rule is to solve the measures to reduce problem loans in more realistic conditions. After the implementation of the new rule, the problems related to the guarantee will disappear. Instead, more insurance fees are imposed on the citizen. On the one hand, it is voluntary, and on the other hand, it is required by the bank. If you don’t have insurance, you can’t get a loan. The introduction of the innovation will lead to the solution of problems for banks. Because of this, cases related to guarantors dragged on in the courts for months. The bank will also be exempted from the costs here. Citizens’ rights will be strengthened. There will be no need for a surety anymore, but they have to pay a certain amount of money to be insured.”
If there is no insurance, there will be no credit
I.Ibrahimov also explained the rules of organizing insurance: “A contract is concluded between a citizen and an insurance company. When taking a loan, life insurance will be offered, depending on your age and health, the insurance premium may be more or less. For younger people, conditions will be more favorable, and for older people, more premiums will be determined. If something happens to the borrower after taking the loan, the insurance company will pay his debt. Or if the borrower becomes incapacitated, a certain part of his loan will be covered by the insurance company. If not insured, a guarantor will be required. If the citizen refuses even this, the bank will refuse to give a loan.”
The bank remains in a difficult position
According to economist Elman Sadigov, life insurance is very useful even if you don’t take out a loan: “Currently, the insurance system is given importance due to diseases and climate changes in the world. From this point of view, the actualization of life insurance in Azerbaijan is a good thing. On the one hand, funds collected from insurance provide financial support to the country’s economy, on the other hand, citizens insure the future.”
According to E. Sadigov, banks are also interested in the effective use of the insurance system: “If you take out a consumer loan and insure your life, the loan to be paid in case of death does not remain with your family members or the guarantor. Until now, when the borrower died, his family members or the guarantor were sued. There were serious disagreements between family members and the guarantor. It became a dispute whether the loan should be paid by the guarantor or family members. The guarantor said that the citizen and his family members benefited from that loan, why should I pay. Or family members said that we do not have any legal obligations here. At that time, the bank was in a difficult situation. But now the family members will not have to pay this loan.”
How will the amount of the insurance fee be determined?
According to Gorkhmaz Aghayev, an expert of the Banks Association of Azerbaijan, a specialist in banking issues, the new rules are important not only for citizens taking loans, but also for depositors: “The main production tool of the banking system is money, it must circulate constantly. If consumer loans are not returned, as a result, depositors’ funds are also at risk. If there is an insurance system, the interests of depositors are also protected.”
According to G. Aghayev, when applying the new rules, the insurance amount will change depending on the amount received by the citizen: “There will be a certain insurance fee that will be used by the borrowers as well. This will be determined by the insurance contract. When forming the price, the credit amount of the citizen should be taken into account. The decision on the guarantee will be made as a result of the assessment of the customer’s ability to pay. Both life insurance and surety may be required. But in any case, the requirements regarding the guarantor will be softened a bit.”
“Banks will lower loan rates”
The expert noted that certain improvements will be registered in the banking system after this change: “Banks’ interest in consumer loans will increase somewhat. They will know that the insurance will cover the problem they will face. At this time, the volume of consumer loans will increase. This can lead to lower loan rates. “More people will benefit from the loan, and the bank will lower the loan interest rates when they see that the risks are minimal.” (“Kaspi” newspaper)
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