Azerbaijan moves to establish legal framework for asset securitization

lAzerbaijan is preparing to introduce a comprehensive legal framework for securitization, enabling creditors to monetize future cash flows ahead of schedule and convert illiquid assets into tradable securities.

Draft amendments to the laws "On Banks" and "On the Securities Market" were submitted for review to the parliamentary Committee on Economic Policy, Industry, and Entrepreneurship. Prepared under the 2022–2026 Socio-Economic Development Strategy, the legislation establishes operational criteria for securitization vehicles and servicing agents, transfer procedures, bond issuances, and risk retention rules.

Under the framework, originating lenders can transfer eligible assets to a securitization vehicle, which will issue asset-backed bonds serviced by cash flows from the underlying pool. Every transaction will require prior approval of a securitization plan by the Central Bank of Azerbaijan (CBA), followed by an application for state registration of the bond issue within 60 business days. To safeguard credit quality, the risk profile of transferred assets must not exceed that of comparable assets retained on the originator's balance sheet, and originators will be mandated to retain at least a 5% risk share until maturity.

Gulnar Nazimgizi