Role of Azerbaijani banking sector as financial mediator to be increased in 2011

Business Materials 3 January 2011 12:58

Azerbaijan, Baku, Jan. 3 / Trend N. Ismayilova /

Taking into account the challenges of the post-crisis period, the Azerbaijani Central Bank (CBA) intends to strengthen its activity to ensure financial stability in the banking sector in 2011, the CBA statement  said.

A strategic goal for the central bank is to ensure the active role of the financial system in the process of economic diversification in the long term period.

CBA plans to implement the following goals: preservation of capital adequacy, maintaining the optimal level of liquidity, restructuring to ensure financial stability in the banking sector in 2011.

The measures on regulating and supervising will be directed to ensure the optimal balance between stability and growth in 2011.

It is important for the banking sector to be based on a stable and sustainable sources of growth in the post-crisis period. This is a necessary condition for using financial resources for a strong and long-term economic development. It is necessary to increase the role of long-term storage of sources in the resource base of banks, including the capital market.

The CBA will continue to adapt the regulation and prudential supervision to new global challenges to ensure stable and safe development of the banking system.

The possibilities of using new tools recommended within the platform of Basel Committee will be assessed to increase the effectiveness of regulating risks, covered by micro-prudential supervision.

Forming the policy of reserving banking assets on the basis of a new countercyclical philosophy became more urgent after the last global financial crisis. Traditionally, the banks tend to the "pro-cyclical" behavior in their activities. It leads to a lack of required portfolio of reserving during the crisis. Developing the countercyclical approach is conditioned by the cautious behavior in the period of economic growth and stability during the crisis. Taking this into account, the CBA will use countercyclical mechanisms and dynamic reserving.

CBA plans to realize the following activities to ensure the management of capital, liquidity and credit risks at a safe level. "Leverage" (the tool linking the assets growth with an increase in capital) will be introduced in 2011 to give banks an additional push to capitalize, to use a conservative approach to the parameters of quality of capital, recommended within the Basel III to form the capital at the expense of more sustainable sources. The tools of the short-term liquidity management will be also introduced. The domestic institutional capacity of resistance to financial risks will be strengthened.

One of the priorities of the CBA activity will be stimulating of restructuring and privatization of the banking sector, as well as competition in the sector. One of the main conditions for increasing competition in the banking sector is to fully implement the function of the sector as a financial intermediary and improve financial and banking services.