Approved by Board decision of National Bank of the Azerbaijan Republic of April 3, 2001 the Protocol No. 13

Rules about internal procedures of issue and accounting of the 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 and banking activity in the Azerbaijan Republic", other legal acts of the Azerbaijan Republic, regulations of National Bank of the Azerbaijan Republic and the international practice in the field of regulation of banking activities.

1.2. Rules determine the minimum requirements, methodical instructions of National Bank of the Azerbaijan Republic of rather internal procedures of banks for issuance of credits, and also conducting financial accounting of the credits.

1.3. According to these rules each bank performing activities in the Azerbaijan Republic shall develop the internal regulations for issuance of credits approved by the Supervisory board. The approved rules shall regulate comprehensively credit case in bank and be accepted to management when making credit operations. In rules the relation of the Supervisory board to documentation, issue and monitoring the credits, and also the principles by which shall be guided in daily work shall be accurately stated. The variation from rules can be in exceptional cases allowed. However at the same time reasons for rejection are subject to documentary reasons and approval in coordination with the competent head of bank according to the developed intra bank rules.

2. Components of rules of issuance of credits

Each bank shall reflect the following questions taking into account nature and complexity of the credit operations made by it in intra bank rules of issuance of credits:

2.1. Separation of powers

In rules persons (positions) shall be identified, competent to draw the conclusions on credit orders depending on the amount of the credits (credit limits) in intra bank structure (department, department, etc.), performing function of issuance of credits. Competent persons shall get out depending on their work experience and the corresponding staff list. Depending on credit limits persons shall be identified, competent to consider credit orders, beginning from the staff of credit department having high experience and qualification to employees of lower level. Rules shall contain comments about possibility of making the conclusion on the small and simple credits less experienced employees.

The supervisory board or Board can establish for heads of the Credit commission or Credit department of bank higher limits depending on their status and experience.

On orders (requests) which arrived in bank for receipt of the credit the conclusion according to intra bank rules and credit policy of bank is taken out, at the same time persons responsible for decision making on the basis of the taken-out conclusion are identified. Issue of the large credits shall be performed on the basis of the conclusion of Government of the solution of the Supervisory board.

Rules shall provide preparation of the report and holding meetings on issuance of credits in intra bank structures to establish terms of holding meeting.

2.2. Industries and types of crediting

The bank in the credit policy can provide issue to clients of different type of loan on commercial purposes, purchase of personal and real estate, on current assets, agricultural industry, construction, transport and other industries and the purposes. Along with types of loan, provided by Rules, the credits which issue is recognized inexpedient, and not planned, and also conditions for issuance of credits of different type can be established. Making decisions on issuance of credits of different type, the bank in the credit policy shall take knowledge and experience of the employees into account.

2.3. Loan repayment periods

The maximum term for return of the credits is established depending on their types according to progressive banking practice. The maximum term established for return of the credits depending on their types is specified in rules in months. And in credit agreements return of the credits makes a reservation depending on the purpose of the credit, source of its repayment and terms of real cash inflows with condition not of exceeding of the terms established in rules.

Depending on types of loan conditions and the reasons for prolongation of term of their return or early repayment can be established.

2.4. Repayment provisions

Monthly payments on the main and percentage amounts of term loans are usually provided in banking practice. However concerning the credits with repayment period in 3 months and less, subject to issue to clients who are healthy financially, are well familiar, work steadily and earlier timely paid the debts to bank, and also the credits with repayment period in six months and less, intended for needs of construction and agricultural industry, other conditions can be established.

2.5. Establishment of loan interest rates

Economic and market conditions, and also the different factors used for establishment of interest rates for the separate credits and their different types shall be provided by rules. In case of establishment of interest rates heads of bank shall take into account the cost of resources, maintenance expenses of the credits, commission, total administrative expenses, special reserve for compensation of possible losses and profit in sufficient size.

2.6. Rules for pledge capture

The cost of pledge shall be sufficient for protection of bank against losses on credit operation. At the same time in rules it should be noted that the accepted pledge is not the single and main source of repayment of the loan. For repayment of the loan the main borrower shall have healthy financial position and have the money obtained during the activities. Acceptable coefficients of ratio of cost of each type of the pledged property and the amount of the issued credit shall be provided by rules. The deposits of the client or his credits provided with government securities which are stored in bank shall be in the appropriate order excluded.

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