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RESOLUTION OF BOARD OF CENTRAL BANK OF THE AZERBAIJAN REPUBLIC

of October 24, 2022 No. 46/1

About approval of "Procedure for prudential regulation of the credits of project financing"

Based on article 34.5 of the Law of the Azerbaijan Republic "About banks" and article 22.0.17 of the Law of the Azerbaijan Republic "About the Central bank of the Azerbaijan Republic", the Board of the Central bank of the Azerbaijan Republic DECIDES:

1. Approve "Procedure for prudential regulation of the credits of project financing" it (is applied).

2. Part 4 of "Procedure for prudential regulation of the credits of the project financing" approved by part of 1 this Resolution (except for subitem 4.1. 2), it is applied after six months from the date of entry into force of this Resolution.

3. Charge to Legal department (Rena Melikova) in 3-day time to provide submission of this Resolution to the Ministry of Justice of the Azerbaijan Republic for entering into the State register of legal acts of the Azerbaijan Republic.

Approved by the Resolution of Board of the Central bank of the Azerbaijan Republic of October 24, 2022, No. 46/1

Procedure for prudential regulation of the credits of project financing

1. General provisions

This Procedure is developed according to article 34.5 of the Law of the Azerbaijan Republic "About banks", and also taking into account standards of Basel Committee on Banking Supervision and determines regulation framework by the credits of project financing in the banks operating in the Azerbaijan Republic, and local branches of foreign banks (further - banks).

2. Concepts

2.1. The concepts used in this Procedure have the following values:

2.1.1. the credit of project financing (further - KPF) - issued for the purpose of financing of the new or existing project (for example, power engineering specialists, the industries, transport infrastructure, the environment, media and telecommunications) business loan, at least three quarters of source of return and which providing are connected with cash flows which will arise on operational phase on the project and which has the following properties:

2.1.1.1. the loan is granted to exclusively legal entity founded for the purpose of project implementation;

2.1.1.2. under the terms of the credit agreement the bank has opportunity to control the asset connected with the financed project including the income created by this asset.

2.1.2. operational phase - the period when sufficient cash flows for accomplishment of credit obligations on the project are formed;

2.1.3. the sponsor - the person coordinating the parties connected with the project, controlling processes on the project, and also giving support (material or non-material) to project implementation;

2.1.4. the high-quality project - the project which is able to fulfill timely financial liabilities irrespective of economic situation and negative changes of business environment and at the same time conforms to requirements of subitems 2.1.4.1 and 2.1.4.2 or 2.1.4.1 and 2.1.4.3 of this Procedure:

2.1.4.1. in the agreement KPF there are regulations on prevention of actions of the borrower which can create risk on credit debt (for example, increase in debt obligations of the borrower at the expense of other sources);

2.1.4.2. 50 (fifty) and more percent of the income of the borrower depend on the government budget, government institution or legal entities whose risk degree does not exceed 50 (fifty) percent as it is determined in "Rules of calculation of banking capital and its adequacy";

2.1.4.3. the project - the project in which the state, and (or) the project provided by the state program participates.

2.2. Other concepts used in this Procedure have the values established by the Law of the Azerbaijan Republic "About banks" and acts of normative nature of the Central bank of the Azerbaijan Republic (further - the Central bank).

3. Assessment of credit risks

3.1. In case of assessment of credit risks on KPF in addition to the requirements specified in "Rules of credit risk management in banks" also requirements of this Procedure shall be observed.

3.2. Compliance of the high-quality project to the requirements provided by subitem 2.1.4 of this Procedure is estimated by bank at least once a month, and in case of identification of violations of these requirements the project is not considered the high-quality project.

3.3. By provision of KPF bank shall estimate the potential of profitability of the project, and also cash flows taking into account the applicable legal and (or) regulating restrictions.

3.4. By provision of KPF all assets connected with the project including the current and future cash flows, and also shares (share) of members of the borrower in the borrower's capital act as providing. In the syndicated and joint loans the arrangement between the banks granting the loan shall regulate the rights of each bank to providing.

3.5. In case of implementation of loan repayment in the syndicated and joint loans through bank organizer the bank acting as the participant in provision of syndicated loan shall estimate stability of bank organizer on syndicated loan.

3.6. KPF can be provided if the borrower corresponds to the following criteria:

3.6.1. has the business plan approved by the independent expert or the company specializing in this area, covering the stages of development of the project all the predicted costs, and also operational phase. The independent expert or the specialized company shall have at least 3 (three) years of work experience in this sphere;

3.6.2. there is contract (the protocol on intentions or other document on the arrangement) with the designer, the contractor and other persons participating in project implementation for project implementation;

3.6.3. has the corresponding actions plan on receipt of all necessary allowing and other documents of title on the project (means can be provided only after provision in bank of necessary allowing and other documents of title).

3.7. For the purpose of activities assessment during the credit period and minimization of possible risks the bank sets in the credit agreement limits of the project (for example, on variations from planned operating expenses, on variations from the works schedule, to attraction of additional debt obligations or the guarantee, investment of cash, debt relation coefficient to the capital, etc.) and measures which need to be undertaken in case of their violation (for example, toughening of credit conditions, temporary suspension of the following tranche, etc.).

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