BAKU, Azerbaijan, November 1. The Central Bank of Azerbaijan (CBA) has adopted a new version of "Rules of liquidity risk management in banks" by the decision of the Board of the Central Bank of Azerbaijan (CBA), TurkicWorld reports.

The data of the CBA shows that the rules will come into force from December 1, 2023, and from this date the "Rules of Bank Liquidity Risk Management" in force since 2009 have been canceled.

"In accordance with the country's strategic priorities, the CBA continues its activities within the framework of adapting the banking sector regulation system to international standards and improving risk management in banks. The updated rule covers the latest requirements of international standards, and also provides for the reflection of the requirements of the previous rule in a more perfect form. Along with the standards of the Basel Committee, which formulated effective approaches to banking supervision, when developing the rules, the experience of external regulatory authorities, as well as the recommendations of experts of the International Monetary Fund, progressive proposals during discussions with the banking community were taken into account," said the CBA.

"A new monitoring tool for the concentration of attracted sources of funds (the Herfindahl–Hirschman index) has been introduced, the composition of the instant liquidity ratio standard has been improved. The principles and requirements for daily liquidity management are also established for the timely fulfillment by the bank of emerging obligations on payments and settlements in normal and stressful conditions," said the bank.

"As part of improving the forecasting of the liquidity position in the bank, the regulations provide a standard for the liquidity coverage ratio (LCR) separately in aggregate and foreign currency, based on historical data on the behavior of the bank's customers presented in the Basel III standards. The goal is to ensure the stability of the bank's liquidity in the short term (30 days) in order to continue its activities without interruption, including the fulfillment of obligations in full and on time," said the bank.

"The procedure provides for the use of the coefficient both in foreign currency and in aggregate. Banks that have an LCR ratio of 100 percent or more in aggregate and foreign currency separately at the date of entry into force of the rules should ensure that the coefficient does not fall below this threshold. The coefficient will be applied in stages over 18-24 months in order not to create sharp pressure on the liquidity position of banks with an LCR coefficient below 100 percent. The coefficient must be brought by systemically significant banks to 100 percent within 18 months from the date of entry into force of the rules, and by other banks - up to 24 months. Until the LCR ratio is maintained at 100 percent, the current instant liquidity ratio will continue to be applied," said the CBA.

"The application of these rules will ensure the strengthening of the risk management potential in the banking sector, a more correct prediction of the liquidity position, and thereby more effective preservation of stability," the CBA said in a statement.