Azerbaijan’s banks face Basel III shift as capital rules tighten |
A new phase is taking shape in Azerbaijan’s banking sector. The Central Bank’s decision to grant local banks a transition period to align their capital with Basel III standards signals a shift toward a more disciplined and structured regulatory environment. This is not merely a technical adjustment. It is an institutional change that directly affects how banks take risks, allocate capital, and finance the broader economy.
Basel III is an international framework for bank regulation built on a straightforward principle: banks that take risks must hold sufficient capital to absorb potential losses. The global financial crisis of 2008 exposed a critical weakness in banking systems worldwide. Many institutions appeared well capitalised on paper, yet proved incapable of withstanding real financial shocks. Governments were forced to intervene, transferring private-sector losses onto public balance sheets. Basel III was designed to prevent a repeat of that outcome by strengthening capital quality, tightening risk measurement, and introducing precautionary buffers.
For Azerbaijan’s banking system, the transition to Basel III begins with a redefinition of what capital means. The new rules place greater emphasis on........