According to bank, with oil prices projected to remain low for some time and oil production already likely at its maximum, sustainable growth is possible only through significant economic diversification: "Diversification will require, among other things, greater access to credit from a more resilient financial sector. Small and medium-sized enterprises (SMEs) in particular need financing if they are to contribute to higher growth outside of the oil sector. Credit expansion requires stronger financial institutions, financial markets that are deeper and more liquid and efficient and thus able to handle larger volumes, broader domestic sources of finance, and better access for more users of banking and other financial services. In tandem with greater financial intermediation, Azerbaijan needs stronger competition among financial institutions and closer regulation of their activities”.
"Persistent dollarization has greatly squeezed liquidity in local currency. As the share of loans and deposits in foreign currency rises, so does the risk posed to banks by their foreign exchange liabilities and nonperforming loans. Poor banking practices and the proliferation of nonperforming loans challenge the soundness of banks and their efforts to maintain market liquidity. Moreover, the central bank’s lack of sufficient refinancing facilities undercuts commercial banks’ ability to provide loans, particularly to SMEs, as does the weakness of bankruptcy law and other protections for creditors. Access to finance is particularly constrained outside of the capital. The decision in January 2016 to provide full deposit insurance will likely boost confidence in the banking system. Capping interest rates on foreign currency deposits at 3% while retaining a higher ceiling of 12% on manat deposits should encourage the holding and use of manat, as should the government’s recent issue of local currency bonds. The central bank’s lengthening of secured loans to banks from 1 to 7 days and the reduction in reserve requirements for local currency deposits from 2.0% to 0.5% ought to enhance local currency liquidity while easing banks’ liquidity management. These moves, together with the central bank’s direct provision of finance to SMEs, should make financing more available, especially in manat, thereby promoting the use of the local currency”, the bank said.