Azernews.Az

By Gulgiz Dadashova

The Board of Directors of the Central Bank of Azerbaijan (CBA) has taken a radical decision over the implementation of its direction on increasing capital requirement for the commercial banks giving additional time.

The CBA reports that despite the potential for capitalization, banks that hold five percent of the assets of the entire banking sector need time to comply with requirement for continuing capital increasing.

These banks were instructed to revise plans for capitalization during the additional grace period, and submit it to the Central Bank by late 2013.

CBA Chairman Elman Rustamov said that on November 14, the CBA Board of Directors discussed the process of implementing its direction on the increase of capital requirement for the commercial banks.

"The analysis showed that the commercial banks that form 95 percent of Azerbaijan's bank assets would fulfill the requirement on increasing the aggregate capital up to no less that 50 million manat. It's unlikely that the banks that form 5 percent of the assets will be able to fulfill this requirement by January 1, 2014. Therefore, to protect the rights of the depositors, debtors and creditors the CBA Board of Directors has made a decision to grant additional time and wait till the end of 2014 for those banks that are unable to fulfill the new capital requirement in due time. Until the next year, we expect those banks with capital shortage to fulfill our capital requirement by increasing their capital, performing consolidation process, or transforming into credit institutions of lower levels," Rustamov said.

Azerbaijani banks are required to have a total capital of no less than 10 million manats (over $12.7 million). However, the new requirements of the CBA will take effect from January 1, 2014, after which the total capital should be at least 50 million manats.

In general, the CBA has identified the following development options for the banks: capitalization, consolidation, or conversion into NBCOs or going out of business.

Rustamov went on to note that the Central Bank does not intend to remove the commercial banks that face capital shortfall from the market or create hurdles for their activities.

"However, this does not mean that banks can relax. They need to work and grow," Rustamov said .

According to him, the requirement for capitalization was a response to the developments that occurred amid the global economic crisis.

"Other countries also took such precedents to protect themselves," he said.

Currently, eight banks have capital exceeding 100 million manat. The capital adequacy ratio of the banking sector in Azerbaijan is 17 percent. This is twice the requirement of international standards, and is higher by five percentage points than the minimum standard set by the CBA, Rustamov said.

Since the announcement of the new regulatory capital requirements to banks 15 months ago, the total amount of the bank capital increased by 48 percent (one billion manat), reaching 3.2 billion manat, the CBA report issued on November 15 reads.

Previously, the capitalization of the banking sector in the country for one billion manat took more than four years.

According to the analyses, the capital of banks that cover 95 percent of assets and 96 percent of deposits in the banking sector will exceed 50 million manat by late 2013.

"Banks' successful adaptation to the new requirements once again confirmed the investment attractiveness of the sector, its credibility, potential financial stability, and sustainability," the report reads.

"A new level of capitalization has greatly expanded the ability of banks to provide credit and financial services to the economy, including the real sector, and the public. Also, as a result of the increasing competition in the banking sector, it will play an important role in reducing the cost of banking services and products. "

43 banks operate in Azerbaijan.