WB recommends to continue reforms of Azerbaijan's financial sector

Continued robust reforms of financial sector legislation and regulation are needed to ensure compliance with international standards and practices, Report says, citing the World Bank's recommendations to the government of Azerbaijan.

The recommendations say that it will help enhance public and investor confidence and create a level playing field with internationally acceptable rules for domestic and international investors.

WB believes that Azerbaijan can strengthen the financial safety net and enhance crisis preparedness and resilience by enhancing macro-prudential supervision role and capacity of the Financial Stability Council. The WB specialists also propose conducting regular stress-testing of the financial sector and taking measures to address key vulnerabilities.

In late November, the Central Bank of Azerbaijan was entrusted to regulate the entire financial sector. In a statement on the main directions of monetary policy and financial stability for 2020 and the medium term, the Central Bank has already announced plans for conducting intensive monitoring of the financial sector in 2020 to identify potential systemic risks.

The Central Bank intends to conduct simulation, based on stress tests to study the ability of the financial sector to withstand various economic shocks. It will, if necessary, intervene in the situation in the industry. In particular, it is planned in 2020 to carry out the recovery process in the banking sector to assess the potential to absorb risks from systemically important financial institutions. As noted in the statement, in the banking sector, one of the main areas will be the control over overdue loans, their effective reduction, improvement of the risk management system in banks when lending.

Also, the CBA faces the task of ensuring that the banking system liquidity is maintained at an acceptable level. In 2020, it is planned to carry out work to improve the banking supervision system and apply pilot supervision rules based on risk assessment. Besides, this year measures will be taken to increase the potential of stress tests in banks and improve the corporate governance system.

Among the CBA's plans is the improvement of the regulatory framework, including the continuation of work on the adoption of the law "On Securitization Activities." It is also planned to create a unique legal framework for the issue and regulation of bonds issued by international financial institutions, and the legal framework for regulation will be revised to stimulate the activities of investment funds.