Central Bank approves new criteria for determining systemically important banks

15-04-2025

14 April 2025, Baku: The ‘Criteria for assessing a bank as a systemically important bank’ approved by Decision No 11 of the Management Board of the Central Bank of the Republic of Azerbaijan dated 19 March 2025 took effect on 9 April 2025 following its inclusion in the Public Register of Legal Acts of the Republic of Azerbaijan. For the full content of the Criteria please visit: https://e-qanun.az/framework/59299.

Under the legislation, the Central Bank of the Republic of Azerbaijan defines criteria for systemically important banks and classifies such institutions accordingly. The concept of systemically important banks, along with associated regulatory requirements, was first introduced in 2017. The initial version of the Criteria was approved in 2019, and since then, the Central Bank has been identifying systemically important banks on a regular basis.

Systemically important banks play a pivotal role in shaping the dynamics of the overall financial system. Due to their operational scale and market coverage, any compromise in their financial stability may pose systemic risks. As such, the Central Bank’s objective is to accurately assess each bank's systemic importance and apply appropriately tailored regulatory measures to mitigate potential risks.

The classification of any bank as systemically important is not an advantage. Being designated as systemically or non-systemically important does not imply relative strength or weakness. Rather, it denotes an elevated level of responsibility for the management of such banks, given their broader impact on the financial sector and economy. Consequently, these banks are subject to additional prudential requirements, including higher capital adequacy ratios (total regulatory capital and Tier I capital) and differentiated leverage ratio thresholds.

In December the Central Bank approved and made public the ‘Macroprudential policy framework for the banking sector’ and the ‘Policy concept on risk-based supervision’ (links: https://www.cbar.az/press-release-4923/central-bank-unveils-banking-sectors-macroprudential-policy-framework?language=en, https://www.cbar.az/press-release-4928/the-central-bank-has-approved-the-policy-concept-on-risk-based-supervision?language=en). These developments are part of the broader initiatives under the 2024–2026 Financial Sector Development Strategy, aligning prudential regulation and supervision tools with international standards.

Notably, the revised Criteria introduce several enhancements.  The weighting of assessment indicators has been updated, additional indicators have been incorporated, and the calculation methodology has been refined. Unlike the previous version, the updated Criteria assess systemic importance not only based on asset size, but also through broader indicators reflecting a bank’s functional significance within the financial and economic system. The Criteria now include lending portfolio size; substitutability indicators such as: number of individual and corporate deposit accounts, number of unique customers, number of ATMs, number of serviced POS terminals and number of branches.