“We launched stress-test in Azerbaijani banks. Share of these banks’ assets in the market makes 57%. We carried out the tests on two scenarios – base-case and alternative scenario. The first stress-test is more realistic. It has been developed on the macroeconomic forecasts of our analysts. They think GDP will fall 3.3% in 2016. Moreover, the base-case scenario is based on our forecasts on troubled loans. According to our forecasts, the troubled loans will increase 20% by the year-end. Of course, we have taken into account the plans of the International Bank of Azerbaijan on capitalization worth AZN 500 mln. The second is alternative scenario and based on more stressful suppositions. This scenario is based on macroeconomic forecast on 8%-drop in GDP and expectations on 35%-growth in troubled loans. The result shows that capitalization level fell to -2.8%. As you understand, the matter is about more tragic scenario. In this case, the system needs extra capitalization. Of course, the base-case scenario must be focused”, Malyukova said.

She added that despite two devaluation waves, several banks feel too good and preserve their profitability: “However, the matter is about few banks. IBA is being normalized. Several banks suffering from devaluation need extra capitalization. According to our forecasts, such type of banks’ loan portfolio will go on narrowing. Moreover, they have to ask the shareholders for help. By the way, we met several banks and they said active negations in this direction are underway”.

Touching upon dollarization in the banking sector, the Assistant Vice President said as at end of 2015, 82% of deposits are in foreign currencies and this is the highest level among the CIS countries: “At the same time, we witnessed in the first quarter that interest rates on deposits in foreign currencies were reduced, on manat deposits were increased. This caused dollarization slightly. In other word, 1-2% of depositors changed their manat deposits to manat. Along with this, the situation is still volatile. Confidence in manat reduced after two devaluations. Most of depositors abstain from conversion. There is a need for time for stabilization of situation and restoration of confidence in manat”.

In turn, Paklin noted that Central Bank’s policy must be more predictable and clearer: “There must not be unexpected surprises. Restoration of confidence in manat will take a long. Predictable policy of the Central Bank will increase confidence in its steps”.

According to the assistant vice-presidents, even if manat rate stabilizes, the rate of deposits in dollar will not fall below 50%.

“This was also the case prior to the devaluation. Depositors have always relied upon dollar,” said Malyukova.

Talking about the impact of some of the crediting restrictions imposed by the Financial Markets Supervisory Authority, Malyukova said these steps can be deemed positive in terms of reducing credit risks. At the same time, they can be considered late: “Had these steps been taken before the devaluation, they would have caused the losses to decrease. Now these may be considered as post-factum. However, these steps may be considered positive”.

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