AZE.US
Problem loans are increasing in Azerbaijan, and they are growing faster than the country’s overall credit portfolio.
According to figures as of February 1, the credit portfolio of banks and other lending institutions rose by 8.7% compared with the same period last year. But overdue loans increased by 17.3%, reaching 557.5 million manats.
That means overdue loans now account for 1.7% of the total credit portfolio.
Long-term loans make up the largest share of lending in the country, accounting for 82.1% of the portfolio. Banks issued 94.1% of all loans, while non-bank credit organizations accounted for the remaining 5.9%.
Experts say the increase in problem loans is not only about borrowers refusing to pay. In many cases, households simply have less money left after covering basic expenses.
Food, utilities, transport, rent and other daily costs have risen, while incomes have not grown at the same pace. A loan that once looked manageable can become a serious burden when inflation eats into real income.
Another problem is the real cost of borrowing. Experts say some customers do not always clearly see the effective annual interest rate when they take out a loan.
A borrower may think they are taking a loan at 13%, but by the end of the year the real cost can be much higher – in some cases reaching 26%. By the time the customer understands the full burden, it may already be difficult to reverse the situation.
Once payments are missed, additional charges can build up, pushing the borrower into deeper financial stress.
Specialists say one possible solution is tighter control over household debt burdens. Monthly loan payments should not exceed roughly 30% to 40% of a borrower’s income, they argue. Such a rule could help prevent people from taking on loans they cannot realistically repay.
Another key step would be clearer disclosure of the effective annual interest rate. Customers should see not just the advertised rate, but the full cost of the loan, including all payments and fees.
In some countries, including Japan and European Union member states, lenders apply credit limits based on a customer’s income and credit history. The bank sets the maximum amount a person can borrow and the upper interest rate that may apply.
For example, if a credit card limit is 3,000 manats, the customer cannot borrow above that amount. If the loan carries a fixed interest rate, the bank also cannot later raise that rate at will.
In Azerbaijan, interest rates on consumer loans in manats currently range from about 9.5% to 26%.
That makes transparency a central issue. If borrowers do not clearly understand what they are signing, and if debt levels are not tied to real income, problem loans may continue to rise even when the banking sector itself keeps expanding.
AZE.US