Capital Market Modernization, Azerbaijan, Phase II
In the current economic crisis affecting Azerbaijan, strengthening financial sector regulation has become an urgent priority. Enhanced banking supervision and a strengthened financial safety net, streamlined resolution of non-performing loans and effective administration of bank resolution can contribute to economic stabilization in Azerbaijan.
In 2015, Azerbaijan’s oil driven economy has faced a series of shocks which have exposed and deepened the vulnerability of the financial sector. The sharp decline in oil prices and rapid reduction of oil revenues have exposed significant structural vulnerabilities in the Azerbaijani oil-dependent economy. The devaluation of the national currency by 34 percent in February 2015 and its depreciation by 40 to 47 percent in December 2015 increased foreign exchange risks, implied losses for banks and also increased depositors’ anxiety including several bank runs, further undermining trust in financial sector stability.
The objective of the project is to install basic capacities in the Financial Market Supervisory Authority (FIMSA)- strengthen the financial sector institutional framework and its regulations- and support their enforcement. The impact is that the FIMSA is operative and has taken steps to enforce regulations and procedures. The project contributes to (but does not control the achievement of) the higher level goals of (i) a stable and healthy financial sector, (ii) increased financial sector resilience, (iii) resumption of trust in the financial sector by its customers, and (iv) better protection of the assets of the poor.
Legal and regulatory framework for financial market supervision in line with international good practice established- institutional setup and roles and responsibilities of FIMSA clarified and routine processes are efficient- and capacity of FIMSA to conduct effective and efficient banking supervision enhanced.
Legal and regulatory framework and operational mechanisms to allow for bank resolution and liquidation established- capacity of FIMSA to conduct effective and efficient bank resolution and liquidation enhanced.
Role and mandate of Azerbaijan Deposit Insurance Fund in the legal framework of the country clarified, transparent and efficient pay-out procedures in case of bank failure in line with international good practices established and operational.
Sound framework of Consumer Protection is in place, enshrined in banking regulation and banks’ own legal policies and procedures.
Procedures for identifying and subsequent resolving of non-performing loans developed and applied.
Legal strategy and detailed recommendations for revisions to the existing legislation prepared.
Skills for core functions such as stress testing and banking supervision at FIMSA built.
Specific regulatory framework and procedures for bank resolution and liquidation prepared.
Technical support for the liquidation of selected failed banks provided.
Robust and rule-based mechanism of funding and contingency support, and a fully transparent pay-out mechanism for Deposit Insurance Fund developed.
NPL restructuring strategy prepared.
Out-of-court NPL restructuring procedure implemented.
Results from previous phases:
1) Enactment of the new Law on Securities Market
2) Publication of three guidelines for commercial banks on responsible lending, complaints handling and information disclosure
3) More active offering of financial products by AzerPost thanks to staff training in financial services delivery
|Directorate/federal office responsible||
|Budget||Current phase Swiss budget CHF 3’000’000 Swiss disbursement to date CHF 0 Budget inclusive project partner CHF 3’325’000|
|Project phases||Phase 2 01.07.2016 - 31.07.2023 (Current phase)|