BAKU, Azerbaijan, October 15.
The key aim of the regulatory measures introduced by the Central
Bank of Azerbaijan (CBA) for consumer loans is to prevent excessive
indebtedness and ensure that borrowers take on loans commensurate
with their income, CBA Executive Director Shahin Mahmudzade said at
a news conference in Baku on Thursday dedicated to the presentation
of the Financial Stability Report, Trend's correspondent reports from the
event.
He noted that the consumer lending requirements are designed to
protect citizens' financial interests and prevent them from taking
out loans without adequately assessing their ability to repay
them.
"Our goal is to ensure that people do not borrow more than they
need. The requirements we have implemented, such as restricting
lending when the debt-to-income ratio exceeds 70%, limiting the
issuance of consumer loans in foreign currency, imposing additional
capital requirements for credit cards, and other measures, all
serve this same purpose. People shouldn’t take out loans they don’t
need. Furthermore, when a loan is taken, the amount should be
commensurate with the borrower's income," he mentioned.
According to the CBA executive, the new regulatory measures,
including a mechanism that allows individuals to restrict their own
ability to take out loans, as well as new rules governing online
lending, are also aimed at reducing financial risks for
citizens.
Mahmudzade pointed out that the tightening of requirements for
bank lending could create a risk that some individuals seeking to
borrow might turn to alternative sources of financing, such as
pawnshops or informal credit channels.
"If a person is unable to obtain a loan from a bank, he/she may
turn to other sources of financing, including pawnshops.
Subsequently, there is a possibility that he/she might resort to
informal channels. This could be a consequence of tightening
requirements within the banking sector. Therefore, it is essential
to assess the overall impact of regulatory measures," he
explained.
He added that when drafting regulations for the consumer credit
market, the CBA considers not only the situation within the banking
sector but also the potential impact these requirements may have on
the borrowing behavior of citizens.
According to the executive, the objective of the regulation is
not to make consumer credit entirely inaccessible, but rather to
protect citizens from making ill-considered financial decisions. At
the same time, fostering a culture of responsible borrowing within
society is of great importance.
"We are implementing these rules to encourage people to refrain
from non-essential expenditures and to avoid increasing their
consumption through additional debt. Some expenses generate no
added value, yet they increase an individual's debt burden. Our
goal is for people to understand the essence of these changes and
to realize that excessive borrowing primarily harms them,"
emphasized Mahmudzade.
He noted that while regulatory measures help mitigate financial
risks for citizens, the development of responsible financial
behavior also requires individuals to properly assess their own
expenses and borrowing needs. "We can protect people to a certain
extent through our own regulations. However, individuals must also
safeguard their own financial standing by avoiding unnecessary
expenses and additional indebtedness," added the CBA executive.
Touching upon statistics regarding informal borrowing,
Mahmudzade noted that it’s difficult to assert definitively whether
there has been a growth in this area due to the absence of official
statistics or relevant reporting for such transactions. Therefore,
it’s impossible to confirm whether the volume of informal lending
is rising or falling.
