Baku: Azerbaijan is among the most advanced countries in the Caucasus and Central Asia region in implementing banking sector reforms, alongside Kazakhstan and Armenia.
According to Azeri-Press News Agency, the international rating agency SandP Global Ratings highlights Azerbaijan’s significant progress in two primary areas of banking reform.
The first area focuses on improving regulatory and supervisory mechanisms. SandP notes that Azerbaijan is taking significant steps to enhance transparency in the banking sector, ensure capital adequacy, and strengthen institutional resilience. These reforms are designed to improve the effectiveness of regulatory authorities and contribute to overall financial stability.
The second key area is the introduction of a resolution regime for the systematic management of potential banking crises. In this respect, Azerbaijan has made notable progress, joining Armenia and Kazakhstan as regional frontrunners. Despite some countries in the EMEA region having adopted international regulations on capital and liquidity, the report emphasizes considerable delays in implementing resolution frameworks.
Many emerging markets lack a legal structure to handle failing banks in a structured way, often relying on ad hoc solutions. In some cases, banks continue operating despite failing to meet minimum capital requirements, and regulators lack effective intervention tools. SandP attributes the hesitation to implement resolution frameworks to concerns over eroding confidence in government support, underdeveloped local capital markets, limited access to international funding, and the additional financial burden such systems could place on banks.
Furthermore, many emerging markets lack the institutional capacity to support these frameworks. As a result, SandP does not foresee the widespread implementation of resolution regimes in EMEA’s emerging markets in the near future. However, Azerbaijan’s efforts in regulatory improvement and crisis preparedness place it ahead of many of its regional peers.