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LAW OF THE AZERBAIJAN REPUBLIC

of January 16, 2004 No. 590-IIQ

About banks

(as amended on 26-12-2023)

This Law determines the principles, rules and regulations of the organization, internal management, regulation of activities and liquidation of banks for the purpose of the most full compliance of the legal base of banking activity to international standards, increases in role of banking services in economy, strengthenings of protection of bank investors and creditors and ensuring in general stable and safe activities of bank system.

Chapter I. General provisions

Article 1. Basic concepts

1.0.1 Bank - the legal entity who performs attraction of deposits of physical persons and legal entities or other returnable means, issuance of credits on its own behalf and at the expense of the means, and also at the request of clients in total translated and settlement and cash transactions.

1.0.2 Bank holding company - the company having one or several subsidiary banks with the banking license which activities are regulated and controlled by bodies of bank regulation of the country in which the head office is located.

1.0.3 Subsidiary bank - bank in which authorized capital more than fifty percent of shares with voting power belong to founder bank or the bank holding founder company, or such bank in which under the agreement signed between it and founder bank or the bank holding founder company, the founder bank or the bank holding founder company is given opportunity to have significant effect on adoption of decisions by it.

1.0.4 Bank branch - separate division of bank, not being the legal entity, taking place outside the location of bank which responsibility according to obligations is born by bank, capable to perform all or part of the banking activity permited bank.

1.0.5 Bank department - separate division, not being the legal entity, taking place outside the location of bank which responsibility according to obligations is born by bank, attracting its deposits in the territory of the republic and/or conducting translated, settlement and cash transactions.

1.0.6 Representative office of bank - separate division of bank, not being the legal entity, taking place outside the bank location, not having the right to be engaged in banking activity representing and protecting only its interests.

1.0.7 Non-bank credit institution - the legal entity having the status of non-bank credit institution, under the law not being bank.

1.0.8 The banking license - the special permission issued according to the procedure, determined by this Law, the granting exclusive right on implementation of the activities connected with attraction of deposits of physical persons and legal entities or other returnable means, issue on its own behalf and on own account the credits and also at the request of clients in total translated and settlement and cash transactions.

1.0.9 Bank loan (further - the credit) - the money issued in loan on certain amount on security or without providing with return condition for certain term (with the right of prolongation of term) and interest payment (commission fees) according to the signed agreement. Also other right connected with the requirement of the redemption of any obligation undertaken on such conditions about issue of money, guarantee, providing mortgage securities with discount or under percent and return of the means issued in any form based on the agreement belongs to concept of the credit.

1.0.10 The deposit - the money (except for the means accepted to release of electronic money) enclosed or listed on the current, savings (deposit) or other account which is carried out on balance of bank, providing return or transfer to other account upon the demand of clients (investors) with payment or without interest payment or and (or) other payments specified in the agreement under the terms of the relevant agreement.

1.0.11 The prevailing share - immediate or indirect possession of shares, constituting 10 or more percent of share capital or voting shares, or giving opportunity is essential to influence decision making of the legal entity who is the participant under the agreement.

1.0.12. The administrator - members of the Supervisory board, Committee on audit and Bank boards, the head of local branch and representative office of foreign bank, and also the chief accountant of bank (local branch of foreign bank) (person which is carrying out these obligations), the staff of department of internal audit, heads of branch, department and representation of heads of bank;

1.0.13 Affiliates of bank are persons specified in Article 49-1.1 of the Civil code of the Azerbaijan Republic and also any person who, irrespective of share in the authorized capital of bank, on the basis of the agreement, directly or indirectly has the share allowing to have significant effect on decision making of bank; members of Auditing committee of bank; staff of division of internal audit; other bank employees participating in decision making; the chief accountant (person which is carrying out these obligations); the faces consisting in stipulated in Article 49-1.1.3 Civil codes of the Azerbaijan Republic the related relations with specified persons; persons who have the right to act on behalf of the affiliate of bank; legal entities in whom persons specified in Articles 49-1.1.6 and 49-1.1.7 of the Civil code of the Azerbaijan Republic, at least with 20 percent share participate. The head and the chief accountant of local branch of foreign bank (person which is carrying out these obligations), and also the other persons connected with foreign bank according to the legislation of the country which resident is the foreign bank are considered as the connected persons of local branch of foreign bank;

1.0.14 Clearing process of transformation of the requirements and obligations formed on the payment amounts given by one or several participants of settlement system to one or several other participants of this system or received from them in one net requirement or one net obligation which is their difference.

1.0.15 The word "local" concerning bank, branch or representation is meant as bank, branch or representation which main place of activities is in the Azerbaijan Republic.

1.0.16 The word "foreign" concerning bank, branch or representation is meant as bank, branch or representation which main place of activities is outside the Azerbaijan Republic.

1.0.17 "Credit institution" - bank, local branch of foreign bank or non-bank credit institution.

1.0.18 "Person having acceptable and necessary qualities" - the physical person having civil faultlessness, and also which is considered fair and worthy trust for public line item and professional qualities, experience which business authority give it opportunity to be the owner of the prevailing share of bank, the administrator, the temporary administrator, the beneficial owner and the liquidator;

1.0.19. "Civil conscientiousness" means beneficial owners, owners of considerable share, heads of its executive body if it is legal entity, and also the judgment about lack of criminal record for intentional crime, occupation of the corresponding position or occupation professional activity of heads of affiliated structures of bank in the absence of the imposed prohibition; for the administrator, the temporary administrator and the liquidator - lack of criminal records, lack of the fact of criminal prosecution for heavy and especially serious crimes against property and economic activity in the past, lack of the ban imposed by a court decision about occupation of the corresponding position or occupation by professional activity, judicially announcements of bankruptcy, and also of lack of the fact of collusion with persons with whom persons provided by this Law have civil immunity who are not meeting the listed requirements in this Article are general interest;

1.0.20 "Prudential" - the method of conscious behavior, management and control based on the standard rates, rules, requirements and indicators aimed at providing safe activities of bank.

1.0.21 The aggregate capital of bank (own means) - being the capital used for the purposes of prudential calculation it is the amount of components (elements) included in the capital of the I degree (main) and II degree (additional) determined by acts of the Central bank of the Azerbaijan Republic (further - the Central bank) normative nature, and difference of deduction from them;

1.0.22. The sphere of the financial markets - the sphere of regulation and control of the financial markets or field of activity in which financial services are rendered, regulated and controlled by the Central bank;

1.0.23. Fund - the legal entity created according to the Law of the Azerbaijan Republic "About deposit insurance";

1.0.24. The bank which lost solvency - bank which lost solvency or solvency of which under the threat, concerning which one or several bases specified in articles 57.1.1-57.1.3 of this Law are established;

1.0.25. The resolution - implementation of measures by the Central bank, the stipulated in Article 57.6 presents of the Law, for the purpose of immediate and less costly discharge which lost bank solvency including bank holding company from the financial market;

1.0.26. The actions plan under the resolution - the document which reflects method, conditions, term and economic case of the resolution lost bank solvency;

1.0.27. Bridzh-bank - the bank created and managed by the Central bank for the purpose of the full or partial translation and temporary management of healthy assets and liabilities which lost bank solvency;

1.0.28. Bank buyer - bank which according to the procedure, established by this Law, by means of auction acquires assets and liabilities lost bank solvency;

1.0.29. The investor - the legal entity or physical person which addressed to the Central bank for the redemption which lost bank solvency or the bridge bank according to the procedure, established by this Law;

1.0.30. The temporary administrator - the person designated by the Central bank in the cases provided by this Law, performing on behalf of the Central bank all powers on management of the bank which lost solvency within the resolution, including power of general meeting of shareholders of bank;

1.0.31. Healthy asset - asset which according to acts of normative nature of the Central bank is classified as standard asset;

1.0.32. Systemically significant bank - the bank corresponding to the criteria established by acts of normative nature of the Central bank;

1.0.33. Voluntary restructuring of obligations of bank - set of administrative, legal, financial, organizational and technical and other measures and procedures which are performed on the basis of the restructuring plan (further - the restructuring plan) for the purpose of improvement of financial condition of bank.

Article 2. Legal basis of banking activity

2.1. It is cancelled.

2.2. It is cancelled.

2.3. Activities of credit institutions in the Azerbaijan Republic are regulated by the Constitution of the Azerbaijan Republic, this Law, the Civil code of the Azerbaijan Republic, the Laws of the Azerbaijan Republic "About non-bank credit institutions" and "About credit unions", other regulatory legal acts of the Azerbaijan Republic adopted according to them acts of normative nature of the Central Bank, and also international treaties which the Azerbaijan Republic joined.

2.3-1. The relations in the bank sphere in the Alyatsky free economic zone are governed according to requirements of the Law of the Azerbaijan Republic "About the Alyatsky free economic zone".

2.4. Credit institutions, making the decisions connected with the current banking activity do not depend on state bodies of the power and municipal authorities and they cannot interfere with activities of credit institutions. Credit institutions cannot be forced by the law to implementation of the activities which are not relating to types of their activities.

2.5. Credit institutions in all cases, except cases when the corresponding obligation of credit institutions and the state is undertaken, do not bear responsibility according to obligations of the state, and the state does not bear responsibility according to obligations of credit institutions.

Article 3. General rules on implementation of banking activity

3.1. Credit institutions can perform banking activity in the territory of the Azerbaijan Republic based on the special permission (license) issued by the Central bank.

3.2. Deposit transactions can be performed only by banks, local branches of foreign banks and the national operator of mail service.

3.3. According to the Laws of the Azerbaijan Republic "About non-bank credit institutions" and "About credit unions" and other legislation, provisions of this Law, except Article 3. 1, 3.4, 5.1, 35.4 and 42, do not extend to the licensed and regulated credit unions and other non-bank credit institutions.

3.4. Licensing and banking regulation of the non-bank credit institutions specified in article 3.3 of this Law are performed by the Laws of the Azerbaijan Republic "About non-bank credit institutions" and "About credit unions" other regulatory legal acts of the Central bank of the Azerbaijan Republic.

3.5. In case of establishment by the Central bank of the fact that any person is engaged in the activities specified in article 3.1 of this Law without license it takes measures according to the Law of the Azerbaijan Republic "About the Central bank of the Azerbaijan Republic".

Article 4. Bank name

4.1. In the trade name of bank determined by its charter there shall be word "bank". No bank can refer to as in any document, the announcement or advertizing itself the name different from the name specified in the charter.

4.2. In the name of the legal entity who is not engaged in banking activity use of the word "bank" (the phrase containing the word "bank"), except cases when from the text in which the word "bank" is used it is completely obvious that this word has no relation to banking activity is forbidden.

4.3. In the name of subsidiary banks of bank the name of the main bank shall be specified. In the name of branches, departments or representative offices of banks the word "bank" shall be specified in value of legal coherence and accessory.

4.4. In the bank name which license is cancelled, the words "being in process of liquidation" are added.

4.5. In the bank name use of the words "Azerbaijan Republic", "gosudarstvenny", "natsionalny" only in cases, stipulated by the legislation is allowed.

4.6. Banks cannot use the identical name.

Article 5. Participation of the foreign capital in the credit institutions functioning in the Azerbaijan Republic

5.1. The limit of participation of the capital of foreign bank in the credit institutions functioning in the Republic of the Azerbaijan Republic is determined by the Central bank.

5.2. The limit of participation of foreigners and foreign legal entities in local banks, except for foreign bank or foreign bank holding company, is determined by the Central bank.

5.3. Central Bank obtains necessary information for implementation of the controlling functions in case of regulation of activities of local subsidiary banks, branches and representative offices of foreign banks and foreign bank holding companies, and also foreign branches and representative offices of local banks and control of them on the basis of interaction with relevant organs of foreign bank regulation and control and do not contradict the legislation of the Azerbaijan Republic (including according to international treaties which the Azerbaijan Republic joined). Exchange of information with bodies of foreign bank regulation and control performs the Central bank when ensuring confidentiality of this information. For this purpose the Central bank can sign agreements on cooperation with bodies of foreign bank regulation and control.

5.4. The foreigners and foreign legal entities registered in offshore zones which list is determined by the Central bank including also foreign banks and foreign bank holding companies cannot act as founders and shareholders of local banks, and also to establish local subsidiary banks, to open local branches or representations.

Chapter II. Issue of licenses and permissions to implementation of banking activity

Article 6. Banking licenses and permissions

6.1. Central Bank has exclusive rights on issue and cancellation of banking licenses, and also on issue of permission to banks to opening of branches and representations and cancellation of the issued permissions in the cases provided by this Law.

6.2. Banking licenses and permissions are issued is termless in writing. Only persons who received them can use banking licenses and permissions, and they cannot be transferred to the third parties. Banking licenses and permissions become effective from the date of issue by the Central bank.

6.3. If the applicant is not qualified sufficient organizational technical training, then in the granted banking license and permission of the Central bank imposes restrictions for implementation of the types of activity permited banks by article 32 of this Law.

Article 7. The address on receipt of banking licenses and permissions

7.1. For receipt of the banking license and permission founders of bank or representatives in the procedure for person corresponding to the legislation submit the written appeal to the Central bank. Address form and content, the documents attached to it shall meet the requirements determined by acts of the Central bank of normative nature.

7.2. Considering the request for the banking license and receipt of permission, the Central bank can receive from independent and reliable sources, and also from the relevant state bodies (structures) of the data on financial position of owners of shares in banking capital and beneficial owners, and also availability of acceptable and necessary qualities at owners of considerable share (heads of their executive bodies if it is legal entity), beneficial owners and administrators and source of the authorized capital of bank.

State bodies (structures) shall provide the information requested by the Central bank within seven working days. State bodies (structures) cannot refuse provision of the specified data, referring to the fact that required data belong to trade secret, tax secret or another, the confidential information protected by the law, except for the state secret.

7.2-1. Article 7.2 of this Law extends also to persons who would like to acquire further considerable share in bank (heads of their executive bodies if it is legal entity), persons who are the beneficial owner, again appointed administrators and heads of executive body of the legal entity transformed to affiliated structure of bank.

7.3. The state fee in the amount of and procedure, determined by the Law of the Azerbaijan Republic "About the state fee" is paid for consideration of primary address and issue of the banking license.

Article 8. Rules of consideration of addresses on receipt of the banking license

8.1. Consideration of addresses on receipt of the banking license consists of two stages:

8.1.1. primary address of founders of bank or the representative in the procedure for person (persons) corresponding to the legislation on receipt of the banking license and its consideration (the first stage) and

8.1.2. after passing of state registration by bank the final address about receipt of the banking license and its consideration (the second stage).

8.2. The following documents are attached to primary address:

8.2.1. For each owner who will acquire bank shares:

8.2.1.1. if this owner is legal entity - its name, the address, type of business activity which underwent audit inspection the financial statements covering at least than three last financial years (and if the legal entity is formed less than three years, the last financial years or year) both the data and documents reflecting audit opinion, and also the copy of the decision of competent authority of management on acquisition of the provided share of participation of this person;

8.2.1.2. if this owner is foreign legal entity, in addition to the documents listed in article 8.2.1.1 of this Law, the document confirming passing of registration in the country of its stay, the charter (provision) which underwent audit inspection the financial statement for the last at least than three financial years and audit opinion legalized in the procedure established by the legislation;

8.2.1.3. if this owner is physical person, its surname, name, middle name and nationality, data of the identity certificate or other identity document, the permanent address, data and documents reflecting employment types;

8.2.1.4. if the owner is foreigner (except for foreigners whose permanent residence is the territory of the Azerbaijan Republic) - in addition to the documents listed in article 8.2.1.3 of this Law, positive recommendations of one or several financial organizations of the country which resident it is, and/or bank account statements;

8.2.2. data and documents on the size of the offered authorized capital of bank, share of each owner of share and source of the funds allocated for acquisition of share, considerable shares of participation of owners of considerable share in bank in other legal entities and also about considerable shares of participation of other persons in the authorized capital of owners of considerable share if them is the legal entity;

8.2.3. if the offered owner of considerable share in bank is the legal entity, then - the list of heads of its executive bodies and information on their civil faultlessness and if the head is the foreigner, then - the certificate of the attraction or not attraction it to criminal liability issued by the relevant state bodies of the country which resident it is, and legalizirovanny according to the procedure, established by the legislation;

8.2.4. If the legal entity who is the owner of the prevailing share is included into group of companies, the information about this group, including the information about persons having the prevailing share in other organizations entering into group about administrators of these persons;

8.2.5. if the offered owner of considerable share in bank is the physical person, then - information on its civil faultlessness and if the owner of considerable share in bank is the foreigner, then - the certificate of the attraction or not attraction it to criminal liability issued by the relevant state bodies of the country which resident it is, and legalizirovanny according to the procedure, established by the legislation;

8.2.5-1. Information in the form established by the Central bank of the relations between shareholders of bank and beneficial owners of bank, including information on their civil faultlessness established by this Law and if beneficial owner is the foreigner, then - the certificate of the attraction or not attraction it to criminal liability issued by the relevant state bodies of the country which resident it is, and legalizirovanny according to the procedure, established by the legislation;

8.2.6. Copies of constituent documents of bank and the charter of bank, including also the protocol on creation of bank, adoption of its charter and forming of executive bodies;

8.2.7. The business plan determining the commercial strategy of bank, the provided types of activity, organizational structure, including internal control system and financial forecasts for the first three years (the report on balance, profits and losses);

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