OREANDA-NEWS. November 26, 2013. The Management Board of the Central Bank of the Republic of Azerbaijan decided to shift the minimum capital requirement for operating and newly launched banks up to AZN 50 million on 25 July 2012 with the view of deepening banking sector’s financial stability and sustainability, and amplifying banks’ financial intermediation and capacity to support the real sector, particularly the non-oil sector.

Deadline for adjustment to the new capital requirement was 1 January 2014. Over the period banks’ capital position and plans were intensely supervised.

After the global financial crisis international financial institutions also recommended to considerably raise the capital requirement to strengthen financial stability and sustainability of banks and financial institutions. Capital is the key in banks’ financial intermediation along with being the critical indicator of how sustained banks are.

As of today the CBA has strategically attained the banks’ capitalization-related target, they boosted the quality and the scale of their capital. Over the past 15 months banks’ aggregate capital climbed 48% or AZN 1 billion and reached AZN 3,2 billion, while before it took the banking sector over 4 years to build up their capital by AZN 1 billion.

Estimates suggest that by the end-2013 the scale of capital of banks owning 95% of banking sector assets and 96% of deposits of the population will surpass AZN 50 million. Upon the capitalization-related decision, the number of private banks with over AZN 100 million capital doubled and hit 8.

Capital adequacy of the banking system gained 3 p.p. and reached 17.3%. This indicator exceeds international standards 2 times, while the CBA threshold 5 p.p..

With the successful adaptation to the new capital requirement banks displayed their attractiveness for investment, confidence in the sector, the capacity for financial stability and sustainability. The new capitalization level hugely broadened banks’ capacity to credit the economy, including the real sector and the population and ensure them with financial services. At the same time it will contribute to reduction in cost of bank services and products through elevating competition in the banking sector and using the scale effect.

Albeit available capitalization capacity, banks with 5% share in banking sector assets need additional timing to meet the capital requirement.

Given the above, as well as with an eye to secure funds of creditors and depositors and to maintain overall financial stability of the banking sector, the Management Board of the Central Bank took a decision on 14 November 2013 to extend the deadline for the new capital requirement until 1 January 2015.

To this effect, the banks, currently maintaining less than AZN 50 million capital, are assigned to once again refine their capitalization plans for the supplementary period by the yearend and submit to the Central Bank.