New regulations on activities of non-bank credit institutions adopted

27-11-2024

27 November 2024, Baku: As an element of financial inclusion, the development of activities of non-bank credit institutions (NBCIs) provides broader access to financial resources for the population, as well as for small and medium-sized entrepreneurs. The Central Bank of the Republic of Azerbaijan continues to take necessary steps within its mandate to enhance this role of NBCIs, as well as ensure the accessibility and transparency of the lending products they offer.

In line with the amendments made to the ‘Law on Non-bank credit institutions’ in 2023, the Management Board of the Central Bank of the Republic of Azerbaijan approved the ‘Regulation on prudent management of activities of non-bank credit institutions’ and the ‘Regulation on credit risk management in non-bank credit institutions’ on 15 November 2024. The changes align with strategic goals set in the ‘2024-2026 Financial Sector Development Strategy’ of the Central Bank.

The regulation has set new quality-related requirements. Specifically, they include regulatory requirements for the organization of the credit risk management systems in NBCIs, credit risk policies, procedures for assessing and managing credit risks, risk monitoring, as well as the calculation of the effective annual interest rate for loan agreements.

For the first time, the regulations also define the concept of short-term daily loans, including maximum limits for loan amounts, durations, and daily interest rates. Additionally, stricter prudential norms have been established for such loans.

The regulation also established quantitative and financial stability requirements. The required charter capital for newly established NBCIs has been set at AZN1 million. Existing and new NBCIs are now subject to a capital requirement of AZN 1 million and a minimum capital-to-liabilities ratio, alongside revised reserve requirements.

The requirements aim to strengthen financial resilience of NBCIs and protect consumer rights. The Bank is committed to improving this sector by monitoring current developments in the NBCI sector and related global best practices.