The Deposit Return Mechanism Following Banking License Revocations was Analyzed Under the Equality Principle

The stability of the banking sector and the protection of depositors' rights are considered one of the fundamental pillars of the financial system. In this regard, the mechanism for deposit returns carries particular legal significance in cases where a bank's license is revoked or it is declared bankrupt.

The legal analysis conducted notes that the deposit insurance system in Azerbaijan is regulated by the Laws “On Deposit Insurance” and “On Banks,” and that the primary institutional mechanism in this field is implemented through the Deposit Insurance Fund.

The current model focuses almost exclusively on protecting natural persons; as a result, the deposit of legal persons remains entirely outside the scope of this insurance mechanism. This disparity creates an inconsistency with the right to equality enshrined in Article 25 of the Constitution, the provisions of the Civil Code, enshrining the equality of civil law subjects, and the inviolability of the property rights.

The analysis further notes that upon a bank's liquidation, legal entities are treated merely as unsecured creditors, meaning their claims are settled solely on a priority-ranking basis during the winding-up process. In practice, because of a deficit in bank assets, recovering these corporate funds in full is usually impossible. Furthermore, capping the statutory compensation limit for sole proprietorship accounts (natural persons engaged in entrepreneurship) at 20,000 manats raises significant concerns regarding compliance with the overarching principle of equal protection.

In addition to national legislation, the study devotes extensive space to international practice.

As a result of the legal analysis, it is recommended to review a number of legislative initiatives to ensure the right to property and the principle of equality more effectively in the banking sector.

The following proposals are specifically noted: 

1. Extending the deposit insurance mechanism to legal persons based on certain criteria;
2. Abolishing the 20,000 manat compensation limit applied to the accounts of natural persons related to entrepreneurial activities, and aligning it with the general limit of 100,000 manats;
3. Establishing a more balanced and equal protection mechanism for all participants in civil turnover within the banking system;
4. Harmonization of domestic legislation with international standards.

Finally, it is noted that strengthening public trust in the banking system, ensuring the financial security of entrepreneurial entities, and effectively protecting property rights are of vital essence from the perspective of business and human rights and that conducting reforms in the respective direction for this purpose is of paramount importance.

The analysis conducted has been submitted to the relevant state authority.