Central Bank of Azerbaijan talks priorities of financial stability policy for 2022

Finance Materials 4 January 2022 11:21 (UTC +04:00)
Central Bank of Azerbaijan talks priorities of financial stability policy for 2022

BAKU, Azerbaijan, Jan. 4


The Central Bank of Azerbaijan (CBA) has announced the priorities of the financial stability policy for 2022, Trend reports referring to the CBA.

According to the bank, next year its policy in the financial sector will focus on maintaining financial stability, supporting businesses by expanding financial intermediation and deepening financial and capital markets. All the activities will enhance the role of the financial sector in economic growth.

Work will also continue to increase the use of digitalization and the infrastructure of a modern payment system, the bank further said.

Besides, according to the CBA, the main direction of policy and reforms for 2022 to ensure financial stability will be, first of all, the continuation of the process of bringing the system of prudential regulation and supervision of the banking sector in line with international standards (Basel II, Basel III).

“Strengthening the management of banks and bringing them in line with international standards will be encouraged, including developing corporate governance capacity, strengthening risk management systems, and developing human resources,” the CBA noted. “Work will also continue to facilitate access to bank loans for enterprises to bank loans.”

“In order to increase financial inclusion and depth in the country, it is necessary to continue to promote supply-side factors, including improving the effectiveness of the lender protection system, providing long-term sources of financing, and improving risk transfer and distribution mechanisms,” the CBA stated.

“To increase healthy demand for loans by stimulating demand, first of all, it’s necessary to accelerate the exit from the informal economy and transparency, improve corporate governance in business societies, and develop independent accounting and audit institutions,” the bank emphasized.

Besides, the development of agency banking will also help expand access to financial services in the country and improve the quality of financial services. Work will continue on the formation of a regulatory framework for the development of alternative financing.

The strategy of gradual transition to Solvency 2 standards will continue to be implemented to bring the insurance regulatory framework in line with international principles and advanced standards.

Measures will also be taken to develop human resources and management potential in the insurance sector, form a consumer protection system in accordance with international best practices, develop the sector's market infrastructure, digitize the insurance sector and form various digital services.

“However, insurance literacy advocacy will continue on a broader and more intense scale,” the CBA added.

Cooperation with international financial institutions will continue to improve the legal framework and operational infrastructure of the capital market, as well as to remove barriers in the ecosystem that limit effective financing of the capital market. Measures will be taken to bring the control system and corporate governance of investment companies in line with international standards.

Moreover, work will continue to promote the activities of investment funds in order to improve financial intermediation in the capital market and create opportunities for banks to directly participate in the capital market.

In order to develop the infrastructure of the capital market, it’s planned to create a centralized trading and depository system and automate the process of issuing securities.

Measures will be taken to create a mechanism to guarantee and subsidize corporate bonds issued by small and medium-sized enterprises (SMEs) in order to encourage financing in the capital market.

Besides, measures will also be taken to ensure the Central Bank's privileged membership in IOSCO (International Organization of Securities Commissions), maintain ties with global custodians to expand access of foreign investors to capital markets, bring the regulatory framework for financial derivatives in line with international standards, and raise awareness of companies and the public representatives.

Ensuring the safe, uninterrupted and sustainable operation of the national payment system will be one of the top priorities in 2022. It’s planned to increase the efficiency and effectiveness of the mutual exchange of information in the financial infrastructure, including the full application of the international standard ISO20022.

As part of the application of international standards for the development of innovative non-cash payments, it’s planned to apply API standards to the open banking model. The issue of strengthening the level of cybersecurity of the payment infrastructure will also be considered.

Measures will be taken to improve the institutional environment in order to create a competitive, innovative and affordable payment environment, develop a digital ecosystem and expand the scope of digital payments. These measures include expanding the ability to receive fares on public transport in cities and regions using innovative payment instruments (bank cards and mobile banking solutions), expanding the coverage of POS terminals in business entities, projects to create opportunities for obtaining payment solutions using a QR code, where POS terminals cannot be installed, are underway.

Measures will also be taken to improve financial literacy in the field of digital payments, encourage the active use of digital payment services by businesses and the public, and strengthen human resources in this area.

Given the importance of the future development of the fast payment system for monetary policy and financial intermediation, the assessment of the medium-term application of the Central Bank's digital currency (MBRV) will continue in:

I. policy for the introduction of digital currency;

II. involvement of stakeholders in the process;

III. formation of the legal framework;

IV. the possibility of using new generation technologies;

V. level of market readiness.

Concept documents related to MBRV will be presented publicly and in detail.

In 2022, monetary policy will be aimed at ensuring macroeconomic and financial stability in the national economy, primarily at approaching the inflation target, strengthening the role of the financial sector in economic development, and reforming the national economy in the monetary-lending and financial sectors.

The implementation of these goals will largely depend on the effectiveness of coordination between the institutions of macroeconomic policy, concluded the CBA.