Azeri Banks Said to Get One-Month Ultimatum After Lenders Culled

Azerbaijan’s banking regulator gave the country’s lenders a month to draw up plans to end what it described as chronic violations of prudential norms, promising to clamp down on those failing to meet requirements, according to a document seen by Bloomberg.

After 10 of 43 banks were already culled this year, the Financial Markets Supervisory Authority said in a letter sent to lenders on Aug. 15 that the industry continues to face significant risks and pressure because of the collapse in oil prices. It demanded that all the remaining banks come up with detailed plans by Sept. 15 to address the violations, saying it will show zero tolerance as it monitors their implementation.

The largest oil producer in the former Soviet Union after Russia and Kazakhstan rushed to purge weak banks and consolidate the rest of the financial industry in mid-January amid a crisis sweeping the economy, revoking the licenses of six lenders in a matter of weeks. The Financial Markets Supervisory Authority, which was established in February to take over from the central bank as the banking regulator, resumed the cleanup last month, shuttering four more lenders to “reduce risks in the banking sector, ensure financial sustainability and increase trust.”

Rufat Abbasov, an adviser to the regulator’s chief, declined to comment on the letter. Rufat Aslanli, head of the authority, met the heads and shareholders of the banks on Wednesday, according to a statement. They discussed the situation in the banking industry and the economy as a whole, as well as new trends and “supervisory measures” by the regulator.

Wielding Punishment

The banks that had their licenses revoked in July failed to “classify their assets in accordance with law” and “set aside sufficient reserves to prevent possible damages,” Aslanli said at the time. The lenders also weren’t meeting the minimum capital requirement and presented false reports about their activities, he said.

The industry’s flaws and lapses have emerged as a key vulnerability for the economy that endured two devaluations last year, which ignited a frenzy on the foreign-exchange market as savers fled manat deposits. The currency crisis and an economic contraction of 3 percent in the first seven months are putting further pressure on asset quality and margins. The share of dollar savings is now at almost 80 percent of the total, according to S&P Global Ratings.

The central bank burned through more than two-thirds of its reserves last year to support the national currency before shifting to a managed free float in December. The manat lost more than half its value against the dollar last year.

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