Study of Small and Medium Enterprises in Azerbaijan - IFC

Case study of a Baku-based glass and window manufacturing business obtained
through an in-depth interview held in July 2008.
Loan granting process is regulated by the internal regulations of commercial banks
and relevant legal requirements of the National Bank.
There are a number of reasons why the banks impose such rigid conditions on lending:
8.2.2 The majority of banks cannot attract long-term low-cost
resources for subsequent SME refinancing
Banks in Azerbaijan are operating in complex financial market conditions and need
to offer high returns in order to attract deposits from individuals and legal entities
(see Table 8.2).
Table 8.2 Conditions (terms & interest rates) for deposits by commercial banks in Azerbaijan
(data from the NBA Annual Report 2007)
Average interest
rates %
Legal entities
Individual
persons
Up to 1 mo.
1-3 mo.
3-6 mo.
6-9 mo.
9-12 mo.
12-60 mo.
Interest rate for deposit in local
currency, %
Interest rate for deposit in dollars
or euros, %
11.4 9.7 12.5 7.3 8.6 9.5 9.9 12.1 12.8
12.2 7.7 12.5 7.1 6.9 9.5 11.2 12.2 13.3
Taking into account the bank’s margin, this rate is reflected in the interest rates of the
credits offered.
8.2.3 SME operations are often not transparent, which force
banks to incorporate the possible risks into the credit cost
According to the survey data, 25 percent of the enterprises conducts one third of their
business in “shadow” operations (see Chart 8.12).
Chart 8.12
One quarter of
companies are
hiding about 30
percent of their
revenues
Enterpises’ turnover transparency
25%
The share of revenues hidden from
taxation equals to 30%
75%
Hide turnover
Do not hide turnover
Aze r b a i j a n Bu s i n e s s En a b l i n g En v i r o n m e n t Pr o j e c t 133