17:39 - 9.04.2025

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April 9, Fineko/abc.az. The financial stability indicators of the banking sector in Azerbaijan remain strong, but some weaknesses are also present.

ABC.AZ reports that this assessment was made in the final statement for 2025 under Article IV of the International Monetary Fund's (IMF) Articles of Agreement.

The statement notes that the banking sector is generally resilient and sufficiently capitalized: "In particular, based on the results of stress tests conducted by the IMF, banks are able to maintain their financial positions under both baseline (normal) and adverse (crisis) scenarios. However, some banks, due to weak capital reserves, may violate regulatory minimum requirements in an adverse scenario."

Dollarization and large deposits are potential risk factors

The IMF stated that, due to the high share of the hydrocarbon sector in Azerbaijan's economy, there is a significant proportion of large corporate deposits in the banks' deposit portfolios. These deposits, especially those from large companies and vulnerable to economic shocks, could create liquidity risks in the banking system.

At the same time, although financial dollarization (i.e., the preference of the population and businesses for savings and loans in dollars) has decreased in recent years, it remains high. This increases the banking system's sensitivity to exchange rate fluctuations.

The rapid growth of consumer loans also poses a risk

Additionally, IMF experts note that the rapid growth of unsecured consumer loans in recent times increases cyclical financial risks. This could negatively affect the population's ability to repay debts, especially during periods of weakened economic growth.

The IMF also points to continuing liquidity risks, given the high proportion of large corporate deposits that depend on the dynamics of the hydrocarbon sector. An additional vulnerability factor remains the continued high level of dollarization, despite its gradual decline. In addition, the accelerated growth of unsecured consumer lending may increase procyclical risks in the system.

The Fund positively assesses the efforts of the authorities to strengthen regulation and supervision in the banking sector. IMF economists believe that the Central Bank of Azerbaijan (CBA) has made significant progress in developing new regulatory standards, macroprudential policy, as well as corporate governance and risk management standards.

“In response to the high rate of lending and the growing positive gap between loans and GDP, from March 1, 2025, the CBA introduced an additional countercyclical capital buffer of 0.5% of the regulatory capital of banks,” the report says.

Steps have also been taken to strengthen liquidity, including stricter reserve requirements for banks with a high concentration of deposits.

The IMF identifies four priority areas for further improving the stability of the banking sector: strengthening systemically important banks (D-SIBs) by introducing differentiated requirements for loss absorption buffers; accelerating the implementation of consolidated supervision, including legal and prudential steps; finalizing settlement plans for D-SIBs and other banks that may cause systemic risks when bankruptcy; strengthening the emergency liquidity support mechanism.