Tightening capital requirements for banks in Azerbaijan to improve system stability

Azerbaijan, Baku, 6 November / corr. Trend A.Akhundov /

By tightening capitalization requirements for banks in Azerbaijan, the stability of the banking system will significantly improve, Chairman of VTB Bank Board (Azerbaijan), Alexander Yeremin stated.

According to CBA Board decision as of July 25, the requirement to the minimum total capital of existing banks and the capital of newly established banks increased from the current 10 million manat to 50 million manat. The new regulation for the minimum total capital of existing banks will take effect on January 1, 2014.

"This will certainly lead to increased stability of the system. Banks themselves will be more reliable, and it will be easier for the regulator to control a smaller number of banks. The larger the domestic banking market players are, the more they are attractive to the international financial institutions and investors, which should positively affect the dynamics of foreign investment flow in the banking system of Azerbaijan ," Yeremin told Trend

In addition, he said, 50 million manat is quite a large sum for many Azerbaijani banks, which will be difficult to maintain.

"Each country chooses its own path of developing the financial system. Azerbaijan follows the path of strict and consistent regulation of the banking sector. Thanks to this policy during difficult crisis period the financial system of Azerbaijan was one of the strongest in the former Soviet area. This is a great achievement and success of the regulator. The decision on a substantial increase in the minimum total capital of banks is also a logical continuation of this policy, "Yeremin said.

Many experts, including the international rating agency Moody's Investors Service are expecting serious reduction of the number of participants in the banking market of Azerbaijan.

"According to Moody's, the expected decline in the number of banks from the current 43 to 20 is quite substantial. 20 banks is a small figure for nine million people. In most countries, the figure is higher. In terms of control and stability of the system, reducing the number of players and their consolidation is very good, however, from the point of view of competition, and coverage of all the market niches it's bad. Small banks will be particularly 'hurt', they will have to either be sold or to unite in a very short time. If half of the Azerbaijani banks will simultaneously be set for sale and it will become a bulk sale, the price for these banks will be very low. The owners of small banks will be forced to suffer a loss, "Yeremin said.

According to him, unification of banks is a complicated process.

"Probably, the remaining one year is a short period for unification, which is confirmed by international practice," Yeremin said.

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