BAKU, Azerbaijan, July 18. Azerbaijan’s phased Liquidity Coverage Ratio adoption will strengthen the banking sector, Trend reports via Moody’s.
On 1 August, the Central Bank of the Republic of Azerbaijan (CBA) will implement a new regulatory framework that includes the phased adoption, by the end of 2027, of the Liquidity Coverage Ratio (LCR), a key Basel III liquidity standard that requires the assessment of banks' liquidity positions in both aggregate and national currencies.
“Implementation of the new framework is credit positive because it will enhance Azerbaijani (Baa3 positive) banks’ capacity to build more sustainable liquid positions in national currency – an important step in the development of the country's financial sector and alignment with international best practices,” said the rating agency.
According to the CBA, 56% of the banking sector’s liquid assets were held in national currency at the end of 2024, up from 46% in 2020. Under the implementation schedule, systemically important banks will be required to gradually increase their LCR in national currency to 100% by 1 June 2027 from 50% as at 1 August 2025. Other banks will gradually raise their LCR in manats to 100% by 1 December 2027 from 40% as at 1 August 2025. The LCR will be calculated separately for aggregate and national currencies, with banks required to report the ratio daily.
“The regulation also broadens the existing definition of high-quality liquid assets (HQLA) to include instruments such as precious metals, state-guaranteed securities, overnight deposits and short-term central bank placements, which will enhance banks’ flexibility in liquidity management. Precious metals, particularly gold, are not currently classified as HQLA under Basel III regulations.
However, we believe that the broader definition of HQLA will not dilute the quality of liquid assets because precious metals are not currently on banks’ balance sheets and state-guaranteed securities remain repo-eligible, preserving their liquidity value.
As of year-end 2024, the CBA reported that all banks exceeded the LCR requirements in aggregate and foreign currency, with sector-wide LCRs of 150% and 178%, respectively. The figures indicate strong overall liquidity buffers ahead of the phased implementation of the new local-currency thresholds,” said Moody’s.