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Moody’s: New supervision strategy to strengthen Azerbaijan’s banking sector

16 March 2026 10:36 (UTC +04:00)

Azerbaijan's new supervision strategy will strengthen banks' risk management, the international rating agency Moody's Ratings told APA-Economics.

On 11 March, the Central Bank of the Republic of Azerbaijan (CBA, Baa3 positive) announced that it had approved its Banking
Supervision Strategy for 2026-27.

According to Moody’s, the strategy builds on the CBA's implementation of risk-based supervision under its Financial Sector Development Strategy for 2024-26 and the World Bank-supported Financial Sector Modernization Project, which introduced a formal policy framework for risk-based supervision, established the Azerbaijan Risk Assessment System and aligned supervisory practices more closely with international standards, including Basel III-oriented capital and liquidity oversight.

Moody’s noted that the strategy's approval marks a shift toward a more comprehensive risk-based supervisory regime, a credit positive for banks because it will strengthen their risk-management capabilities, improve their resilience to macrofinancial shocks and align their supervisory practices more closely with international standards. This, in turn, will support more forward-looking oversight, enhance capital and liquidity planning and reduce the likelihood of emerging vulnerabilities. The strategy will also improve banks' business model sustainability and profitability management, enhancing their operational resilience, modernizing their risk-management practices and strengthening governance, risk culture and consumer protection.

The agency added that the new supervisory standards to reinforce banks’ ability to withstand economic and financial volatility by promoting stronger capital planning and more robust stress-testing. The introduction of Internal Capital Adequacy Assessment Processes (ICAAP) and Internal Liquidity Adequacy Assessment Processes (ILAAP) requirements, consistent with emerging Basel III practices, will push banks to better assess their internal capital and liquidity adequacy under adverse scenarios, which will result in stronger buffers and more prudent balance-sheet management over time.

Moody’s expects that the continuous alignment with the new strategy will result in enhanced asset quality control, liquidity management and profitability: "Among the banks we rate, those with less robust loss absorption capacity of capital or weaker asset quality, such as Kapital Bank OJSC (Ba2 positive, ba3), XALQ BANK, OJSC (Ba3 stable, b1) and Joint Stock Commercial Bank Respublika (B1 stable, b1)1 will likely see the most significant improvements."

Rahim Tariverdiyev

Azerbaijan banking sector Central Bank of Azerbaijan Moody’s Ratings banking supervision strategy risk management financial sector Basel III banking regulation Kapital Bank Xalq Bank Bank Respublika