IMF recommends Central Bank of Azerbaijan to transit to consolidated supervision, strengthen financial security

Azerbaijan's banking sector remains resilient, as reflected in strong capital adequacy and profitability ratios, Report informs referring to the International Monetary Fund (IMF).

"Nevertheless, high deposit and credit concentration and still elevated financial dollarization continue to present risks. The authorities should continue advancing Basel III adoption and implementing recommendations from the Financial Sector Assessment Program (FSAP), particularly in the following areas:

Reinforcing the resilience of D-SIBs. Staff welcomes recent regulations to implement Basel III capital requirements, including requiring additional D-SIB capital buffers linked to systemic risk bucket designation, and looks forward to its full implementation by January 2027.

Implementing a risk-based, consolidated supervision framework. The CBA should monitor the full-scale implementation of the risk-based supervision framework, which started in 2026, to ensure the ongoing adequacy of supervisory resources. Going forward, the CBA should implement consolidated supervision to enhance banking sector soundness.

Bolstering financial safety nets. Staff welcomes the approval of the recovery methodology and finalization of resolution plans for individual D-SIBs and looks forward to the passage of legal amendments that will strengthen the CBA"s resolution powers and deposit insurance.

Strengthening the emergency liquidity assistance (ELA) framework. The CBA is receiving technical assistance from the IMF and reviewing draft amendments to the laws and regulations. Implementation of the ELA reform package will strengthen the ability of the CBA to respond to liquidity stress in the banking sector," the IMF noted.