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RESOLUTION OF BOARD OF CENTRAL BANK OF THE AZERBAIJAN REPUBLIC

of January 31, 2024 No. 06/6

About approval of "Procedure for making of transactions with the faces tied with banks"

Based on Articles 34.2. 7, 34.2.8, 34.2.14, 40.1.1-1 of the Law of the Azerbaijan Republic "About banks" and article 22.1.17 of the Law of the Azerbaijan Republic "About the Central bank of the Azerbaijan Republic" DECIDES: Board of the Central bank of the Azerbaijan Republic

1. Approve "The procedure for making of transactions with the faces tied with banks" (is applied).

2. "The procedure for making of transactions with the faces tied with banks" approved by part of 1 this Resolution becomes effective after one month after its publication, and from this date "Rules of making of transactions with the faces tied with banks", the Boards of the Central bank of the Azerbaijan Republic approved by the Resolution of December 29, 2001 (the protocol No. 26) and the certificates which underwent state registration with issue of January 17, 2002 No. 2739 (the changes made by the Resolution of Board of the Central bank of the Azerbaijan Republic of November 24, 2003 (the protocol No. 18), the certificates which underwent state registration with issue of December 15, 2003 No. 3014, the changes made by the Resolution of Board of the Central bank of the Azerbaijan Republic of June 28, 2004 (the protocol No. 11), the certificates which underwent state registration with issue of July 17, 2004 No. 3068, the changes made by the Resolution of Board of the Central bank of the Azerbaijan Republic of December 23, 2005 (the protocol No. 38), the certificates which underwent state registration with issue of December 30, 2005 No. 3211) are cancelled.

3. Charge to Legal department to provide in 3-day time 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 January 31, 2024, No. 06/6

Procedure for making of transactions with the faces tied with banks

1. General provisions

1.1. This Procedure is developed according to Articles 34.2. 7, 34.2.8, 34.2.14 and 40.1.1-1 of the Law of the Azerbaijan Republic "About banks" also determines the minimum requirements to the transactions made with the faces tied with banks, and also with local branches of foreign banks (further - banks).

1.2. In view of the minimum requirements established by this Procedure, banks shall have adequate policy and procedures for transactions with the faces tied with banks for implementation of safe and healthy banking activity.

1.3. When making transactions with the faces tied with banks it is also necessary to observe requirements of the Civil Code of the Azerbaijan Republic and the Law of the Azerbaijan Republic "About banks".

1.4. According to article 53-3.2.2 of the Law of the Azerbaijan Republic "About the Central bank of the Azerbaijan Republic" the Central bank can use the right of motivated discretion in connection with determination of the connected persons.

2. Concepts

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

2.1.1. the faces tied with bank (further - the connected person) - persons specified in Article 49-1.1 of the Civil Code of the Azerbaijan Republic and also any person directly or indirectly owning the share allowing to have significant effect on decision making of bank based on the agreement, irrespective of share in the authorized capital of bank, members of the committee on audit of bank, the staff of division of internal audit, other bank employees participating in decision making, the chief accountant of bank (person which is carrying out these obligations), and also persons specified in Article 49-1.1.3 of the Civil Code of the Azerbaijan Republic, persons having the family relations, faces having with specified persons the family relations provided Articles 49-1.1.3 of the Civil code of the Azerbaijan Republic, persons having the right to act on behalf of the face tied with bank, legal entities, in whom faces specified in Articles 49-1.1.6 and 49-1.1.7 of the Civil code of the Azerbaijan Republic, including heads of the structural unit of bank participate from shares in the amount of at least 20 (twenty) percent, persons with whom transactions are made, significantly different from market conditions and not having the explicit economic reasons. The head and the chief accountant (person which is carrying out these obligations) of local branch of foreign bank, 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;

2.1.2. the considerable credit of the connected person - the credit requirement provided to one connected person whose total amount constitutes 1 (one) percent and more from the capital of the I level of bank after deduction;

2.1.3. partially considerable credit of the connected person - the credit requirement provided to one connected person taking into account requirements of subitem 3.5.4 of this Procedure which total amount constitutes up to 1 (one) percent from the capital of the I level of bank after deduction;

2.1.4. non-standard asset - the asset classified as non-standard asset based on acts of normative nature of the Central bank of the Azerbaijan Republic (further - the Central bank).

2.2. If the amount of the indirect participation arising by means of immediate possession (in the relations after the third party on the account) one person shares or shares of other person constitutes less than 10 (ten) percent, such participation for the purposes of this Procedure, is not considered in case of determination of faces tied with bank (for example if the person "A" owns on behalf of "B" of 45%, the person "B" on behalf of "In" - 60%, the person "G" on behalf of "Д" - 30% of share (45%*60%*30%=8.1%), the person "A" is not considered indirectly participating on behalf of "Д").

2.2-1. For the purposes of this Procedure the structural division of bank is implied as the branch, department and representative office of bank determined by the Law of the Azerbaijan Republic "About banks", and by other bank employees participating in decision making - the workers belonging to the special category, specified in subitems 2.1.15.1 and 2.1.15.2 of "Standards of corporate management in the banks" approved by the Resolution of Board of the Central bank of August 28, 2023 No. 41/1.

2.3. When calculating the cumulative amount of credit requirements according to this Procedure the residual amount of credit requirements is considered. The concepts "credit requirement", "banker acceptance" and "considerable influence" used in this Procedure express the values established by "Procedure about prudential standard rates and requirements for credit risks, including the large credit risks" approved by the Resolution of Board of the Central bank of July 22, 2022 No. 29/1-2.

2.4. The circle of the groups of providing used in this Procedure is determined "By procedure for classification of assets and creations of special reserves for compensation of possible losses", the approved Resolution of Board of the Central bank of July 22, 2022 No. 29/1-1.

2.5. If the connected person bears joint or subsidiary liability according to the obligation of the borrower of bank or the asset relating to the connected person according to the obligation of the borrower of bank acts as providing, the specified obligation (part for which the connected person bears joint or subsidiary liability, or the part provided with the asset relating to the connected person) for the purposes of this Procedure is considered the credit requirement to the connected person.

2.6. This Procedure does not extend to the mortgage loan issued at the expense of means Mortgage and credit guarantee fund of the Azerbaijan Republic (except as specified return of right to claim by bank on mortgage loan).

2.7. This Procedure does not extend to requirements of banks which controlling stock the state, to legal entities whose controlling stock is owned by the state (except for requirements to legal entities, having considerable share in bank, and transactions with them), and their transaction with them owns.

3. Standard rates and requirements of rather credit risks for the connected persons

3.1. It is forbidden to grant to the connected persons soft credits unlike other clients or to make other transactions on favorable terms. For the purposes of this Procedure "privilege" is understood as more advantageous conditions, than average value of the conditions (term, percent etc.) applied to transactions (products) of one type and in the same currency, made with other clients of bank of the same category during the last 30 (thirty) days.

3.2. Transfer (transfer/obtaining) of non-standard assets from the connected persons, and also purchase of estimative and auditor services is forbidden.

3.3. The cumulative amount of credit requirements to the connected persons shall not exceed the following limits (except as specified when internal regulations of bank set lower limit):

3.3.1. on one legal entity - 10 (ten) percent from the aggregate capital of bank;

3.3.2. on one physical person - 3 (three) percent from the aggregate capital of bank;

3.3.3. on all connected persons - 20 (twenty) percent from the aggregate capital of bank.

3.4. The bank cannot grant the considerable loan to the interested person without providing. In this case the guarantees meeting the following requirements shall act as providing:

3.4.1. if money in the same currency, as the credit acts as loan security, nominal value of this providing shall not be less than 100 (hundred) percent from the credit requirement;

3.4.2. if other providing the first group, except for the providing established by subitem 3.4.1 of this Procedure, market value of this providing (in relation to money, guarantee acts as loan security - nominal value) shall not be less than 125 (hundred twenty five) percent from the credit requirement;

3.4.3. if providing the second, third and fourth group, market value of this providing act as loan security (nominal value in relation to guarantee) there shall not be less than 200 (two hundred) percent of the credit requirement.

3.5. The bank can grant partially considerable loan of the connected person under following conditions:

3.5.1. if money in the same currency, as the credit acts as loan security, nominal value of this providing shall not be less than 100 (hundred) percent from the credit requirement;

3.5.2. if other providing the first group, except for the providing established by subitem 3.5.1 of this Procedure, market value of this providing (in relation to money, guarantee acts as loan security - nominal value) shall not be less than 125 (hundred twenty five) percent from the credit requirement.

3.5.3. if providing the second, third and fourth group, market value of this providing (in relation to guarantee act as loan security - nominal value) shall not be less than 150 (hundred fifty) percent from the credit requirement;

3.5.4. If market value of providing (in relation to money, guarantee - nominal value) below the limits set by subitems 3.5.1-3.5.3 of this Procedure if providing the fifth group acts as loan security or if it is provided without providing, the cumulative amount of such credit requirements does not exceed 1 (one) percent from the capital of the I level of bank after deduction.

3.6. The following credit requirements when calculating standard rates, the stipulated in Item 3.3 presents of the Procedure, are not considered (do not join in calculation):

3.6.1. certainly secure part of the credit requirement if money in the same currency, as the credit acts as loan security;

3.6.2. remaining balance on correspondent accounts (in case of the banks operating in the Azerbaijan Republic and also the banks having the minimum investment score assigned by the international authoritative rating agencies (Standard & Poor "s, Fitch Ratings, Moody" s);

3.6.3. requirements to interbank one-day transactions (overnayt/intradey).

3.7. The following part of off-balance obligations is considered when calculating standard rates, the stipulated in Item 3.3 presents of the Procedure (joins in calculation):

3.7.1. 10 (ten) percent of the obligations granting can the right not to fulfill unilaterally the obligation in full based on the agreement;

3.7.2. 20 (twenty) percent of off-balance obligations for up to one year;

3.7.3. 50 (fifty) percent of off-balance obligations more than one year;

3.7.4. obligations on credit lines, the banker acceptance and purchase and sale of securities in full.

4. The procedure of decision making about making of transactions with the connected persons

4.1. The credit of the connected person which size constitutes 5 (five) and more percent from assets of bank is provided based on the conclusion of the independent auditor and the decision of general shareholder meeting having the right to participate in vote, and the credit of the connected person which size constitutes up to 5 (five) percent from assets of bank - based on the solution of the Supervisory board or taking into account the requirement of Item 4.2. this Procedure - Bank boards, except as specified, when powers of decision making are assigned to general shareholder meeting.

4.2. Partially significant loan of the interested person can be granted to other interested persons, except for shareholders of bank, members of the Supervisory board and executive body, according to the solution of the board of directors of bank under following conditions and limits:

4.2.1. No. 35/3 is cancelled according to the Resolution of Board of the Central bank of the Azerbaijan Republic of 04.09.2024

4.2.2. the cumulative size of the credit requirements provided by board decision to all connected persons shall not exceed 1 percent from the capital of the first level of bank after deduction. Within this limit of board decision the total amount of credit requirements to the connected person can be determined by the Supervisory board of bank.

4.3. In decisions on loan granting data on all previous loans granted to the connected person and the credits which are supposed to be provided shall be specified to the connected person (for example, earlier obtained credits, condition of their repayment, the amount, loan currency which is subject to obtaining, interest rate and (or) the amount of other payments, information reflecting solvency of the borrower, information on the cost of providing, etc.). Decisions are drawn up by the corresponding minutes.

4.4. In the following cases members of the Supervisory board and Bank board shall inform on it prior to discussion of decisions and shall not participate in discussion and decision making, and also their participation shall not be considered in case of determination of quorum:

4.4.1. in case of removal at discussion of question of loan granting to persons having family relations, stipulated in Article 49-1.1.3 Civil codes of the Azerbaijan Republic;

4.4.2. in case of removal at discussion of question of loan granting to any legal entity in which it has considerable share or considerable influence.

5. Elimination of violations of standard rates and requirements

5.1. In case of identification by bank of violation of the standard rates and requirements established by this Procedure, the main risk administrator of bank shall report no later than the next working day about it in the Central bank. In information causes of infringement and measures which need to be accepted for its elimination shall be specified.

5.2. The bank shall eliminate violation of the standard rates and requirements established by this Procedure as a result of reduction of level of the aggregate capital, transformation of the borrower into the connected person, and also loss or reduction of market value of providing within 60 (sixty) calendar days.

6. Reporting and monitoring

6.1. The bank on monthly basis submits in the Central bank the operations statement with the connected persons together with prudential reports in the form specified in appendix No. 1 to this Procedure.

6.2. Compliance of transactions of bank with the connected persons to requirements of this Procedure and internal regulations of bank is estimated by division of internal audit of bank at least once a year, and results of assessment are represented to Committee on audit of bank.

Appendix 1

to the Procedure for making of transactions with the faces tied with banks

Bank name _____________________________________

"____" ________________________________ 20 __-__ years

Report on the credit requirement to the connected persons
A. No.	Status of the connected person (physical/legal)	Full name of the connected person (in case of physical person - surname, name, middle name)	Transaction nature	Currency of debt (obligation)	Date of provision of debt (capture of the obligation) according to the initial agreement	Whether the obligation is re-structured	Repayment date of debt (obligation) under the last agreement	Initial amount of debt (obligations) (balance)
1	2	3	4	5	6	7	8	9
1
2
…

Residual amount of debt (obligation) (balance)	Residual amount of debt (obligation) (off-balance)	Interest rate	Risk group	Reserve rate	Overdue loans	Providing cost	Providing form (cash, securities, etc.)	Communication with bank	Share of bank in the connected person (%)	Share of the connected person in bank (%)
10	11	12	13	14	15	16	17	18	19	20

The report on the deposit attracted from the connected persons

№	Status of the connected person (physical/legal)	Full name of the connected person (in case of physical person - surname, name, middle name)	Deposit type (urgent / poste restante)	Date of investment of funds	Date of return of means	Deposit currency	Deposit amount	Interest rate	The amount of the blocked deposit	Communication with bank	Share of bank in the connected person (%)	Share of the connected person in bank (%)
1	2	3	4	5	6	7	8	9	10	11	12	13
2
...

 

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