Rising interest rates on loans: causes and consequences

Consumer loans have become more expensive in Azerbaijan again. The rise in interest rates is causing concern among both specialists and ordinary citizens.

Economist Rashad Hasanov explains the situation as follows: banks are actively expanding their loan portfolios, and the Central Bank is responding by increasing the cost of borrowing. This directly affects the final rates that borrowers face.

"Since the end of 2023, deposit rates have begun to rise sharply. If previously deposits in manats yielded 5-6%, and in foreign currency - only 1-2%, now rates reach up to 12% for manats and more than 6% in foreign currency," says Hasanov.

Deputy and economist Vugar Bayramov adds: the increase in deposit rates within 4% allowed banks to raise loan rates as well - depending on the type of loan, up to 5%. As a result, loans have become more expensive, and along with this, the number of overdue payments has increased and mortgages have become more expensive.

"Expensive loans are bad news for business. When companies take loans at high interest rates, their expenses and production costs increase. This slows down the development of local production," emphasizes Bayramov.

There is another problem - the payment scheme. According to the deputy, in the first months, banks mainly write off interest, not the principal debt. As a result, even if the borrower decides to repay the loan early, after a year they will find that the principal amount has hardly decreased.

Bayramov believes that the rules need to be revised: "It is important to implement recommendations that balance the payment of interest and principal. This will help protect the rights of borrowers."

More details in the Xəzər Xəbər report.