NBA Launches Introduction of 2 Elements of Basel-2 Standard into Azerbaijan’s Banking System
Azerbaijan, Baku/ Trend , corr. I. Khalilova/ The National Bank of Azerbaijan (NBA) has devised a strategy to introduce the new standards of "Basel-2" into the banking sector of the Country, a source in the NBA says. According to the recently conducted appraisal of the Country's banking system, the effect the new standards may have on the system was determined. The NBA has decided to introduce the second and third element to the banking system, out of the three available.
The first element envisages the agreement on capital, the second - requirement to the current supervision (on governance of capital), and the third - market disciplines (information disclosure). "Due to the introduction of the second and third elements of "Basel-2", we have our own elaborations, and we are expected to make some amendments to the regulatory base, as well as determine new requirements to banks operating in the country," said the NBA representative.
According to the first element, the appraisal of banks is underway, and its introduction is not only linked with the banking sector. It also has a more extended question of whether the economy has been prepared for it as a whole, as not only the NBA's participation in it was required. The NBA has not made any definite decisions at the time of full transition to "Basel-2". Due to the difficulty of the transition to the new standards, even the U.S.A. has postponed it from 2007 to 2009. However, the NBA suggests that Azerbaijan may introduce the second and third elements into its banking system.
On introducing the second element (on governance of capital), NBA establishes requirements to the policy on governing capital, but the regulations remain unchanged as of yet. Even when changing to "Basel-2", the regulations will be kept, but the requirements to changing capital will be changed.
"Basel-2" Standards are a special method on appraising risks for counting capital. Every year, the E.U. and other countries delay full transition to "Basel-2", since they appraise macro prudential indicators, and see that the rapid transition to the mentioned standards might impact the level of financial services (qualitative and quantitative indicators), and that, in turn, may cause a reduction of financial services in the real sector resulting in slowing economic growth.