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Azerbaijani banks to calculate capital and its adequacy under new rules

Business Materials 6 August 2012 15:01 (UTC +04:00)

Azerbaijan, Baku, Aug. 6 / Trend I.Khalilova /

Central Bank of Azerbaijan (CBA) prepared for the banking sector new rules for calculating capital of the bank and its adequacy, according to which banks must keep the total capital adequacy ratio at a level not exceeding 12 percent, and capital adequacy ratio Tier I - six per cent. The draft rules, including the structure of the aggregate capital and the calculation formula have been presented for discussion by the banks.

The structure of the aggregate bank capital includes the Tier I and Tier II capital. Tier I capital is core capital of the bank and its amount should not be less than 50 percent of total capital.

Tier I Capital consists of the following components - the outstanding and fully paid ordinary shares and non-cumulative perpetual permanent stock, surplus capital, retained from the previous year's net profit, capital of minority shareholders in consolidated subsidiaries of the bank.

Tier II capital, which is considered an additional capital, counts profit for the current year, total reserves (up to 1.25 per cent of the risk of balance sheet assets and off-balance sheet commitments, but not exceeding the sum of simple reserves, cumulative permanent preferred stock, subordinated debt, issued until at least five years). The amount of subordinated debt taking into account when calculating Tier II capital, shall not be greater than 50 percent of Tier I capital, and the part exceeding this amount is not taken into account when calculating the total capital.

The amount of Tier II capital in total capital of the bank should not exceed Tier I capital.

Inclusion in the banking capital of the securities issued by bank and funds raised from other similar hybrid financial instruments is allowed with the permission of the Central Bank. For inclusion of these obligations in the capital, they must meet at least the following criteria: inability to recall at the request of creditors, the existence of the bank's right to deferment of interest payments on these instruments, the implementation of obligations under these instruments, in case of liquidation of the bank, only after the complete fulfillment of all other creditors' claims, insecurity by bank to perform its obligations under these instruments in any form, the right to delay implementation of obligations under these instruments, if the bank's capital adequacy is below the minimum level of CBA.

The minimum requirement of the CBA to the aggregate bank capital is 10 million manat, and from January 1, 2014 it will reach 50 million manat.

The official exchange rate is 0.7855 AZN to $1 on Aug. 6.

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