Banking in Azerbaijan: Strategies for Growth and Development

The banking sector in Azerbaijan has been on a remarkable growth trajectory, with the country's banking system expanding rapidly over the past decade.

The number of banks in Azerbaijan has increased from 12 in 2001 to 41 in 2020, according to the Central Bank of Azerbaijan.

This growth has been driven by a combination of factors, including the country's economic reforms and its increasing integration into the global economy.

Azerbaijan's banking system has also become more sophisticated, with the introduction of new technologies and products, such as mobile banking and credit cards.

Azerbaijan has a well-established regulatory framework for its banking system, with key laws and regulations in place since 1991. The country restored its independence on October 18, 1991.

The law "On Banks and Banking Activity in the Republic of Azerbaijan” was adopted on 7 August 1992, and the national currency, Manat, was released on August 15 of the same year. Manat was declared the only means of payment in the country on 1 January 1994.

The National Bank of the Republic of Azerbaijan was given the exclusive right to issue and withdraw money from circulation, as reaffirmed in Article 19, paragraph 2 of the first Constitution of the Republic of Azerbaijan adopted in the referendum on November 12, 1995.

Azerbaijan restored its independence on October 18, 1991. This marked the beginning of a new era for the country's financial system.

The law "On Banks and Banking Activity in the Republic of Azerbaijan” was adopted on 7 August 1992, establishing the foundation for the country's banking system. The law "On the National Bank of the Republic of Azerbaijan” was also adopted on the same date, defining the role and responsibilities of the National Bank.

Manat, the national currency of the Republic of Azerbaijan, was released on August 15, 1992, alongside the ruble. It wasn't until 1 January 1994 that Manat was declared the only means of payment in the country.

The law "On the National Bank of the Republic of Azerbaijan” and "On Banks and Banking Activity in the Republic of Azerbaijan” were re-adopted in new editions on 10 June 1996 and 14 June 1996, respectively. This update brought the banking system closer to the world banking experience and established credit institutions.

The law "On the National Bank of the Republic of Azerbaijan" was adopted on December 10, 2004, to adapt to updated scientific and theoretical methods and the requirements of modern ongoing processes. The law "On Banks" adopted on 16 January 2004, came into force on 30 March 2004.

As a result of measures taken for the creation of deposit insurance mechanisms, the law "On Deposit Insurance" was adopted on 29 December 2006. This law aimed to protect depositors in case of bank failures.

The law "On the Prevention of the Legalization of Criminally Obtained Funds or Other Property and the Financing of Terrorism” came into force on 25 February 2009.

Fitch Ratings considered Azerbaijan's banking sector to be "broadly stable" in 2014, but highlighted structural issues that needed to be addressed.

Retail lending is a higher growth segment than corporate lending in Azerbaijan's banking sector, according to Fitch Ratings.

Kapital Bank prioritized agility in its operations and strategy, building a new mindset and culture that promotes collaboration, flexibility, and continuous improvement.

Automated tools, such as voice-to-text and text-to-voice systems, have been invested in by the bank, reducing the need for daily customer interactions like phone calls.

An artificial intelligence-integrated chatbot gives tailored responses to customers based on their behaviors and needs.

The Birbank Biznes mobile app enables SMEs to access their accounts and perform various financial transactions anytime and anywhere, with 99% of all non-lending operations performed remotely.

Kapital Bank's mobile banking app, Birbank, has transformed into a fully digital bank, enabling end-to-end banking products through a mobile app within Azerbaijan. It's a complete digital ecosystem designed to simplify everyday financial needs of customers.

Around 3 million users have driven the digital deposit portfolio up by AZN 600 million in 2024 to date, to AZN 1.1 billion in total. This growth showcases the trust customers place in the digital banking solution.

Loyalty programmes have led to over AZN 156 million in cashback, miles, and bonus refunds in 2023-24.

Kapital Bank is committed to focusing on its core and contributing positively to its home market in Azerbaijan. It has no plans to expand beyond the country, instead choosing to tap into the potential for growth and innovation within the local banking sector.

The bank's goal is to improve the welfare of its people through customer-centric services and increase banking accessibility across the country. This includes efforts to enhance the domestic digital ecosystem.

A new loyalty programme is in the pipeline to offer rewards and bonuses to customers, as well as new digital services such as payment options and innovative products. By 2026, Kapital Bank expects that over 60% of its issued loans will be processed digitally.

The bank is also using advanced scoring models and new data sources to simplify the loan process. This is part of its commitment to digital transformation and adapting to new technologies and evolving customer expectations.