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Ministry of Justice

Azerbaijan Republic

On January 17, 2002 No. 02-10/27

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

Rules about regulation of risks on one borrower or group of the borrowers connected with each other

(as of April 30, 2008)

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 are intended for decrease in the risks which are formed in all commercial (joint-stock and commercial) banks of the republic and branches of foreign banks (further - "bank") from accumulation of the debts which are available before bank for one borrower or group of the borrowers connected with each other.

1.2. The purpose of settlement of such debts and decrease in the formed risks is achievement of increase in financial stability, safety and reliability of banks, and also diversifications (distribution) of assets.

1.3. In these rules the following concepts are used:

1.3.1. The borrower - any physical person or legal entity which obtained the credit in bank or having debt to bank.

1.3.2. The group of the borrowers connected with each other - two and more borrowers who are economically interconnected with each other at the same time emergence at one of them of financial straits can entail emergence and in other borrowers of the problems connected with payment of debts to bank.

1.3.3. Borrowers are considered connected with each other in the following cases:

* if one of borrowers of bank has significant effect on other borrowers of bank;

* if the same person (irrespective of whether it is borrower of bank) has significant effect on two or more borrowers;

* if the founders of any company bearing subsidiary responsibility are borrowers of bank;

* if the same person (irrespective of whether it is borrower of bank) is the founder of two and more companies bearing subsidiary responsibility, being borrowers of bank;

* if the founder of two and more companies bearing subsidiary responsibility, being borrowers of bank (irrespective of, he is the borrower of bank), has significant effect on any legal entity who is the borrower of bank;

* by transfer by one borrower of the credit obtained from bank in any form to other borrower (cash or transfer) or in case of transfer by two and more borrowers jointly or separately the credit obtained from bank to the same person (irrespective of whether it is borrower of bank), except as specified transfers for commercial purposes two and more funds borrowers for the credit account to the same supplier or person rendering services;

* when using by borrowers of the credits obtained from bank for participation in the same company or joint activities (in view of the fact that the planned source of payment of these credits is same for borrowers);

* if over 50% of gross income of one borrower arrived from other borrower;

* if over 50% of the income of two and more family members, being the borrower of bank, are obtained from the company belonging to family.

1.3.4. The face is considered the having significant effect on the legal entity in the following cases:

* if it is large founder (the shareholder, the unitholder) of the legal entity;

* if it based on the contract with the large founder (the shareholder, the unitholder) of the legal entity or with members of its Supervisory board, Board either other leading employees or otherwise can direct or manage affairs of this legal entity;

* if it can under the agreement or different way to direct or manage affairs of several founders of the legal entity having directly or indirectly over 10% of its authorized capital.

1.3.5. The large founder (the shareholder, the unitholder) legal the litsafizichesky or legal entity having directly or indirectly over 10% of the authorized capital or shares of the company granting voting power or able to have such right.

1.3.6. The following indicators enter calculation of risks on one borrower or group of the borrowers connected with each other:

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

* the undertaken off-balance obligations, including obligations on issue of the credit lines which are subject to execution, guarantees, letters of credit and providing in other form;

* overdrafa (irrespective of preliminary coordination);

* any debt which is written off from balance (except as specified debt write-offs from balance in case of cancellation of the obligation of the borrower the court decree owing to initiation of proceedings about bankruptcy or behind prescription of term of initiation of the claim for court decrees).

Such indicators of one borrower or group of the borrowers connected with each other which are considered for bank as risk will hereinafter be referred to as further as credit requirements of bank.

1.3.7. The amount of credit requirements of bank to one borrower or group of the borrowers connected with each other is considered large credit requirements of bank if exceeds 10% of its own means.

1.3.8. By "own means" in these rules the indicator the "aggregate capital after deduction" established by the corresponding regulation of National Bank shall be implied.

2. Obligatory standard rates

2.1. Except as specified, the maximum amount of the straight lines or indirect credit requirements of bank to one borrower or group provided by these rules of the borrowers connected with each other shall not exceed the following regulations (restrictions):

a) if market value of guarantee of credit requirements is at least 100 percent of the size of this credit requirement, and market value of pledge is less than 150 percent of credit on the credit provided with real estate - from 7 percent of the general capital of bank;

b) if market value of guarantee of credit requirements is less than 100 percent of size of this credit requirement, and market value of pledge on the credit provided with real estate is at least 150 percent of the credit - from 20 percent of the general capital of bank.

2.2. Total amount of all large credit requirements of bank shall not exceed the 8-fold size of its own means.

2.3. Credit requirements in the regulations established by subitems 2.1 and 2. 2, can be allowed by banks only according to the procedure of exception. It is, as a rule, recommended to approve to banks in the internal procedures such regulations at lower level. Such regulations approved by internal procedures shall be established according to nature of activities of bank and economic environment in which it works.

2.4. Large credit requirements can be allowed by bank only according to the solution of the Supervisory board. In the solution of the zasedatelny protocol of the Supervisory board on such credit requirements the result of vote personally on each member of council shall be noted.

Borrowers cannot declare unreliability of the credits issued according to the procedure, not conforming to requirements of these rules.

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