Azerbaijan Banking Sector: New Trends and Prospects

Aim. The issues of reformation, sustainability, and efficiency of the Azerbaijan banking sector in the context of growing competition are not properly addressed in the works of Azerbaijani scientists and economists. Having examined the results achieved in the development of the banking sector and problems that arise in this area, the authors provide recommendations and propose ideas for the development of this sector.

Tasks. The presented study shows the stages of formation of the country's banking sector and examines new trends in the development of the banking sector over the past decade.

Methods and materials. The methodological basis of this study includes a dialectical approach to analyzing the fundamental phenomena and mechanisms that facilitate the development of economic relations and a systems approach to uncovering key factors in the development of the Azerbaijan banking sector. The study also uses such methods of scientific analysis of socio-economic phenomena and processes as statistical, comparative, fundamental, and functional analysis, expert assessments, and modeling. A number of provisions reflect the scientific works of foreign and Azerbaijani economists on the problem of institutional development of the banking system of Azerbaijan. The theoretical basis includes the final results of fundamental and applied research published in periodicals, monographs, and proceedings of scientific conferences.

Results. The emergence of new factors and rapid changes in the internal and external macroeconomic environment create prerequisites for further research on the problem of developing and increasing the stability of the Azerbaijan banking sector in the face of new challenges. This makes it necessary to examine and identify the main problems that prevent Azerbaijani banks from achieving a high level of efficiency. The results of the study reveal the patterns and current trends in the development of the Azerbaijan banking sector in the face of new challenges. The authors analyze the characteristics of the stages of development of the Azerbaijan banking sector, assess the current state of the banking sector, determine the legal status of the Central Bank of Azerbaijan and the reasons for the transition to the floating manat exchange rate. In addition, the money transfer market of Azerbaijan and the development of non-cash payments are analyzed, and the prospects for the introduction of financial technologies, including the operation of the Institute of Islamic Banking in Azerbaijan, are determined.

Conclusions. The analysis of the Azerbaijan banking sector shows that the main reasons for the financial problems of the country's banks are the fall in the prices of energy products and depreciation of the national currency — the manat. Despite clear progress in capitalization growth, its level is still inadequate in relation to the needs of banks and the country's financial system as a whole. In spite of a certain improvement, the situation in the Azerbaijan banking system remains unstable: dollarization, unhedged currency positions, and non-performing loans remain at a high level, and some banks are undercapitalized or insolvent.

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