25 April 2020, Baku: The Central Bank of Azerbaijan took a related decision taking into account the recommendations by the Financial Stability Board as part of the implementation of the ‘Granting a regulatory holiday to credit institutions to allow them to regulate liabilities of pandemic-affected businesses during lockdown’ action of the Actions Plan approved by the Cabinet of Ministers with respect to the implementation of Item 10.2 of Decree# 1950 of the President of the Republic of Azerbaijan dated 19 March 2020 on ‘A number of measures to mitigate the negative impact of Coronavirus (COVID-19) pandemic and consequent sharp fluctuations in global energy and stock markets on the economy of the Republic of Azerbaijan, macroeconomic stability, employment and businesses’. The decision is both synchronized with the relevant actions specified in the Decree of the Cabinet of Ministers of the Republic of Azerbaijan and provides for broader areas, including restructuring of individuals’ mortgage loans issued out of funds of the Azerbaijan Mortgage and Credit Guarantee Fund, restructuring business loans issued out of State funds, as well as support for insurance and capital market participants.
On support for pandemic-affected entrepreneurs satisfactory loans issued by credit institutions to private businesses involved in pandemic-affected areas, identified by the Ministry of Economy and entrepreneurial individuals, interest rates of which will be subsidized by the government, issued as of 1 March 2020 may be restructured. Banks may prolong these loans at the request of entrepreneurs and by mutual agreement. In this case, regardless of the borrower's financial condition and loan restructuring, loan quality will not deteriorate until 30 September 2020.
At the same time, business loans issued out of State funds, classified as satisfactory as of 1 March 2020 may be restructured. As a result, about 10 thousand businessmen may benefit from these discounts on AZN1B worth of business loans allocated from the funds of the Entrepreneurship Development Fund.
On support for individuals (not engaged in entrepreneurship) an option for restructuring mortgage loans allocated from the funds of the Azerbaijan Mortgage and Credit Guarantee Fund will be provided. About 23 thousand borrowers on AZN1.1B worth of mortgage loans may benefit from this action. Loans will be restructured on the basis of borrower requests. In case the loans issued until 1 March 2020 and classified as satisfactory are restructured until 30 September 2020, their quality will not deteriorate.
At the same time, to stimulate mortgage lending by banks from their own funds a decision has been taken to decrease risk rates on the loans from this category to 50% from 100%.
In the event of full or partial delay in repayment of business and consumer loans (principal or interest debt), credit institutions will be recommended not to deduct interest fines, charges and other payments from borrowers until 30 September 2020 and in this case borrowers’ credit history will not deteriorate. Credit institutions will continue to accrue interest on principal amount over this period to be paid by borrowers to credit institutions.
Actions are considered to relax regulatory burden to enable implementation of the above actions, maintain financial service continuity for businesses and the population, and allow banks to use resilience cushion accumulated during previous periods to boost their lending capacity.
For this purpose, aggregate capital requirement is intended to be reduced by 1% until the end-year. In parallel, a number of other regulatory requirements that put pressure on banks’ capital will be postponed until the end-year.
To increase access of certain economic areas to credit resources the risk rate of loans issued to producers of medical supplies and equipment will be reduced to 20% from 100%, allowing banks to allocate cheaper and less capital consuming loans to the area.
To stimulate cashless payments and decrease expenses in light of negative effect of low economic activity, dropped income of businesses and households on payment service use indicators, it is intended to reduce service fees charged from banks in interbank payment systems by about 50% and tariffs on payment services supplied for bank customers likewise, as well as reduce tariffs on acquiring of entrepreneurs’ payment cards by about 50% until 30 September 2020.
Low pandemic driven economic activity is having a negative effect on the size of insurance fees in the insurance market. On the other hand, minimum physical contact between the insured and the insurers leads to contained access to insurance services. In view of this, actions are under way to maintain insurance service continuity and protect rights of the insured.
Insurers were recommended to grant a grace period to the insured directly affected by the quarantine regime in payment of insurance premiums under voluntary insurance contracts until 30 September 2020, as well as provide insurance services through effective use of electronic facilities.
Relevant regulatory exemptions will be applied to insurance companies until end-year in connection with the delays to be granted in payment of insurance premiums for the insured directly affected by the quarantine regime.
The Central Bank is planning to take actions to mitigate negative impact of the coronavirus pandemic driven situation on capital market participants.
For this purpose, in case of violation of the capital requirements by investment companies, enforcement measures will be extended until 1 January 2021, and publication of annual audit reports by investment companies and the stock exchange until 30 September 2020. Moreover, publication of reports by issuers whose securities were publicly offered and traded on the regulated market was extended for 1 month.
At the same time, the National Depository Center will be recommended not to charge tariffs from investors on deals in the secondary market with shares and bonds, as well as registration of repo transactions until 30 September 2020, and the Baku Stock Exchange not to charge listing tariffs from issuers on corporate bonds until 1 January 2021 and minimize the number of documents required for public offering.
The above actions will both relax regulatory burden of capital market participants and maintain optimization of investors’ transaction cost and more flexible secondary market operations in the government securities market.
In general, the planned measures will contribute to financial service continuity to businesses and the population amid pandemic, ongoing lending of the economy and consumer finance protection.
To ensure effective implementation of all the said actions (please go to – https://uploads.cbar.az/press-releases/a9db254580d8802b1421340ef.pdf for more information) close coordination will be established with related public institutions, financial sector participants and financial service consumers and the public will be kept informed on an ongoing basis.