Azerbaijan’s Banking Regulations and Laws Under Scrutiny

Introduction

Azerbaijan’s banking system has undergone significant changes since its independence in 1991. The country’s central bank, the Central Bank of Azerbaijan, was established in 1992, and commercial banks have been operating under joint-stock structures.

Currency and Banking System

• The only valid currency in Azerbaijan is the Azerbaijani manat, which can only be issued by the Central Bank.
• The banking system struggled to meet the needs of socioeconomic development during the transition to a market economy in the 1990s, prompting the introduction of new laws and regulations.

Regulatory Framework

• Mandatory reserves, norms for liabilities between creditors and depositors, and deposit insurance were introduced in 1996 to prevent bank failures and ensure timely repayments of deposits.
• The country has implemented various laws to prevent money laundering and terrorist financing, including the “Law on the Prevention of the Legalization of Criminally Obtained Funds or Other Property and the Financing of Terrorism,” which came into effect in 2009.

Assessment by International Credit Rating Agencies

• Fitch Ratings has assessed Azerbaijan’s banking sector as being “broadly stable” in recent years.
• However, they have also highlighted structural issues that need to be addressed to improve the sector, such as:
  • Retail lending requiring greater attention
  • Corporate lending needing improvement

Banking Laws and Regulations

• Azerbaijan’s banking laws and regulations are based on the country’s constitution and various legislative acts.
• Key legislation includes:
  • The law “On Banks and Banking Activity in the Republic of Azerbaijan” (adopted in 1996)
  • The law “On the National Bank of the Republic of Azerbaijan” (re-adopted in 2004)
  • The “Law on Deposit Insurance” (came into effect in 2006)

Future Outlook

• Despite challenges, Azerbaijan’s banking sector is poised for continued growth and stability.
• Ongoing efforts to strengthen regulatory frameworks and promote financial inclusion will support the sector’s development.