By Decision No. 32/1 of the Board of the Central Bank of the Republic of Azerbaijan dated August 1, 2022, changes in the “Rules for calculating bank capital and its adequacy” were approved and entered into force on August 16, 2022.
These changes envisage new requirements for strengthening the financial stability of the banking sector as a whole, including ensuring responsible and healthier lending, preventing over-indebtedness of the population, protecting borrowers from potential currency risk and stimulating the domestic interbank market.
Recently, activity has been observed in the segment of consumer lending. In the 6 months of the current year, the consumer loan portfolio of banks increased by 14.9%. Taking into account the above, the risk groups of consumer loans given to borrowers whose debt-to-income ratio (BGN) is above 45% but does not exceed 70% have been increased by 50% in order to ensure responsible and healthy lending, including the prevention of over-indebtedness of the population. The analysis shows that 21% of the portfolio of consumer loans is made up of loans with a BGN ratio of 45-70%. In addition, in order to ensure the reducing effect of the new prudential requirements on consumer loans on interest rates, the ratio criterion and risk groups of consumer loans whose interest rate is higher than the average interest rate of the sector have been tightened.
In recent years, dedollarization trends have been observed in the business portfolio of banks. However, the analysis shows that business entities without income in foreign currency are interested in business loans in foreign currency. In order to protect borrowers from potential currency risk, the risk group of business loans granted in foreign currency to unhedged borrowers (borrowers who do not have income in foreign currency or are not insured against currency risk) has been increased from 120% to 200%.
In order to stimulate the domestic interbank market, the risk groups of short-term local interbank requirements have been softened.
In addition to the above, regulatory approaches have been relaxed in a number of areas where the risk level is considered low.
In general, the new changes will ensure and strengthen the financial stability of the banking sector against the background of gradually increasing economic activity in the post-pandemic period, as well as prevent over-indebting of the population, as well as protect borrowers from currency risk and develop the interbank market.
More detailed information about the events can be found through the link –