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Azerbaijani central bank: High capitalisation of banks to limit financial sector risks

Business Materials 25 September 2012 12:33 (UTC +04:00)

Azerbaijan, Baku, Sept. 25 / Trend A. Akhundov /

Increasing the level of the total capital of the Azerbaijani banking sector will ensure adequate immunisation compared to the external risks and possible global impact, the Central Bank of Azerbaijan (CBA) told Trend on Monday.

According to the CBA board's decision dated July 25, the minimum total capital of existing banks and the authorised capital of newly established banks increased from the current 10 million manat ($12.7 million) to 50 million manat ($63.7 million). The new requirement for the capitalisation of the existing banks will come into force from January 1, 2014.

"Intensifying financial mediation and improving the quality of services at a new stage of developing the banking sector, compliance with global challenges related to capitalisation and strengthening the financial sustainability of the sector are the key factors in the recent decision related to the new capital requirements," the central bank spokesperson said.

In general, this decision must be considered as part of the concept of long term development of the local banking sector in the context of global challenges.

"In the past, the banking sector has grown significantly both in terms of volume and quality," the CBA said. "In this context, a more advanced, stable and efficient banking sector will support the continued economic growth."

Global challenges had an impact on a new strategy for capitalisation.

"The new challenges were formed as a result of the last global financial crisis around the world faced by financial institutions, financial supervisory bodies and governments," the bank said. "The need for fundamental reforms occurred in the architecture of the financial system.

The arrangements were made at an international level to increase the quantity and quality of capital requirements of financial institutions to maintain financial stability. The latest crisis also showed that high capitalisation may limit the risks of the national financial sector and support the extension of the economic cycle."

According to the report, at present, the most important issue on the agenda of the financial supervisory bodies at the global level is the implementation of the agreements on capitalisation.

"The Azerbaijani Central Bank has always considered the global challenges and in particular the issues of capitalisation with great sensitivity," the CBA said. "The CBA's attention to the composition and quality of the components of bank capital, the use of an individual approach to the assessment of risk and capital adequacy of each bank and the bank capitalisation programme implemented through tax incentives and other support measures, allowed the Azerbaijani banking system to overcome the financial crisis of 2008-2009 without losses."

There are 43 banks in Azerbaijan.

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