Central Bank of the Republic of Azerbaijan caps consumer credit card limits at five times net after-tax income and tightens prudential treatment of credit lines

The Central Bank of the Republic of Azerbaijan has amended its regulatory framework for consumer credit cards and other consumer credit lines to curb household over-indebtedness and better align banks’ capital requirements with the risks of these products. Under the changes, a borrower’s credit card limit is capped at a maximum of five times the borrower’s net after-tax income, calculated taking into account the borrower’s obligations to other credit institutions; credit lines secured by cash, banks and precious metals are excluded from the calculation of this five-times norm. Consumer credit lines above the cap are further constrained at the bank level, with the aggregate amount not permitted to exceed 1% of the bank’s Tier 1 capital after deductions. The framework also brings overdraft limits into the definition of credit lines, sets a 40% credit conversion factor for consumer credit cards, and applies a 100% risk weight to consumer credit lines while they remain off-balance sheet. Separately, securities issued by multilateral development banks with an “A-” credit rating are classified as high-quality assets and exempted from additional provisioning, and asset classification rules are revised to define a borrower “operating at a loss” by reference to EBITDA being below total interest expense or negative.