LAW OF THE AZERBAIJAN REPUBLIC

of January 16, 2004 No. 590-IIQ

About banks

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 bank system 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 made 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, Auditing committee and Bank board, and also the chief accountant of bank (the head of accounting service), the staff of division of internal audit, heads and chief accountants of branches, departments and representative offices 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; chief accountants of bank and its branches; 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.

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 interests give it opportunity to be the owner of the prevailing share of bank, the administrator, the temporary administrator and the liquidator;

1.0.19 Under "civil faultlessness" for the owner of the prevailing share and if he is legal entity, then for heads of its executive bodies, and also heads of affiliated structures of bank lack of criminal record for intentionally committed crime is meant; for the administrator, the temporary administrator and the liquidator - lack of criminal record, not attraction in the past to criminal liability for heavy and especially serious crimes against property and in the sphere of economic activity, lack of the ban imposed by the judgment on zanimaniye of the corresponding position or occupation the related professional activity, lack of the fact of the announcement insolvent judicially.

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 supervision body behind the financial markets of normative nature and difference of deduction from them;

1.0.22 Supervision body behind the financial markets - the structure created by relevant organ of the executive authority for the purpose of implementation of regulation and control in the financial markets.

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 by supervision body behind the financial markets of measures, 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 supervision body behind the financial markets 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 supervision body behind the financial markets 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 supervision body behind the financial markets in the cases provided by this Law, performing on behalf of supervision body behind the financial markets 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 supervision body behind the financial markets is classified as standard asset;

1.0.32. Systemically significant bank - the bank corresponding to the criteria established by acts of normative nature of supervision body behind the financial markets;

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. Bank system and its legal basis

2.1. The bank system of the Azerbaijan Republic consists of supervision body behind the financial markets, the Central bank of the Azerbaijan Republic (further - the Central bank) and credit institutions.

2.2. Central Bank - Central Bank of the state and its activities is regulated by the Constitution of the Azerbaijan Republic, the Law of the Azerbaijan Republic "About the Central bank of the Azerbaijan Republic", the Civil code of the Azerbaijan Republic, this Law and other regulatory legal acts adopted according to them, and also international treaties which the Azerbaijan Republic joined.

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 supervision body behind the financial markets and 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. Banks and non-bank credit institutions can perform banking activity in the territory of the Azerbaijan Republic based on the special permission (license) issued by supervision body behind the financial markets.

3.2. Deposit transactions can be performed only by 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, 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 Azerbaijan Republic adopted according to them acts of normative nature of supervision body behind the financial markets and acts of normative nature of supervision body behind the financial markets.

3.5. If the supervision body behind the financial markets reveals that any person is engaged in the activities specified in article 3.1 of this Law without license, then it sends to this person the requirement about the termination of these activities, takes other measures provided by the law and informs on it the Central bank and the relevant state bodies.

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 bank system of the Azerbaijan Republic

5.1. The limit of participation of the capital of foreign bank in bank system of the Azerbaijan Republic is determined by supervision body behind the financial markets.

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 supervision body behind the financial markets.

5.3. The supervision body behind the financial markets 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 supervision body behind the financial markets when ensuring confidentiality of this information. For this purpose the supervision body behind the financial markets 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 supervision body behind the financial markets 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. The supervision body behind the financial markets has exclusive rights on issue and cancellation of banking licenses, and also on issue of permission to banks to opening of branches, departments and representations and cancellation of the issued permissions.

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 supervision body behind the financial markets.

6.3. If the applicant is not qualified sufficient organizational technical training, then in the granted banking license and permission of supervision body behind the financial markets 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 supervision body behind the financial markets. Address form and content, the documents attached to it shall meet the requirements determined by acts of supervision body behind the financial markets of normative nature.

7.2. By consideration of the request about receipt of the banking license and permission of supervision body for the financial markets can obtain information in financial, tax and law enforcement agencies on financial condition, professional activity of owners of the prevailing share in banking capital (if they are legal entity, then heads of executive bodies) and administrators, about whether they were brought in the past to trial. This requirement extends as well to persons who in subsequent will wish to acquire the prevailing share in bank (if they are legal entity, then heads of executive bodies), again appointed administrators and on heads of executive bodies of the legal entities transformed to affiliated structure of bank. For this purpose financial, tax and law enforcement agencies provide to supervision body behind the financial markets information which will be required to it.

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 with voting power:

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 - 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. The size of the offered authorized capital of bank, the offered share of each owner (shareholder) in the authorized capital of bank, their prevailing shares in other organizations, and also for each legal entity of the data on the prevailing shares of participation of other persons in the capital of this legal entity;

8.2.3. If the owner of the offered prevailing share in bank is legal entity, the list of heads of its executive bodies, the application for civil faultlessness signed by each head whose signature is certified of notarial procedure;

If the head is foreigner, the certificate of availability or lack of criminal prosecution issued by appropriate authorities of the country which resident it is, and legalized in 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 owner of the offered prevailing share in bank is physical person, the application for faultlessness signed by it with the signature certified of notarial procedure;

If the owner of the prevailing share is foreigner, the certificate of availability or lack of criminal prosecution issued by appropriate authorities of the country which resident it is, and legalized in 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);

8.2.8. The list of the offered administrators of bank, and also the copies of documents reflecting the data on professional suitability and experience of each of them (about education and labor activity) certified of notarial procedure, the questionnaire completed with these persons, the size and the list of the prevailing shares them in bank and other legal entities the application for civil faultlessness signed by the parties with the signatures certified of notarial procedure;

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