Azerbaijan is among the most advanced countries in the Caucasus and Central Asia region in implementing banking sector reforms, alongside Kazakhstan and Armenia, APA-Economics reports, citing the international rating agency S&P Global Ratings.
Two primary directions of reform in Azerbaijan’s banking sector are being emphasized.
The first direction involves improving regulatory and supervisory mechanisms. S&P notes that Azerbaijan is taking significant steps to enhance transparency in the banking sector, ensure capital adequacy, and strengthen institutional resilience. These reforms not only improve the effectiveness of regulatory authorities but also contribute to overall financial stability.
The second key area is the introduction of a resolution regime, which allows for the systematic management of potential banking crises. In this respect, S&P highlights that Azerbaijan has made notable progress, joining Armenia and Kazakhstan as regional frontrunners.
Despite some countries in the EMEA (Europe, Middle East, and Africa) region having adopted international regulations on capital and liquidity, the report emphasizes that there are considerable delays in implementing resolution frameworks. Many emerging markets still lack a legal structure to handle failing banks in a structured way and instead rely on ad hoc solutions. In some cases, banks continue operating despite failing to meet minimum capital requirements, and regulators lack the tools to intervene effectively.
According to S&P, hesitation to implement resolution frameworks is often tied 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, S&P 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.
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