Azerbaijan may cancel interest rate limit for insured deposits

Azerbaijan may cancel the uppermost limit of the interest rate for insured deposits of individuals, Azad Javadov, executive director of the Azerbaijan Deposit Insurance Fund (ADIF), told Trend.

He said this can be done through expanding the ADIF mandate and amending Azerbaijan’s legislation.

The head of the Fund noted that these steps were discussed during the recent Baku visit of a World Bank mission led by Angela Prigozhina, a WB senior financial sector specialist.

The purpose of the visit was to discuss the second phase of the project to modernize Azerbaijan’s financial sector, which also envisages modernization of the ADIF, Javadov said.

The head of the ADIF noted that the issue of expanding the Fund’s mandate is likely to be considered after the liquidation process in closed banks is partially completed.

In accordance with the current legislation, the Fund’s member banks are obliged to pay the ADIF quarterly fees of 0.125 percent (0.5 percent per year) of the total volume of insured deposits they have, Javadov said.

Thus, the ADIF annually receives about 30 million manats from the fees paid by its member banks, he noted.

Javadov said that if differentiated insurance premiums are imposed to banks, the uppermost limit of the interest rate for insured deposits will be cancelled.

"In that case, the amount of the insurance premium can be determined based on a bank’s rating, which is formed based on the assessment of its capital, profitability, liquidity, management and sensitivity to the market," Javadov added. "A number of countries evaluate banks on some additional criteria, but the abovementioned are the main ones. At the same time, the amount of insurance premiums differs in various countries, and if a bank applies a policy of high interest on deposits, this will affect the bank’s rating, and as a result, the bank will pay higher insurance premiums."

The ADIF has been operating since August 13, 2007. The uppermost limit of the interest rate for individuals’ insured deposits in foreign currency is 3 percent. The maximum interest rate for individuals’ manat deposits covered by insurance is 15 percent. (Trend.az)