The rate of year-on-year growth in consumer lending slowed in January-May.

The total stock of domestic credit to the private sector expanded by an average of 25.7% year on year in January-May, virtually unchanged from the 2013 average. However, the rate of growth of unsecured consumer loans has slowed significantly, with the total stock of consumer loans expanding by 33% year on year in May, down from 47% in December.

Consumer lending rose on average by Manat90m (US$115m) per month in January-May, down from an average of Manat140m per month in 2013. This follows guidance issued in January 2013 by the Central Bank of Azerbaijan (CBA), instructing financial organisations to tighten lending criteria for unsecured consumer loans.

Mortgage lending continued to grow strongly, with the total stock of loans expanding by 27% in May, although it continues to account for a small share of total lending. Financing to the construction industry has fallen markedly following a boom in 2013, when the stock of lending to the sector expanded by 85%. 

In May 2014 loans had grown by just 6.8% year on year. This has been reflected in preliminary GDP figures, with the construction sector expanding by 9.6% year on year in real terms in January-May, down from 23% in 2013 and a long-term average of around 15%.

The rapid growth of credit to consumers and construction was one of the factors underpinning the strong performance of the non-oil sector in 2013. The tightening of lending conditions since January is likely to weigh on household consumption this year.

With government expenditure projected to rise by less than 4% year on year, investment is likely to be the main source of domestic demand in 2014. This has also been reflected in the inflation figures to date this year, with consumer prices rising by just 1.2% year on year in May, down from an average of 2.5% in 2013 as a whole.

(Economic Intelligence Unit)

Bakudaily.az