The Central Bank of the Republic of Azerbaijan has adopted amendments to its prudential rulebook to enable banks to extend credit using behavioural models built from borrowers’ financial transaction data, including lending to individual entrepreneurs and individuals based on projected income. The framework sets requirements for behavioural model development, banks’ internal capacity in this area, model validation and reporting. It also introduces risk mitigants for loans originated via behavioural models, including limits, stricter classification requirements and increased capital requirements, and caps such lending at an aggregate of no more than 10% of a bank’s total loan portfolio. Banks must stop issuing new behavioural-model-based loans once loans more than 90 days past due reach 10% of the behavioural-model-based loan portfolio.
Central Bank of the Republic of Azerbaijan 2025-01-07
Central Bank of the Republic of Azerbaijan adopts prudential framework for behavioural-model-based lending with 10% portfolio cap and 90-day arrears stop rule
The Central Bank of the Republic of Azerbaijan amended its prudential rulebook to allow banks to extend credit using behavioural models based on borrowers’ financial transaction data. The framework includes requirements for model development, validation, and reporting, and introduces risk mitigants such as limits and increased capital requirements. Lending via behavioural models is capped at 10% of a bank’s total loan portfolio, with restrictions on new loans if delinquencies exceed 10% of this portfolio.