Financial Market Supervision Authority`s new decision is formal - Expert

12:07 - 5.11.2019


November 5, Fineko/abc.az. The Financial Market Supervision Authority (FIMSA) has amended the Rules on Regulation of Credit Risks of a Borrower or a Group of Related Borrowers.

ABC.AZ informs that the amendments to the Rules were not met unambiguously.

Thus, expert economist Ekrem Hasanov, reacting to the changes, called this decision of FIMSA a formal step.

The expert justified his claims by explaining several points. First, in accord with the changes in the Rules, the maximum amount of credit risk on consumer loans for the period of over 7 years is limited. So, there is a question: whether the consumer loan is given for more than 7 years? As a rules, consumer loans are not given for such a period, except mortgages. And the amount of mortgage loans has already declined. So this change is formal. Secondly, on the basis of the changes made to the Rules, when calculating the adequacy of capital, the risk rate on consumer loans is increased, and on business loans, on the contrary, is lowered. What does it mean?

As you know, the bank gives loans mainly at the expense of raised funds (deposits, etc). But the bank must have its own funds, that is, capital (money invested by shareholders, owners) - no less than AZN 50 million. Capital adequacy is the ratio of given loans (assets) to this capital. And this ratio is regulated, and the bank can not break it. Here, a special point is that when calculating this ratio, loans given by the bank are measured not just by the amount, but are multiplied by a certain coefficient.

This ratio contains the degree of risk. This means that each type of loan can have its own risk rate. So FIMSA increased the risk of consumer loan by its change, and on the contrary reduced the risk of business loan. Formally, as a result, consumer loans will have a more negative impact on the adequacy of the bank. Precisely that’s why after this banks allegedly will be interested in giving large business loans. The question immediately arises: does reduction of the risk rate on business loans automatically make these loans less risky? Of course not! It turns out that FIMSA is clearly pushing banks to more risky activities, encouraging them to violate capital requirements and give more business loans. Is that the purpose of banking supervision? After all, as a result, the situation of banks may worsen! But that's not even the most important thing!..

By Elmir Murad

 

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