Higher capital requirements have contributed to strengthening the resilience of Azerbaijan's banks, according to a new Moody's report available to Trend.
The agency reports that Azerbaijan has already introduced new capital buffers under Basel III standards, with full compliance with Basel III requirements expected to be achieved in 2027.
Moody's analysts note that banking sector regulation is being strengthened through alignment of the regulatory framework with Basel III standards, implementation of risk-based supervision, and higher capital requirements.
"Banking regulators in Central Asian and Caucasus countries, including Kazakhstan (Baa1, stable), Azerbaijan (Baa3, positive), Georgia (Ba2, stable), Armenia (Ba3, positive), Uzbekistan (Ba2, stable), Tajikistan (B2, stable), and the Kyrgyz Republic (B3, positive), are strengthening supervisory mechanisms and improving prudential regulation, moving closer to international standards. These changes are credit positive as they contribute to improving credit portfolio quality, enhancing banks' ability to absorb losses, and gradually reducing systemic risks," the report says.
Moody's notes that regulatory reforms have led to tighter prudential requirements and improved risk management systems in most countries in the region.
"These measures include increasing capital buffers, more conservative asset classification, strengthening provisioning for potential loan losses, and improving liquidity management. Several countries have also made progress in establishing more effective bank resolution and recovery mechanisms. Stronger supervision has reduced instances of delayed loss recognition, and regulators are acting more proactively. Higher capital requirements have strengthened the solvency of banks in Kazakhstan and Azerbaijan. In Uzbekistan, the partial abandonment of directed lending has improved credit portfolio quality and promoted a more risk-based approach to credit allocation, although state influence on the banking system remains significant," the document says.
Moody's forecasts that governments in the region will continue to strengthen prudential standards and improve supervisory practices, with a focus on financial stability, transparency, and limiting contingent liabilities related to the banking sector.
At the same time, the agency emphasizes that the pace and effectiveness of reforms will vary significantly depending on the quality of state institutions, the independence of banking supervisory bodies, and political commitment to developing a market-based banking system.