Azernews.Az

The banking sector should become more sustainable financially and reach a new level of development given strategic goals for the national economy (doubling GDP and eco­nomic diversification) over the next decade, Elman Rustamov, Governor of the Central Bank of Azerbaijan said in an interview to The Business Year magazine.

"The expansion of the regional network of non-bank credit institutions, credit unions, and e-payments, as well as the develop­ment of rural banking and postal-banking systems, will all be crucial for the growth policy of financial infrastructure," Rustamov said. "In addi­tion to this, improving the amplification of the mortgage system, providing more fa­vorable terms and conditions for mortgage lending, and increasing the scale of social mortgages will contribute to improving the housing conditions of the population. Hitting all of these objectives will create conditions to boost economic and business activities in the economy and ensure the more effective implementation of social programs, especially in regional and rural areas."

In this context, Rustamov believes that 2013 will be the starting point of new qualitative changes in the banking industry for completing the restructuration and consolidation process, improving the financial stability manage­ment framework, expanding access to finance, and enhancing the institutional development of the banks.

"Maintaining the stability and financial soundness of banks is one of the key tasks of CBAR. The capital requirement for banks is being risen five fold to AZN50 million. CBAR strives to provide a safe capitaliza­tion process for all stakeholders without triggering additional risks to financial stability," Rustamov said.

Banks owning 89% of banking sector assets already comply with this re­quirement. The deadline for the banks to comply with the new capital requirement is January 1, 2014.

The structure of bank capital will also be improved. To note, con­solidation of the banking sector has always been a focus during economic reforms. In the first years of transition to a market economy, over 250 banks with very low capital were functioning in the country. Deep consolidation resulted in a six to sev­en fold reduction in the number-only the soundest banks remained in the system, Rustamov said.

Today 43 banks operate in Azerbaijan.

"Consolida­tion will allow for the deeper capitalization of banks, increase their resilience to risks, encourage a more efficient organization of the banking business, and provide the flexibility to meet the demand of the econ­omy for funds," Rustamov said.

He said however, as the banks become larger, business processes become more complicated, and the for­mation of advanced management systems is needed.

"Upgrading risk management practices in the banks is a crucial task. The implied changes and new requirements are based upon the recent recommendations from the Basel Committee. One of the key tasks is to improve the protection and rights of financial services consumers. CBAR is planning to develop relevant leg­islation and standardize advanced imple­mentation frameworks to that end," Rustamov said.