Attention to those who want to take out a loan — Interest rates may increase

The dynamics in the credit market in Azerbaijan are changing. Recent statistical indicators show that the banks' non-performing loan portfolio has reached 763 million manat. This increase is particularly evident in the consumer and business sectors, which raises the possibility of increased risks in the financial system.

Regarding the issue, economist expert Asif Ibrahimov told Demokrat.az that the rise in non-performing loans directly affects the risk profile of the banking sector:

“In such cases, financial institutions form additional reserves to compensate for possible losses, which does not leave their profitability and lending capacity unaffected. Banks start to pursue a more cautious lending policy. This trend may lead to tightening credit conditions in the future. Specifically, the likelihood increases of banks raising the requirements imposed on borrowers, more strictly assessing collateral and income criteria, as well as restricting lending in sectors considered risky. The increase in non-performing loans can also affect credit interest rates. Against the backdrop of rising risks, banks may be forced to increase interest rates to some extent in order to compensate for this risk.”

Asif Ibrahimov stated that an increase in risks could lead to more expensive loans. However, this process is closely connected not only to internal problems but also to the Central Bank's policies and the overall economic situation in the country.

“The dynamics of the process are not limited solely to the level of non-performing loans. The Central Bank's monetary-credit policy, the capital adequacy of the banking sector, and the overall macroeconomic situation remain key determining factors in this regard. With appropriate regulatory measures and economic stability, the impact of risks can be somewhat neutralized. The increase in non-performing loans is an important factor that could affect both the accessibility and price of loans in the long term. In this respect, effective risk management in the banking sector and the implementation of a balanced lending policy are of special importance.”

In other words, as the volume of loans not repaid by citizens on time increases, banks impose stricter conditions when issuing new loans and may raise interest rates to protect themselves.