CBA tightens requirements for capital adequacy
Central Bank of Azerbaijan plans to change the structure of the classification of assets by risk level, adding the group of 120 percent risk level, which will include unsecured consumer loans.
This change is reflected in the amendments to the “Regulations for the calculation of bank capital and its adequacy.” Draft amendments are published on the website of the CBA.
CBA also introduced the concept of loans to related parties, i.e. borrowers, directly related to the lending bank or persons acting on behalf of such clients. Relative ratios of the loans are set at zero percent until the end of this year and 20 per cent – in 2015, as well as 40, 60, 80 and 100 percent in 2016, 2017, and 2018 respectively. From January 1, 2019 rate on these loans will be set at 100 percent.
According to the amendments, the capital of the bank may include funds received only by securities and other hybrid instruments issued for a period of not less than five years.
In addition, item 7.4 was added to the rule, according to which the hybrid elements of capital, including subordinated debt, are recorded to the capital of the second level during the last five years to maturity on condition of the annual reduction of their volume by 20 percent.
Thus, the adequacy of the total capital of the bank will be calculated in a new way, namely, it will emerge from the ratio of the difference between total capital and loans to related parties, multiplied by the above ratio and weighted according to the level of assets risk.
Banks must hold the adequacy ratio of the total capital at a level not exceeding 12 percent, and capital adequacy ratio of the first level – 6 percent.
The requirement of the Central Bank for the minimum size of total capital of banks is defined at the level of 50 million AZN until the end of 2014.
There are 44 banks in Azerbaijan.
The official exchange rate for August 26 is 0.7844 AZN / USD.