In the last year, three banks have stopped operating in Azerbaijan. In other words, their licenses have been revoked. Another bank was closed last week. Thus, the number of banks operating in the country decreased to 23.
There are also claims that several banks are facing the threat of closure. If banks continue to close in this way, will it create any problems for our banking sector?
“The sharp decline in the number of banks is not a good sign”
Khayal Mammadli, an expert on banking issues, says that the number of banks does not matter whether the country is big or small. There are also those that are 3-4 times more than the number of banks in Azerbaijan. That is, regulation here is not based on the country’s territory or population. It mostly depends on how the financial and banking system is established in the country, how the Central Bank regulates this system at the state level?”
H. Mammadli says that the sharp decrease in the number of banks is not a good sign: “There is no serious consequence of having more or less number of banks. Because if the number of enterprises operating in any sector is large, then the competitive environment becomes even better, and the prices for consumers become even cheaper. From that point of view, I think that there should be no question of drastically reducing the number of banks. Azerbaijan does not have such a policy.”
They do not consider the risk factor
According to the expert who touched on the issue of closing banks, this happens only when banks do not meet the norms: “In our country, banks are not closed due to the large number of them. The activities of the banks are suspended because they do not meet the prudential norms of the Central Bank. Neither the Central Bank nor the state has ever said, “There are too many banks, so we are closing them.” If the indicators meet the set norms, then the bank will operate. Corporate governance is not set up properly, prudential norms are not followed, risk issues are not properly regulated, the bank does not set up the management in a normal way, risky loans are given, they are not returned, the total capital of the bank decreases and thus the problems begin. At this time, the Central Bank cancels the license. Also, banks themselves do not stop their activities. No bank in Azerbaijan has yet declared itself bankrupt. In all cases, the Central Bank has suspended the licenses of banks that do not meet the norms.
The resulting gaps are filled by large banks
H. Mammadli also notes that there is no reason to worry about the banking sector of Azerbaijan: “Azerbaijan has at least a state bank like the International Bank, as well as large systemically important banks. Those banks will always work. If the activity of small enterprises will stop, then the branch network of big banks will expand even more. On the other hand, digitalization is accelerating, remote banking services are provided. In other words, gaps created by large and systemically important banks are being filled.”
This process is not regulated by law
Asif Ibrahimli, an expert on economic issues, says that there are no norms defining the number of banks in world practice: “The number of banks is not regulated by any law, regulation, or method. In general, the creation of banks in a certain country is usually formed depending on the country’s economic situation and financial policy. For example, there may be a small country located in Latin America, three times smaller than Azerbaijan in terms of territory, but there are many banks there. This is an issue that depends on the country’s financial policy and economy. In this regard, there is no regulation in world practice.”
Loan interest rates may rise further
According to A. İbrahimli, there are already few foreign banks in the banking sector in our country. If local banks are also closed, certain difficulties may arise for people: “The advantage of having a large number of banks is that a competitive environment is formed. As Azerbaijan has its own economic model, I do not see any difference in the formation of banks, whether their number is more or less. But in the future, if problems arise in the operation of other banks, if their licenses are revoked, this may lead to a serious violation of competition in the banking sector. For example, if this is the case, the already high loan interest rates in the country may increase a little” (“Kaspi” newspaper).
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