Baku, Azerbaijan, Oct. 4
By Anvar Mammadov – Trend:
Azerbaijan plans to introduce CAMELS model for calculating the amount of insurance premiums based on risks, according to the monitoring report on the implementation of measures reflected in the Strategic Road Map for the Development of Financial Services.
This step is planned within the framework of improving the mechanism of deposit insurance, according to the report.
“A primary CAMELS model was developed to calculate the amount of insurance premiums based on risks,” said the report. “This will allow improving the mechanism of deposit insurance. The prepared model was presented for analysis of experts within the second phase of the Financial Sector Modernization project financed by the World Bank (WB).”
“In general, the experts positively assessed the application of the prepared model and gave their recommendations for its improvement,” the report said. “At the present, the relevant work is being carried out based on the recommendations received.”
The report also noted that the work has started in Azerbaijan on amending the law “On Insurance Deposits.” The draft amendments to the law are planned to be submitted for discussion at the autumn session of Azerbaijan’s Parliament.
CAMELS is a supervisory rating system originally developed in the US to classify a bank’s overall condition. It is applied to every bank and credit union in the US (approximately 8,000 institutions) and is also implemented outside the US by various banking supervisory regulators.
The ratings are assigned based on a ratio analysis of the financial statements, combined with on-site examinations made by a designated supervisory regulator. In the US these supervisory regulators include the Federal Reserve System, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Farm Credit Administration, and the Federal Deposit Insurance Corporation.
Ratings are not released to the public.
In February, the WB launched the second phase of the Financial Sector Modernization project with the support of the Swiss government. The main objectives of the project are to improve the legislative and regulatory environment of Azerbaijan’s financial sector in line with international standards, and the institutional development of the Financial Market Supervisory Authority.
Earlier, a source in the Azerbaijan Deposit Insurance Fund (ADIF) told Trend that if differentiated insurance premiums are imposed to banks, the uppermost limit of the interest rate for insured deposits will be cancelled.
"In that case, the amount of the insurance premium can be determined based on a bank’s rating, which is formed based on the assessment of its capital, profitability, liquidity, management and sensitivity to the market," the source added. "A number of countries evaluate banks on some additional criteria, but the abovementioned are the main ones. At the same time, the amount of insurance premiums differs in various countries, and if a bank applies a policy of high interest on deposits, this will affect the bank’s rating, and as a result, the bank will pay higher insurance premiums."
In accordance with the current legislation, the Fund’s member banks are obliged to pay the ADIF quarterly fees of 0.125 percent (0.5 percent per year) of the total volume of insured deposits they have.
Thus, ADIF annually receives about 30 million manats from the fees paid by its member banks.
ADIF has been operating since August 13, 2007. The uppermost limit of the interest rate for individuals’ insured deposits in foreign currency is 3 percent. The maximum interest rate for individuals’ manat deposits covered by insurance is 15 percent.