Republic of Azerbaijan: Financial Sector Assessment Program-Financial System Stability Assessment

This paper focuses on the Republic of Azerbaijan’s Financial Sector Assessment Program as part of Financial System Stability Assessment. Azerbaijan’s economy has recovered from two downturns prompted by the collapse of global oil prices in 2015 and coronavirus disease 2019 pandemic in 2020. An intensification of regional conflicts poses risks to the economy. Similarly, the high reliance on oil and gas revenues renders Azerbaijan vulnerable to oil and gas price declines. This in turn would impact banks’ asset quality and liquidity. Key structural risks to banks stem from substantial reliance on volatile wholesale corporate deposits; continued high financial dollarization, particularly in business loans and deposits; and high credit concentration. Further measures to strengthen regulation and supervision would reinforce financial sector resilience. As noted in previous FSAPs, addressing long-standing issues would entail fully implementing a consolidated supervision framework; safeguarding the Central Bank of the Republic of Azerbaijan’s (CBA) independence; establishing an interagency body for crisis preparedness and management; and giving the CBA full powers for bank resolution.