Page 20 - Azerbaijan State University of Economics

Murad Y. Yusıfov: Econometrıc Assessment Of Optımal Interest Burden: Case Study For Azerbaıjan

There are numerous articles in the economic literature on the topics of behavioural

biases. Of course, it is important to keep in mind that people's tastes, feelings,

thoughts, and views on the life are different. These differences are reflected in the
rational and irrational economic behaviour of people.

The stochasticity of behaviour deviates the economic factors from this optimal level.
As there is not a probability distribution of uncertain events, uncertainties require
economic entities to be more prudent and rational in their financial behaviour. In this
paper, the issues of optimality that maximize the profits of the banking sector, as well
as tax revenues are considered.

Of course, as in the rest of the world, the effects of the pandemic in Azerbaijan have
had a certain impact on the economy. In order to reduce the possible negative impact
of the Coronavirus (COVID-19) pandemic on the banking sector of the Republic of
Azerbaijan, the Central Bank of Azerbaijan has approved the "Rules for Temporary
Regulation of Credit Institutions in the Coronavirus (COVID-19) Pandemic". It
defines the classification and risk groups, capital adequacy ratio and its calculation
rules in order to reduce the possible negative impact of the coronavirus (COVID-19)
pandemic and consequently, sharp fluctuations in world energy and stock markets on
the banking sector of the Republic of Azerbaijan. In the context of the pandemic, the
adoption of a temporary tax regime, the reduction of the tax burden, the granting of
deferrals for the payment of taxes are important measures taken in this direction.

Defining a level of optimal interest burden that provides the maximum level of
profitability of banking sector and tax revenues assume an importance for
harmonizing the development of fiscal and monetary policies. In this regards it is
important to consider the difference between these interest burdens as far as possible
within the framework of optimality. Our task in this paper is to determine the optimal
interest burden that gives the maximum level of profitability of banking sector and tax
revenues in Azerbaijan. Our goal in this article is to determine the optimal level of
interest burden on bank loans that maximizes bank’s profits as well as tax revenues.

LITERATURE REVIEW
Theoretically, an increase in the interest burden increases banks' interest income in
profit and loss statements, and as a result, interest income accrued during the period
increases the bank's profit accordingly. The interest burden affects the amount of
household`s consumption. The negative correlation between interest burden and
consumption growth shows that higher interest burden bears higher macroeconomic
risk (Kjersti, 2016).

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