AZE.US
Thousands of people in Azerbaijan turn to bank loans to buy homes, launch businesses, pay for education or cover other major expenses. Yet for many borrowers, the cost of credit remains the biggest concern.
Average interest rates vary significantly across the country, with some regions facing rates above 20%.
The highest average rate has been recorded in the Mountainous Shirvan economic region, where it exceeds 20%. Central Aran follows with a rate of around 20%, while Shirvan-Salyan stands at 19.95%, Karabakh at 19.92% and Gazakh-Tovuz at 19.9%.
Residents in the regions say high interest rates make monthly payments increasingly difficult to manage.
One borrower said a bank initially told him that his loan would carry an interest rate of 12% to 13%. However, after calculating the total repayment amount, he concluded that the effective cost of the loan exceeded 20%.
Economist Kamran Hajiyev said the average interest rate on loans in Azerbaijan is approximately 14%, while rates on loans issued in manats are above 15%.
In Baku, the average rate is about 13%. In economic regions such as Mountainous Shirvan, Central Aran and Karabakh, however, the figure can reach 20%.
According to Hajiyev, the difference is largely driven by the way banks assess risk outside the capital.
Baku has a larger share of major companies, borrowers with stable and officially declared incomes, mortgage customers and other lower-risk clients.
In the regions, lending is more often connected to small businesses, agriculture, seasonal income and unsecured consumer loans. Because income is less predictable and often more difficult to verify, banks tend to classify these borrowers as higher risk and charge higher rates.
Limited financial transparency is another major factor.
When banks cannot clearly assess a customer’s real income or a business owner’s actual turnover, the borrower is viewed as more likely to default. That higher risk is then reflected in the interest rate.
Hajiyev said lower credit rates would first require inflation to remain low and stable.
Banks obtain much of their funding through deposits. When deposit rates are high, lenders have less room to offer cheaper loans.
He also called for an expansion of credit guarantee mechanisms, simpler procedures for registering and selling collateral, and more efficient court and enforcement processes.
Member of Parliament Vugar Bayramov said reducing interest rates is one of the key issues currently under discussion.
According to Bayramov, the Central Bank of Azerbaijan has been taking steps to optimize lending rates and encourage banks to offer more affordable consumer and business loans.
However, borrowing costs remain high, particularly in the consumer lending segment.
Banks often seek to generate income over shorter periods by offering loans at elevated rates. As a result, borrowers may initially keep up with their monthly payments but later struggle to repay the debt.
Experts say interest rates can be reduced, but only through a combination of stable inflation, cheaper funding for banks, lower credit risks and continued financial sector reforms.
Such measures could ease the debt burden on households and improve access to financing for businesses.
AZE.US