If you are a homemaker with no independent source of income, some Azerbaijani banks are still ready to extend an unusual offer to you: a so-called “housewife” loan, repayable at an average annual interest rate of 25 percent, and few questions asked.
The pervasiveness of such loans – they also exist, supposedly tailor-made, for teachers, government employees, soldiers, pensioners and oil-industry employees – has become a prominent campaign topic in Azerbaijan’s October 9 presidential election.
The country’s energy-rich economy may be booming, critics say, and with it the availability of goods and services. But can residents afford the loans they are increasingly taking out to snap up the latest household gadget or imported car?
About 18 percent of the country’s total population of 9 million people, or some 1.75 million residents, are now paying interest on loans. That marks an over 100 percent increase in the number of debtors over the past three years.
A liberalization of loan regulations, brought on by banks’ eagerness to cash in on pent-up demand for consumer goods, explains the boom in part. Some retail banks no longer require proof of solvency for loans up to 5,000 manats ($6,373), and will issue the loans for anything from a household gadget to a wedding celebration.
Consequently, household loans, aggressively advertised, now account for 14 percent of Azerbaijan’s total Gross Domestic Product of 37.4 billion manats ($47.7 billion), and make up over 38 percent of all loans issued by Azerbaijani banks, according to the Central Bank of Azerbaijan.
While such numbers may not seem particularly amiss elsewhere, in Azerbaijan, emphasized economist Natik Jafarly, head of the non-profit Society of Economic Bloggers, the numbers should be viewed as a cause for concern. That is because up until very recently, a “loan culture” did not exist in Azerbaijan.
Highlighting his concerns, Jafarly cited a friend who complains that she cannot afford to buy a washing machine, yet recently took out a 900-manat ($1,147) loan to buy the latest iPhone.
“It is a bad practice when people with low incomes take out loans to buy expensive toys and, thus, bind themselves to the banks,” Jafarly said.
According to official statistics, the average salary in Azerbaijan is just 412.7 manats (about $527) per month.
Main opposition candidate Janim Hasanli has seized on that disparity, alleging that the country’s top banks are operated by friends and relatives of President Ilham Aliyev, and that they are “crushing” consumers with their high interest rates.
Yet while average interest rates may seem astronomically high compared with US rates – 25 percent per year compared with 10.4 percent for a two-year personal loan in the United States – few Azerbaijanis, even those with two to three loans, are complaining.
Sixty-six-year-old Baku retiree Leyla Akhundova, a homemaker, certainly is not. In August, she received a one-year, 4,000-manat (about $5,100) “travel loan” from a leading retail bank for a 10-day vacation in Italy and Spain with a relative.
“It is good to have access to such loans,” Akhundova said. Her husband and daughter will provide the money to repay the principal and interest, she added.
Thirty-one-year-old Elchin Askarov, a mid-level insurance-company employee, thinks the same. With a net monthly salary of 600 manats (about $765), he somehow manages to pay roughly 1,000 manats (about $1,275) per month on a mortgage and two personal loans.
“Don’t ask me how I manage it, but I do,” Askarov said, adding that he plans to take out additional loans once his current three are repaid.
As in the US mortgage crisis, the relatively easy availability of cash may not last forever. When Azerbaijan’s stream of hydrocarbon-cash slows – an event not expected for decades – will banks find themselves knee-deep in defaults?
With energy accounting for the bulk of Azerbaijan’s economy, few ask that question now. Not all economists believe that the loan craze is a bad thing for Azerbaijan. “The loan boom increases the domestic consumer market, increases GDP and helps economic growth,” said economist Jafarly. “I do not see a big risk of massive defaults in the mid-term while Azerbaijan is enjoying a huge inflow of oil revenues.” Azerbaijan is expected to bring in at least $12 billion in oil revenue in 2013.
Right now, the share of unpaid loans amounts to less than 6 percent of total personal loans.
One leading retail bank’s deputy chief executive officer, who asked not to be named, echoed Jafarly’s assessment, saying that no problems exist with the bank’s mortgages and car loans. Delays in repayment of other loans are “easily compensated” by the general volume of loans and high interest rates, he said.
“Plus, people’s incomes are obviously growing, which decreases the risk of defaults,” he said. Total incomes have increased on average by more than 9.1 percent between 2012 and 2013, according to the Central Bank.
Some measures have been taken to avoid a further multiplication of debts, but they are relatively moderate. In August, the Central Bank withdrew authorization for consumer-loan booths in malls, stores and car dealerships, forcing applicants to go to banks themselves.
Hasanli, meanwhile, has proposed that the government repay all consumer loans worth up to 5,000 manats ($6,373) – a measure dismissed as campaign-season “populism” by some.
Economist Jafarly believes that a more realistic measure would be to open up Azerbaijan’s retail banking market to foreign banks to increase competition and lower interest rates.
The government, for its part, is not rushing to address the issue.
Independent parliamentarian Ziyad Samedzade, chairperson of parliament’s economic affairs committee, told the APA news agency on October 2 that the legislature plans to take measures before the end of the year to lower interest rates, but he did not elaborate.
Meanwhile, Teachers’ Day is coming October 13, and Azerbaijani banks already are advertising loans to mark the day.
Shahin Abbasov is a freelance correspondent based in Baku.