Approved by Board decision of National Bank of the Azerbaijan Republic of December 29, 2001 No. 26

Rules of making of transactions with persons having participation in banks

1. General provisions

1.1. These rules are prepared according to the laws of the Azerbaijan Republic "About National Bank of the Azerbaijan Republic" and "About banks and banking activity in the Azerbaijan Republic" and pursue the purpose decrease in the credit risks arising at persons having participation in banks from their debts to bank when making of the republic by all commercial (joint-stock and commercial) banks and branches of foreign banks (further - "banks") transactions with such persons.

1.2. The purpose of settlement of such debts is creation to receivers of banking services of opportunity to use these services on an equal basis with persons having participation in bank i.e. irrespective of whether they hold position in bank or whether have the right to control its activities or to influence it, and increase at the population of belief in bank system.

The concepts used in these rules:

1.3. Persons having participation in bank:

a) heads (any administrator of bank);

b) all bank employees;

c) any physical person or legal entity which is the large founder of bank;

w) any physical person consisting with heads in the relations of relationship of the first degree or related business interests;

e) any legal entity who is the large founder of bank.

1.4. Person is recognized acting on behalf of person having participation in bank if acts on specifying of the last on the basis of the relations which arose between them or if the transaction with it brings to person having participation in bank, benefit. For example, person is considered acting on behalf of the last in the following specific circumstances:

* availability of the right to act on behalf of person having participation in bank based on the agreement signed between them;

* the direct or indirect transfer to such person of revenue from the transaction with bank;

* availability of possibility of strong influence on the legal entity having participation in bank;

* legal representation of such person.

1.5. Members of the Supervisory board, financial audit committee, Board, heads of departments, departments and branches, all other leading employees of bank irrespective of powers and positions treat heads.

1.6. Parents, the grandfather, the grandma, the spouse, children (including adopted), brothers and sisters treat relatives of the first degree.

1.7. The persons having participation in bank, and acting from their name are considered having strong influence on the legal entity in the following cases:

* if are large founders (shareholders, unitholders) of the legal entity;

* if together with founders (shareholders, unitholders), members of the Supervisory board, financial audit committee, Board and other heads of the legal entity can direct or manage its affairs based on the official agreement or otherwise;

* if are the founders of the legal entity bearing subsidiary responsibility.

1.8. Large founder (the shareholder, the unitholder) of the legal entity is the physical person or legal entity directly or indirectly owning more than 10 percent of the authorized capital of the company or its voting shares or able to have the right of such ownership.

1.9. The credits and providing issued to the persons having participation in bank, and faces, acting from their name are implied as the following indicators:

* main amount of all current and overdue loans (credits, factoring and financial leasing);

* the assumed off-balance obligations including which are subject to obligation fulfillment on provision of credit lines, guarantees, letters of credit and other providing;

* overdrafts (irrespective of preliminary coordination);

* any debts which are written off from balance (except for the debts which are written off in case of cancellation of the obligation of the borrower by the court order owing to initiation of proceedings about bankruptcy or behind lapse of time of initiation of the claim for court orders).

For the persons having participation in bank, and acting from their name, such indicators which are considered risk for bank will hereinafter be referred to as further as credit requirements of bank.

1.10. The following assets (credits) are recognized low-quality:

* determined in case of monitoring procedure or qualified on bank accounts as "unsatisfactory", "doubtful" or "hopeless";

* belonging to the status "with not charged percent";

* with overdue payment due date of the main amount or percent more than for 30 days;

* prolonged or recaused in view of financial straits at the debtor.

1.11. As "own means" in these rules the indicator of "the aggregate capital after deduction" established by the corresponding regulation of National Bank shall be understood.

2. The maximum loan amount, to the issued persons having participation in bank, and faces, acting from their name

2.1. The sizes of straight lines or indirect credit requirements to the persons having participation in bank, and faces, acting from their name, except as specified, provided by these rules shall not exceed the following limits:

a) for legal entities - 10% of own means;

b) for physical persons - 3% of own means.

2.2. Total amount of all credit requirements to the persons having participation in bank, and faces, acting from their name shall not exceed 20% of own means of bank.

2.3. Credit requirements of bank to the persons having participation in bank, and faces, acting from their name shall be provided as follows:

* if providing is expressed by the securities issued by the Government of the Azerbaijan Republic either the central authorities or Central Banks of the countries entering into Organization for Economic Cooperation and Development (OECD), their market value shall make at least 125% of loan amount;

* if providing is provided in any other form, its market value shall make at least 150% of loan amount.

2.4. Providing, which market value less sum, determined in subitem 2. 3, within 10 working days it shall be replaced or filled.

2.5. Credit requirements for the limits set in subitems 2.1 and 2 can be allowed by banks. 2, only according to the procedure of exception. It is, as a rule, recommended to approve to banks in the internal procedures such standard rates at lower level.

2.6. Persons having participation in bank, and the faces acting from their name cannot declare invalidity of the credits obtained not according to requirements of these rules.

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