Capital adequacy ratio of banking sector may decline in Azerbaijan

Baku. 10 June. REPORT.AZ/ Evaluation of the impact of a possible deterioration of the quality of the loan portfolio on the capital adequacy of the banking sector was made in Azerbaijan.

Report informs referring to the Central Bank, as of April 1 of this year, bad loans amounted to 5.9% (1 174 million manats) of the loan portfolio. According to the requirements of the Central Bank, these loans need to generate 30-percent and 60-percent reserves. In order to assess the impact of possible shocks on the quality of bank loans, simulation of formation of 100-percent reserve for poor or risky loans carried out in case of default.

According to the results of the assessment, the banking sector as a whole is resistant to this shock:

capital adequacy ratio of the banking sector may be reduced from 17.3% to 14.7%, excluding the International Bank of Azerbaijan - from 20.3% to 18.5%.