BAKU, Azerbaijan, October 15. Concentration in
Azerbaijan's banking sector remains moderate and has been declining
in recent years, Shahin Mahmudov, director general of the Central
Bank of Azerbaijan (CBA), said at a press conference on Thursday
dedicated to the presentation of the Financial Stability Report,
Trend's correspondent reports from the event.
He said the CBA's assessment showed that competition in the
banking services market had improved compared with previous
periods.
“Concentration in the banking sector is related to individual
banks' market shares and their importance to the financial system.
In many countries, the presence of systemically important banks is
a characteristic feature of financial markets.
“Almost every country's banking sector has larger financial
institutions that are more important to the system than other
banks. In Azerbaijan, we currently assess concentration as
moderate. We are not seeing high levels of concentration,” Mahmudov
noted.
According to him, the market has recently shown a downward trend
in concentration. Although state-sector activity and other factors
can affect individual banks' market shares at certain times, the
overall picture indicates improving competition.
The CBA official said that in previous years, large and small
banks had faced significant differences in funding costs. These
costs and profitability indicators have since become more
similar.
“Previously, there were considerable differences between large
and small banks in terms of funding costs. These costs, as well as
profitability indicators, are now more comparable. Naturally, large
banks have greater capacity to invest in personnel, technology, and
systems and to offer customers a wider range of services. This is a
normal consequence of differences in bank size. However, from the
customers' perspective, we are seeing a trend toward lower
concentration,” he said.
Mahmudov also emphasized that distributing salary payments among
banks could have a positive impact on competition. According to
him, giving customers more options when choosing banks for their
salary cards makes it easier for other banks to enter the market,
attract additional customers, and offer lending and other
services.
“Distributing payroll funds and salary payments among banks is
one of the mechanisms that can help reduce concentration. When
customers have more options in choosing a bank, other banks also
have greater opportunities to participate in the market and offer
their services. However, it will take time and infrastructure
changes for the full effects of these developments to become
apparent,” the director general said.
He added that the impact of regulatory measures introduced by
the CBA was also taken into account when assessing trends in
banking-sector concentration. Individual banks' shares in the
lending and mortgage markets may change during certain periods, but
longer-term observations are needed to assess the overall
trend.
Mahmudov also clarified the Financial Stability Report's
assessment that small and medium-sized banks are more vulnerable to
financial shocks.
He said the analysis primarily aimed to compare the financial
resilience of systemically important banks with that of other banks
and to determine regulatory and supervisory mechanisms appropriate
to banks' risk profiles.
“The analysis of the greater vulnerability of small and
medium-sized banks to shocks is intended to compare large,
systemically important banks with other institutions. Under the
existing regulatory framework, systemically important banks are
subject to additional capital requirements. They are also subject
to more intensive supervision,” he said.
According to the CBA official, changes in Tier 2 capital must
also be considered when assessing banks' capital structures. The
existing approaches in this area are scheduled for review by the
end of the year.
He noted that one of the main components of Tier 2 capital is
current-year profit. At the end of the year, transferring that
profit to another component of capital in accordance with the
applicable rules may lead to a decrease in the Tier 2 capital
indicator.
“This is a matter of capital structure and, to some extent, a
natural process. Current-year profit is one of the main components
of Tier 2 capital. When that profit is transferred to another
capital component at year-end, the amount of Tier 2 capital changes
accordingly. Therefore, assessments should consider not only the
Tier 2 capital indicator but also the overall level of capital,”
Mahmudov emphasized.
He added that properly assessing capital indicators was
important for determining banks' financial resilience and
evaluating their ability to withstand risks.
