BAKU, Azerbaijan, March 6. The Financial Sector Development Strategy 2024-2026 focuses on five key pillars, including strengthening financial resilience. In this regard, the Central Bank of Azerbaijan (CBA) will prioritize aligning its regulatory framework with international best practices and implementing risk-based supervision, CBA Executive Director Shahin Mahmudzadesaid in an interview with Trend.
“The Central Bank's proactive supervisory measures, which include enhancing prudential requirements for risk-sensitive areas, fostering extensive dialogue with the sector, and modernizing the regulatory and supervisory framework, illustrate its initiatives in this regard,” Mahmudzade stated.
He noted that regulatory documents outlining the strategic vision for financial market oversight—including the macroprudential policy framework for the banking sector and the Policy on Risk-Based Supervision—have been approved. “To enhance the resilience of the banking industry and maintain lending activities, an additional counter-cyclical capital buffer of 0.5% will be imposed on banks' aggregate and Tier 1 capital, effective March 1, 2025,” he added.
In 2024, regulatory requirements for banking transactions will be strengthened, while the agent banking model will be introduced to expand financial access. “To enhance access to financial services for consumers and businesses, the agent banking model will be instituted, and regulatory measures will be established to mitigate the life insurance risks associated with consumer loans,” Mahmudzade said. Corporate governance norms and credit risk regulations for non-bank credit institutions (NBCIs) will also be enhanced.
On the insurance sector, he highlighted measures to strengthen corporate governance, insurance reserves, and catastrophic risk assessment. “Regulations concerning the composition and establishment of insurance reserves, the determination of reinsurers' shares in these reserves, and the assessment of reserves for catastrophic risks have been adopted,” he said. In addition, new standards for evaluating the systemic significance of insurers have been approved, and mandatory auto insurance regulations have been updated.
Mahmudzade reiterated that the CBA Board approved the Green Taxonomy on November 7, 2024, emphasizing its importance for sustainable development. “This document ensures a unified approach to environmentally sustainable economic activities, creating conditions for the systematic development of green finance and considering environmental aspects in financial markets,” he explained.
To support its implementation, the CBA has adopted guidelines for green and sustainability-related loans. “The adoption of these guidelines will support banks in forming a green loan portfolio based on the taxonomy,” he noted, adding that within COP29, the country’s banking sector has pledged 2 billion manat ($1.18 billion) by 2030 to finance sustainable projects. “The taxonomy is an important tool for realizing this commitment.”
Discussing private pension funds, Mahmudzade said inter-agency discussions are ongoing. “The Ministry of Labor and Social Protection of Population, the Ministry of Finance, the Ministry of Economy, the Central Bank, and the Ministry of Justice are the main executors of this measure,” he said. “The establishment of private pension funds will improve the investment climate in the country, create new financial institutions, form long-term financial instruments, and deepen financial markets. It will also strengthen financial security before retirement, improve social welfare, and help address challenges related to health and material security.”
Regarding remote lending, he emphasized steps taken to strengthen digital finance regulations. “Significant steps have been taken in the direction of digital transformation and improving access to financial services, including the provision of distance loans,” he noted. “The new requirements introduced in this context aim to strengthen customer authentication, apply remote identification methods, and ensure secure payment transactions.” He added that the CBA is developing new regulations to enhance consumer protection, transparency, and responsible lending, which will also apply to NBCIs.
Lastly, Mahmudzade addressed cybersecurity efforts, saying the CBA is implementing various initiatives to strengthen financial sector resilience. “In this context, the Requirements for Ensuring Information Security in Entities Under Supervision in Financial Markets have been adopted and are being implemented. These requirements aim to strengthen information security and cyber resilience in banks and other financial institutions.”
He also highlighted public awareness campaigns to prevent fraud. “It is important to raise awareness to prevent the public from falling victim to fraud and scams and to increase financial security. Various information channels and communication tools were used, and social media videos were prepared and broadcast,” he explained. “Additionally, the Central Bank is working closely with government agencies to continue these initiatives, with plans for webinars, training sessions, and educational materials on fraud prevention.”