Moody’s: New liquidity requirements to strengthen resilience of Azerbaijani banks

On 1 August, the Central Bank of the Republic of Azerbaijan (CBA) will implement a new regulatory framework that includes the phased adoption, by the end of 2027, of the Liquidity
Coverage Ratio (LCR), a key Basel III liquidity standard that requires the assessment of banks' liquidity positions in both aggregate and national currencies.

Report informs,citing the international rating agency Moody’s, that the full implementation is planned by the end of 2027.

"Implementation of the new framework is credit positive because it will enhance Azerbaijani (Baa3 positive) banks’ capacity to build more sustainable liquid positions in national currency – an important step in the development of the country's financial sector and alignment with international best practices," Moody's stated.

According to the CBA, the share of liquid assets in the national currency in the banking system increased from 46% in 2020 to 56% by the end of 2024.

Implementation Schedule:

• Systemically important banks must reach 100% LCR in manats by June 1, 2027, starting from 50% on August 1, 2025.
• Other banks will gradually raise their total LCR to 100% by December 1, 2027, starting from 40% on August 1, 2025.

The LCR will be calculated separately for total assets and for those in the national currency. Banks will be required to report this data to the CBA daily.

Updated LCR Targets by Bank Group:

The new rules also expand the list of high-quality liquid assets (HQLA), now including precious metals, state guarantees, on-demand deposits, and other assets previously not classified as HQLA—provided they meet certain quality criteria.

Special emphasis is placed on assets in the national currency and precious metals: while previously excluded, they may now be included in HQLA if they meet the required standards. This is particularly significant during times of market instability when demand for the manat is limited, allowing banks to maintain liquidity without having to urgently convert assets.

According to the CBA, all banks currently meet existing liquidity requirements in both national and foreign currencies. The average LCR stands at 150% in manats and 178% in foreign currencies.

"The figures indicate strong overall liquidity buffers ahead of the phased implementation of the new local-currency thresholds," Moody's emphasized.