Azernews.Az

The Central Bank of Azerbaijan is confident about the success of the capitalization process in the domestic banking sector, according to the CBA.

According to the decision of the CBA, adopted on July 25, the minimum total capital of existing banks, as well as the authorized capital of newly established banks, is to be increased from the current 10 million manats ($12.7 million), to 50 million manats ($63.7 million). The decision will come into force from January 2014.

Most experts, including those of international ratings agency Moody's, expect a significant reduction in the number of players in the banking system of Azerbaijan. The analysts believe that the central bank's decision is intended to ensure that shareholders support their banks, which indirectly affects the pace of consolidation in the domestic banking market.

Research shows that the potential of the banking sector to adapt to this process is high as the capital of most local banks has already exceeded the 50 million manat mark, the CBA said.

The central bank will regularly monitor the capitalization process and assist the banks in meeting the requirement on capital.

The CBA said the new requirement will ensure strengthening of the banks' capital position, increase the quality of capital and effectiveness of financial intermediation, promote the banking sector's financial stability, increase development of the corporate governance system and the protection of investor interests.

"Better capitalization along with an increase of the [banking] sector's resistance to possible shocks... will enable the presentation of various and cheaper products by the banks. This will strengthen the sector's effectiveness and concurrency potential, which will serve the purpose of increase and diversification of the economy and development of the financial sector," the CBA said.

43 banks are currently operating in Azerbaijan. Over 90 percent of the banking market in the country is made up by banks within the top twenty.