Azerbaijan plans to introduce equivalent of bank deposit insurance mechanism for investment companies

The Central Bank of Azerbaijan (CBA) plans to introduce the equivalent of a bank deposit insurance mechanism for investment companies, Gulnara Khaidarshina, deputy head of research, chief CIS economist at Russia’s Gazprombank, said following the meetings held in Baku with representatives of Azerbaijan’s financial and banking system, Report informs.

Since April 2021, the insurance system covers deposits of individuals engaged in individual entrepreneurship in an amount not exceeding 20,000 manats ($11,764), as well as deposits of citizens up to 100,000 manats ($58,823) for deposits in foreign currency in the amount equivalent to 100,000 manats).

Khaidarshina noted that the central bank has been implementing a set of prudential mechanisms over the past 12 months in order to develop the local market and reduce investor risks. These mechanisms include refinement of the legislative framework as well as the development of infrastructure.

“In addition, regulatory measures are being taken jointly with the government. In particular, a 10% tax on income from individual deposits has been introduced. Previously, this tax was under a moratorium, which was extended each year. At the same time, no tax is levied on individual income from investment in bonds. Notably, this applies only to market bond issues and does not affect OTC placements,” she added.

She noted that the CBAR has also loosened reserve requirements for bank investment in securities traded on the Baku Stock Exchange. A reserve ratio of 0% is in effect for investment in securities issued by the Finance Ministry and 1% for bonds of other local issuers. At the same time, a reserve ratio of 25% is in place for investment in securities of foreign issuers with a rating below investment grade.

“In order to limit investor risks, the CBAR is introducing new prudential measures to supervise investment companies in order to increase their reliability,” she said.