“The main challenge facing the banking sector today is to place its resources more effectively—in other words, to expand its credit portfolio,” said Vusal Gasimli, Head of the Center for Analysis of Economic Reforms and Communication (CAERC).

According to him, since the beginning of the COVID-19 pandemic, bank lending to customers has been declining on a monthly basis: “Between March and May of this year, the credit portfolio decreased by 6.1%, falling to 14.4 billion manats. The withdrawal of licenses from some banks also had an impact. At the same time, banks’ cash holdings, funds in correspondent accounts at the Central Bank and other banks, as well as their securities portfolios, have been increasing. Pandemic-related risks and quarantine measures have increased banks’ risk aversion. In this context, state intervention has become necessary.”

Vusal Gasimli stated that manat stability, low single-digit inflation, full deposit insurance, resolution of non-performing loans, and the removal of some banks from the sector are already baseline measures to ensure financial sector health. “Beyond these measures, the state is also supporting the expansion of bank lending,” he added.

He noted that providing state guarantees for bank loans to entrepreneurs affected by the pandemic and subsidizing interest rates will help prevent the emergence of new problem loans. “Thus, 60% of the new 500 million manat loan portfolio—300 million manats—will be covered by state guarantees. These guarantees will be provided through the State Guarantee Fund for Public Debt and Obligations. Interest subsidies for new loans will be provided at a rate covering 50% of the annual interest rate,” he explained.

He further added that entrepreneurs affected in certain sectors as of March 10, 2020, will also receive a 10% interest subsidy on their existing loans. If the interest rate is below 10%, the subsidy will cover the full interest amount. Considering average lending rates and inflation in Azerbaijan, these measures will effectively reduce the cost of financing for businesses.

According to Vusal Gasimli, interest subsidies on a 1 billion manat existing loan portfolio, along with state guarantees and interest subsidies for a new 500 million manat credit portfolio, collectively represent support for a 1.5 billion manat credit portfolio. “This amounts to more than 10% of the country’s current total credit portfolio,” he noted.

He also highlighted that, within the framework of anti-crisis measures, the Central Bank’s financial market support program includes regulatory relief measures, consumer protection initiatives, acceleration of digitalization, expansion of financial inclusion, promotion of online service channels, maintenance of financial discipline, and strengthening financial stability. These measures cover the banking sector, insurance market, and capital markets.

Vusal Gasimli added that various state institutions—including the Entrepreneurship Development Fund, Innovation Agency, Agricultural Credit and Development Agency, Youth Fund, Agrarian Leasing (Aqrolizinq), Mortgage and Credit Guarantee Fund, “Maarifchi” Student Loan Fund, Azerbaijan Investment Company, and investment promotion mechanisms—are facilitating access to affordable financing and assets.

He concluded that efforts continue to ensure an appropriate balance between lending rates and productivity levels in the economy. “Most importantly, bank lending must support economic growth,” he said.