Approved by the resolution of Board of National Bank of the Azerbaijan Republic of June 17, 2003 No. 8

Rules of classification of assets and creation of reserves for covering of possible losses

1. General provisions

1.1. These rules are developed according to requirements of the laws of the Azerbaijan Republic "About National Bank of the Azerbaijan Republic", "About banks" and the Tax code of the Azerbaijan Republic and establish rules of classification of assets and creation of special reserve funds (further - "reserves") for covering of possible losses on assets in all commercial banks irrespective of pattern of ownership and legal form and in local branches of foreign banks (further - "banks").

1.2. These rules are provided for classification of all types of loan (overdrafts, overnights, etc.), leasing, factorings, interbank deposits, including remaining balance of correspondent account "nostro", securities (for debt, investment and dealing transactions) and investments of capital in share in the capital of the legal entities who are not used in banking (for example, the property entered in books for non-payments), including debit debts and off-balance obligations.

1.3. To have clear and objective idea of the financial position and results of the transactions made by it, the bank estimates the assets and creates on them the corresponding reserves. In case of overestimate of net assets value and profit of bank respectively are overestimated both result of its balance and retained earnings. And it is effect, first of all, not of creation of real reserves for covering of possible losses or not suspension of charge of percent on non-working assets.

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