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Azerbaijan expects inflow of foreign investments in banks

17 December 2018 11:57 (UTC+04:00)
Azerbaijan expects inflow of foreign investments in banks

By Trend

Bringing Azerbaijani banks and regulations in this sector in line with the international financial reporting standards will make it possible to ensure an increase in foreign investments in the country’s banks, Zakir Kazimov, chairman of the committee on internal audit, accounting, taxes and reporting of the Azerbaijan Banks Association (ABA), said in an interview with ABA newspaper, Trend reports.

He said that thanks to this, foreign investors will trust the banking system of Azerbaijan and work freely.

In November 2018, the Azerbaijani Financial Market Supervisory Authority (FIMSA) made changes to a number of regulatory acts, including the rules for regulating credit risks regarding related borrowers, the rules for determining limits on open currency positions in banks, rules for calculating capital and its adequacy, and others, he added.

Kazimov noted that the new rules were adopted by the FIMSA after discussions with representatives of the banking sector and take into account their proposals. The regulator is in talks with market participants to amend the prudential regulations, he said.

He also commented on the “Rules for calculating capital in banks and its adequacy.”

Kazimov reminded that the adopted new rules provide for the allocation of systemically important banks in a separate category.

“According to the current rules, the tier 1 capital adequacy ratio should be 5 percent, and for aggregate capital this figure should be 10 percent,” he said. “The new rules of the FIMSA provide for more stringent requirements for systemically important banks. Thus, capital adequacy ratio requirements for such banks will increase every six months.”

For example, until June 1, 2019, the tier 1 capital adequacy ratio for systemically important banks must be at least 5 percent, and for aggregate capital at least 10 percent, he said. From June 1, 2019, these figures should be 5.5 and 11 percent, respectively, and from January 1, 2020 - 6 and 12 percent, respectively, he noted.

For ordinary banks, these requirements won’t change and will amount to 5 percent for the tier 1 capital adequacy ratio, and 10 percent for the aggregate capital adequacy ratio, he said.

“It is important that banks have sufficient capital so that they can cover losses when they face them,” he added.

Among other innovations, Kazimov mentioned a different approach to lending to related parties. Thus, if earlier banks had to classify these loans as investments and deduct this amount from capital, now the FIMSA has abolished this rule, he said.

“The FIMSA discussed this issue with the banks, and they asked that loans issued to related persons not be deducted from capital,” he noted. “The regulator agreed with this approach. We studied international experience - the Basel Committee has recommendations in this regard, but no strict rules. At the same time, there is no such practice in other countries as well.”

Kazimov stressed that if the rules related to banking activities in Azerbaijan are closer to the requirements of the Basel Committee, countries that adhere to the same principles will be more willing to cooperate with Azerbaijan and invest their funds.

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