Central Bank of the Republic of Azerbaijan adopts unified bank stress testing framework and related risk management amendments

The Central Bank of the Republic of Azerbaijan has approved a new Rule on stress testing in banks, creating a single regulatory framework for how banks conduct, assess and report stress tests. The measure is intended to standardise stress testing across the banking sector and support a comprehensive assessment of both individual bank resilience and overall sector risk resilience. The new framework sets requirements on the core principles of bank stress testing, the content of stress testing programmes, modelling methods and model validation, the scope of sensitivity and scenario analysis, and stress tests for liquidity, credit, market and operational risks, including interactions between risks. It also covers reporting of stress test results to the central bank and includes questions that can be used to assess the quality and adequacy of stress testing models within banks and as part of the supervisory process. In parallel, the central bank approved amendments to the banking corporate governance standards and to the rules on credit, liquidity, operational and market risk management to align them with the new stress testing rule. The framework was developed in the context of the 2024 to 2026 Financial Sector Development Strategy and takes account of international practice, including principles from the Basel Committee and the European Banking Authority.