New requirements for bank capital in Azerbaijan will accelerate the Basel-III recommendations of the Basel Committee on Banking Supervision, the Azerbaijani Central Bank (CBA) told Trend on Monday.
According to the CBA board's decision dated July 25, the minimum total capital of existing banks and authorised capital of newly established banks increased from the current 10 million manat ($12.7 million) to 50 million manat ($63.7 million). The new requirement for the capitalisation of the existing banks will come into force from January 1, 2014.
"The new capital requirements will also support the execution of a new set of Basel-III recommendations," the CBA said. "A leverage ratio which is one of the main tools for the protection and most important innovations of Basel-III has been successfully used in Azerbaijan since 2011. Moreover, the CBA relevant rules were amended whilst improving and enhancing the quality of the bank capital structure."
A minimum rate of the leverage ratio is set at eight per cent. As of late June, the leverage ratio in the banking system was 10.2 per cent. As of July 2011, this figure was 11.1 per cent.
According to the CBA, the issue of increasing the adequacy ratio will be discussed within the road map recommended by the Basel Committee. The capital adequacy of the Azerbaijani banking sector exceeds the minimum limit (12 per cent), set by the Central Bank, amounting to 14.2 per cent as of July 1, 2012.
"Another question in the context of financial sustainability of the sector is associated with liquidity," the CBA said. "The opportunities of using two new tools recommended by the Basel Committee were evaluated. Though the liquidity coverage ratio has the same meaning as the instant liquidity ratio used in Azerbaijan, having a purpose of regulating short term liquidity, it is a more complex and sophisticated tool. This ratio was checked by us. The prospects of its application were discussed with the banking community."
In subsequent periods, the Central Bank is planning to use this ratio in the status of the regulatory requirement.
"Regarding the stable funding ratio designed for the regulation of long term liquidity, the tool is still a subject of discussion at a global level and must pass a significant test period," the CBA said. "Taking into account the prospects of a negative impact of this ratio within the balance between the policies of financial stability and long term financing of economic growth in the country, the CBA has decided to revise it in the future."
As of July 1, 2012,the instant liquidity ratio was 73 per cent (with a minimum limit of 30 per cent). The average daily balance of high liquid assets during January-June increased by 226.1 million (11 per cent) and hit 2.275.2 billion manat.