On May 17, the Central Bank released information about the cancellation of the license of Gunay Bank OJSC and the appointment of a temporary administrator. The information states that this decision was taken due to the fact that the total capital of the bank is less than the minimum amount determined for banks and the adequacy ratio of the total capital is less than 3 percent. The closure of another bank in the country has led to discussions about how to protect bank deposits.
Fakt Yoxla analyzed the current situation regarding the protection of bank deposits in the country.
The legal basis of the deposit insurance process in Azerbaijan is the Law of the Republic of Azerbaijan on Deposit Insurance. According to this law, "the goal of creating a deposit insurance system is to prevent the risk of loss of funds deposited from individuals when local branches of banks and foreign banks become insolvent, and to ensure the stability and development of the financial and banking system."
According to the current law, deposits of individuals in banks up to 100,000 manats are considered protected deposits. If the amount of the deposit exceeds 100,000 manats, then its part up to 100,000 manats is insured. If deposits are kept in foreign currency, the amount of protection for them is up to the equivalent of 100,000 manats. In order to protect savings, deposits in manat should be placed with a maximum annual return of 12 percent, and foreign currency deposits with a maximum annual return of 2.5 percent.
In addition to natural persons, the legislation provides for the protection of funds of persons engaged in entrepreneurial activity as a natural person. So, funds up to 20,000 manats in bank accounts opened by natural persons in connection with entrepreneurial activity are classified as protected deposits.
The Law on Deposit Insurance states that the following deposits are not protected even if they meet the above conditions:
- deposits attracted by branches of the bank opened outside the territory of the Republic of Azerbaijan;
- deposits determined in accordance with the law as a result of suspicious operations related to the legalization of money or other property obtained through crime and the financing of terrorism;
- deposits confirmed by a court decision as a result of the commission of a crime;
- impounded deposits;
- funds of natural persons under the bank's proxy management.
From this point of view, it is clear that although the bank deposits of natural persons and persons engaged in entrepreneurial activities as natural persons are protected within the defined limit, funds in banks of legal entities, i.e. companies, are not protected. According to the latest information from the Central Bank, by the end of the first quarter of this year, 63.3% (20.2 billion manats) of the total deposit portfolio in Azerbaijani banks consists of deposits of legal entities and 36.7% (11.7 billion manats) of natural persons.
It should also be noted that before 2015, when devaluations took place and the country's banking sector suffered serious damage, there were 44 banks operating in the country. After the closure of Gunay Bank, this number has now reached 24. That is, the number of banks operating in the country has decreased by 45% over the past 9 years. In this regard, the experience of returning deposits in banks closed in previous years is also of interest.
Before Gunay Bank, the last time the Central Bank canceled the banking license was registered in April 2020. At that time, by the decision of the Board of Directors of the Central Bank dated April 27, 2020, temporary administrators were appointed to four banks - AtaBank, AGBank, NBC Bank, and Amrah Bank. Within a few days, the licenses of these banks were canceled. The Deposit Insurance Fund has started paying compensations for deposits in these banks since June.
In other words, payments began to be made approximately 1 month after the closure of the mentioned banks. Repayment of these deposits took about 6 months, and at the end of December 2020, the Mortgage and Credit Guarantee Fund announced that the compensation to citizens whose funds remained in the closed banks was about to be finalized.
An official of the Mortgage and Credit Guarantee Fund said in a statement to the press in March of this year that 5 billion manat compensation was paid to depositors with funds in banks closed in Azerbaijan and 54,000 depositors received compensation. The fund fulfilled 99% of its obligations. Up to 1% of the protected deposits of the closed banks remain uncompensated deposits whose owners are abroad or did not apply to the fund for other valid reasons.