IMF: CBA should control larger banks on basis of consolidation

The Central Bank of Azerbaijan (CBA) should continue its effort to strengthen financial supervision and provisioning, Report informs, citing the Concluding Statement of the International Monetary Fund (IMF) on the 2022 Article IV consultation from May 25 to June 7, 2022, in Baku.

"Notwithstanding recent improvements in supervision, the control should renew the pandemic-delayed effort to move to a risk-based framework and supervise larger banks on a consolidated basis. The CBA should also continue to conduct stress tests and thematic inspections to assess banks' asset quality. In the medium term, provisioning rules could be modernized and aligned to the IFRS 9 framework to account for expected credit loss rather than actual incurred loan loss," IMF said.

"Because of the pandemic-related disruptions, modernization of the monetary policy framework has been delayed. The authorities continue to de facto peg the currency to the US dollar. The de facto peg has been effective in keeping inflation under control in Azerbaijan's undiversified economic setting, where the ER is the main channel for the transmission of inflationary shocks. The authorities have been considering a strategy that puts more emphasis on the interest rates rather than monetary aggregates as the intermediate target and increased exchange rate flexibility in the long run. While the pandemic has delayed implementation, work should continue to develop domestic markets to improve the transmission channels of monetary policy, including the expansion of the government securities market and developing active money markets, continued efforts to de-dollarize the economy, strengthening the CBA's analytical and forecasting capacity, and improving the effectiveness of communication," it added.