The Central Bank of the Republic of Azerbaijan’s Board has decided to activate an additional countercyclical capital buffer of 0.5% for banks’ total and Tier 1 capital requirements, with the requirement set to apply after 1 March 2025. Activation was taken in line with the relevant capital and capital adequacy rules and was driven primarily by the credit “gap” indicator exceeding the 2% threshold; recent assessments put the gap at 2.9%, calculated as the deviation of the credit-to-GDP ratio from its long-term trend. As of end-November 2024, the loan portfolio grew 19.6% year on year, up to twice nominal non-oil-and-gas GDP growth; 19 of 22 banks recorded loan growth and 14 grew faster than nominal non-oil-and-gas GDP. The central bank also cited strong profitability and capitalisation, including net profit of AZN 966 million in the first 11 months of 2024, return on equity of 18.4%, total capital above AZN 6 billion and a total capital adequacy ratio of 17.5%, alongside dividend payments of AZN 456 million in 2023 and AZN 610 million in 2024. Based on the central bank’s calculations, sector risk-weighted assets after applying the buffer are estimated at about AZN 18.7 billion. The two-month lead time before the buffer starts to apply is intended to allow banks to factor the measure into strategic planning and budgeting, as well as capitalisation and dividend policies.
Central Bank of the Republic of Azerbaijan 2025-01-06
Central Bank of the Republic of Azerbaijan activates a 0.5% countercyclical capital buffer for banks from March 2025
The Central Bank of the Republic of Azerbaijan will activate a 0.5% countercyclical capital buffer for banks' total and Tier 1 capital requirements, effective after 1 March 2025. This follows the credit gap indicator exceeding 2%, with a 2.9% deviation of the credit-to-GDP ratio from its long-term trend. The central bank noted strong profitability and capitalisation, with net profits of AZN 966 million in the first 11 months of 2024 and a total capital adequacy ratio of 17.5%.