Approved by Board of National Bank of the Azerbaijan Republic of November 18, 2008 No. 34

Rules of issuance of credits 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", other legal acts of the Azerbaijan Republic, acts of normative nature of National Bank of the Azerbaijan Republic (further - National Bank), and also the international practice.

1.2. These rules establish the minimum requirements to internal strategy and rules of banks on credit risk and issuance of credits in the commercial banks and local branches of foreign banks operating in the country (further - banks).

1.3. Each bank according to specifics and amount of the activities shall develop strategy on issuance of credits, and also intra bank rules on credit risk management, including by determination, risk assessment and its control.

1.4. The credit strategy of bank, intra bank rules on issuance of credits, and also on credit risk management shall be prepared by Board together with the relevant committees and are approved by the Supervisory board.

1.5. The approved strategy and intra bank rules of bank shall be documented, brought to the attention the relevant structural division and employees.

1.6. Strategy and intra bank rules shall be reviewed at least once a year.

1.7. Requirements of these rules, except for Item 4.1. 12, do not extend to interbank credits.

2. Credit strategy

2.1. The credit strategy of bank is created on the basis of his general strategic view. Credit strategy determines the directions of placement of credit resources of bank by types of loan (mortgage, consumer, commercial) taking into account structure of the raised funds, sufficiency and adequacy of personnel and information resources. The line item of bank on questions in connection with diversification of credit portfolio (economic sectors, the geographical territories, currency types, term and profitability of the credits), non-admission of cooperation with the borrowers who are engaged in illegal activities, and other credit activity is expressed in strategy.

2.2. Credit strategy shall cover such strategic questions as ensuring balance between specialization of bank and restriction of level of concentration and implementation of credit activities only in centralized procedure or also from branches.

3. Criteria of issuance of credits

3.1. Evaluation criteria bank of requests for the credit are determined by amount, loan terms, risk level in connection with them, type of activity of the borrower and other factors. Criteria are grouped at least in the following factors:

3.1.1. Purpose of the credit and source of payments;

3.1.2. Risk level in connection with the borrower and the credit declared to them;

3.1.3. Sensitivity of the credit, and also the providing offered instead of it to market and economic changes;

3.1.4. Credit history of the borrower, and also the current creditworthness of the borrower according to cash flow forecasts taking into account the this to history and various scenarios;

3.1.5. Experience and knowledge of the borrower in field of activity on commercial credits;

3.1.6. Condition of economic/market section in connection with type of loan and the borrower's provision in this sector;

3.1.7. Conditions and loan term, including possibility of modification of the credit agreement during the loan term;

3.1.8. Adequacy of providing and its realization or use in case of need.

3.2. If the credit is issued to the borrower for the first time, the authority of the borrower and capability shall consider bank to assume liabilities. However only high authority of the borrower shall not be the single basis for decision making about issue of the credit to it.

3.3. In case of assessment of the request for the credit submitted by legal entities, the bank in case of measurement of credit risk shall consider availability at the applicant of corporate management system and its adequacy.

3.4. The bank, based on the established criteria, shall appropriate to each borrower (except for physical persons, including persons who are engaged in business activity without formation of legal entity) intra bank rating.

4. Intra bank rules on issuance of credits

4.1. Intra bank rules on issuance of credits shall regulate comprehensively credit work, and it is necessary to be guided by them in work when making credit operations. Each bank shall reflect in intra bank rules on issuance of credits the following questions taking into account nature and complexity of the made credit operations:

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