About banks and banking activity in Azerbaijan Republic

The present Law determines legal basis of bank system, principles of banking activity and procedure of organisation of banks in Azerbaijan Republic.

• Chapter I. General
  
• Chapter II. Procedure of commencement and termination of banking activity
  
• Chapter III. Relations between banks, servicing of customers, protection of rights and interests of customers
  
• Chapter IV. Savings deposits in Azerbaijan Republic
  
• Chapter V. Accounting and reports in banks, control over their activity

Chapter I. General

1. Bank is organisation established for attraction of money and investment thereof on terms of return, payment and urgency.

Banks receive and place money, attract and give credits, accomplish settlements on behalf of customers and correspondent banks and provide cashing services.

Banks may also accomplish other operations not contradicting legislation and envisaged in their Statutes.

2. Bank is the legal entity.

3. Banks are based on any kind of property.

4. Banks might establish unions, associations and other structures for coordination of their activity, protection of interests and accomplishment of joint programs.

5. The term “bank” and other word combinations with this term might be used in company name or in advertising purposes only by enterprises having the right for accomplishment of banking operations according to the present Law.

Banks in Azerbaijan Republic are not responsible for obligations of the state, the state is not responsible for obligations of banks except cases envisaged by the present Law, other legislative acts of Azerbaijan Republic and also cases when banks and the state undertake such responsibility.

1. Banks act according to their Statutes.

2. The Statute of the bank should include:

a) name of the bank and its location (address);

b) list of operations accomplished by bank; AlphaS amount of ownership fund and list of other funds formed by the bank;

c) information about constitutors;

d) provisions concerning control bodies of the bank, their structure, procedure of formation and functions.

The Statute of the bank might also include other provisions related to specifications of banking activity that do not contradict legislation.

3. Banks must notify National bank about all amendments to the Statute.

Banks do not depend on executive and administrative bodies of state power and control when making decisions concerning current banking activity.

Employees in bodies of state power and control cannot participate in control bodies of banks, including holding of several offices.

1. Within the limits determined by bank Statutes and licenses of National bank banks might accomplish the following banking operations and deals:

a) to attract investments (deposits) and give credits on agreement with the borrowers;

b) to accomplish settlements on behalf of customers and correspondent banks and cashing servicing thereof;

c) to open and operate accounts of customers and correspondent banks, including foreign ones;

d) to finance capital investments on behalf of the owners or managers of investments and also at the expense of bank’ own capital;

e) to issue, buy, sell and keep payment documents and other securities (cheques, letters of credit, promissory notes, shares, bonds and other documents), to accomplish other operations with them;

f)to give guarantees, other obligations on behalf of the third parties envisaging realisation thereof in money form;

g) to acquire rights for demand of delivery of commodities and rendering services, to undertake risks of fulfilment of such demands and encash thereof (forfeiting) and also to accomplish these operations with additional control over movement of commodities (factoring);

h) to buy from domestic and foreign legal entities and physical persons foreign currency, to sell it to them;

i) to buy and sell in Azerbaijan Republic and abroad precious metals, stones and articles made of them;

j) to attract and place precious metals into deposits, to accomplish other operations with these values according to international banking practice;

k) to attract and place capitals and to exercise control over securities on behalf of the customers;

l) to accomplish operations on cashing in connection with state budget on commission of National bank;

m) to render broker and consulting services, to accomplish leasing operations;

n) to accomplish other operations and deals on permission of National bank within the limits of its competence.

2. All operations envisaged by the present Clause might be accomplished in local currency and also in foreign currency, whenever National bank has respective license.

3. Banks are not allowed to accomplish operations on production of material values and sale thereof, and also on all kinds of insurance except currency and credit risks.

Chapter II. Procedure of commencement and termination of banking activity

1. Legal entities and physical persons, except political organisations and specialised public funds might be constitutors, shareholders (participants) of banks. Share of any constitutor, shareholder (participant) except the state and municipal bodies should not exceed 12 percent of ownership capital. Number of constitutors should be at least 9.

2. When establishing foreign banks and banks with foreign capital bank should be one of the foreign constitutors.

3. Director or at least one of deputy-directors of foreign bank or its subsidiary branch should be the citizen of Azerbaijan Republic.

1. Banks exercise their activity on the basis of licenses for accomplishment of banking operations obtained from National bank.

2. To obtain license for accomplishment of banking operations bank constitutors present the following documents to National bank:

1. application for license;
2. constituent documents (Agreement about establishment of bank, its Statute, Minutes about approval of Statute and appointment of directing bodies of bank);
3. whenever necessary — reference of Auditor organisation about financial condition of constitutors;
4. data on competence of higher officials (chairman and chief accountant) of the bank provided by constitutors.

3. To obtain license for accomplishment of banking operations with participation of foreign capital foreign bank or subsidiary branch of non-resident bank shall provide additionally the following documents legalised according to established order:

a) by foreign legal entities:

· decision of respective body of foreign constitutor (participant) about participation thereof in establishment of the bank at the territory of Azerbaijan Republic or about opening of subsidiary branch;

· statute or other document confirming status of legal entity, its published balances for the last three years;

· written consent of control body of the country of residence of foreign constitutor (participant) for his participation in establishment of bank at the territory of Azerbaijan Republic or for opening of subsidiary branch (if granting of such consent is stipulated by legislation of this state);

b) by foreign citizens:

· reference from first-rate bank (according to international practice) about solvency of this person.

4. To provide equal competitive terms National bank might submit additional requirements to constitutors of foreign banks and banks with share of foreign capital concerning minimum and maximum amount of their ownership capital.

1. National bank considers applications concerning granting of licenses for accomplishment of banking operations and registration of statutes not later than 30 days from the date of obtaining all necessary documents according to the present Law.

2. If application has not been considered within indicated term officials responsible for this shall be dismissed from their posts.

3. Application is regarded as having been considered from the date of respective notification sent to bank constitutors.

National bank might refuse to give out license for accomplishment of banking operations and registration of the statute due to the following reasons:

1. nonconformity of Agreement and Statute to existing legislation of Azerbaijan Republic;
2. poor financial situation of constitutors (according to reference /decision/ of Auditor or other competent organisation) perilous for interests of bank investors and creditors.

1. Simultaneously with giving out licenses for accomplishment of banking operations National bank accomplishes registration of bank and supplies it with registration number.

2. Bank acquires status of legal entity from the moment of its registration. Registered bank notifies about establishment thereof in official press.

3. Banks registered by National bank shall have the right to open at the territory of Azerbaijan Republic and abroad their subsidiary branches and representations on the basis of legislation existing on respective territory.

4. Banks might open their subsidiary branches outside the territory of Azerbaijan Republic only on permission of National bank, and agency and representations thereof — after preliminary notification of National bank.

1. National bank might withdraw license given to it in the following cases:

1. whenever license is given using unreliable data;
2. whenever bank began operating later than one year after the license had been given to it, or in case of one-year interruption in its activity;
3. whenever bank accomplishes operations not envisaged in the license of National bank;
4. due to reasons envisaged by Article 38 of the Law of Azerbaijan Republic “About National bank of Azerbaijan Republic”;
5. whenever violations of provisions of antimonopoly law are found.

2. Provisional measures directed to removal of violations specified in this Clause should precede withdrawal of license.

3. Withdrawal of license acts as decision about liquidation of bank.

1. Bank terminates its activity according to legislation concerning stock companies and limited liability companies and also in cases stipulated by the present Law and Law of Azerbaijan Republic “About National bank of Azerbaijan Republic”.

2. In order to terminate its activity bank should make statements about this in official press at least twice, return all deposits to investors; money of non-revealed investors should be transferred to National bank. Bank declared bankrupt shall be liquidated according to existing legislation of Azerbaijan Republic.

Banks or their constitutors might appeal to Law Court or Court of Arbitration concerning decisions made by National bank when exercising its functions of licensing and control.

Chapter III. Relations between banks, servicing of customers, protection of rights and interests of customers

1. Based on agreements banks might attract and place with each other capitals in the form of deposits, credits and accomplish other operations according to their statutes.

2. Whenever there is not enough money for crediting of customers and fulfilment of undertaken obligations banks might apply to National bank for credits.

3. Relations between banks and customers are based on agreements.

Banks have no right to determine and control use of money by the customers and establish other limitations, not stipulated by legislative acts or agreements, concerning their rights to dispose of money at their own consideration.

4. Customers themselves will have the right to choose banks for credit-settling and cashing services, they might be serviced as per banking operations in one or several banks.

5. Procedure of opening of accounts is determined by normative act of National bank.

6. Interest rates and sum of commission fee concerning banking operations are determined by them independently.

7. Banks might give credits against the following security: mortgage of property, including proprietary rights, guarantees, bail and obligations in other forms accepted in banking practice.

8. Banks might make decisions about provision of credit without security (blank credit).

9. Banks accomplish settlements in forms specified by National bank and also accepted in international banking practice.

1. Banks are not allowed to use their unions, associations and other organisations for achievement of agreements directed to monopolisation of the market of banking operations concerning establishment of interest rates and sums of commission fees, to limitation of competition in banking activity.

2. Use of national emblems (symbols) of Azerbaijan Republic and words “Azerbaijan Republic” when giving the name to the bank is accomplished according to legislation of Azerbaijan Republic.

3. Fulfilment of provisions of antimonopoly law in banking sphere is controlled by National bank and specially authorised state bodies.

1. Borrowers — legal entities that fail to fulfil their obligations concerning timely return of loans taken from the banks might be recognised insolvent (bankrupt), according to procedure established by legislation of Azerbaijan Republic with respective notification in the press.

2. Borrowers — physical persons who fail to fulfil their obligations concerning timely return of loans taken from the banks will bear proprietary responsibility according to legislation of Azerbaijan Republic.

1. Regarding the borrowers — legal entities declared insolvent (bankrupt) bank-creditor might suggest the following measures:

1. reorganisation of debt;
2. transfer of current control to provisional Administration Board appointed with participation of bank-creditor;
3. reorganisation of the company-borrower;
4. liquidation of the company-borrower according to legislation of Azerbaijan Republic, with subsequent sale of property mortgaged with the bank;
5. bank-mortgagee has priority right before other creditors for fulfilment of its needs from the cost of mortgaged property.

2. Measures suggested by bank-creditor are accomplished depending on legal status of the borrower by the higher body thereof, constitutors (participants), in case of liquidation — also by decision of juridical bodies.

1. Banks, including National bank, guarantee confidentiality according to operations, accounts and deposits of its customers and correspondents.

2. All employees of the bank should keep confidence concerning operations, accounts and deposits of bank, its customers and correspondents. This procedure remains obligatory after dismissal of bank employees from their posts.

3. References concerning operations and accounts of legal entities might be given to organisations themselves, higher bodies thereof, judicial bodies and law courts in connection with cases under consideration, auditor organisations and also state taxation bodies.

4. References concerning accounts and deposits of citizens are given, besides the customers themselves and their representatives, to Law Courts and judicial bodies concerning cases under consideration, whenever money or other values belonging to customers are under arrest, a penalty has been incurred or confiscation has been applied therewith.

5. References concerning accounts and deposits of citizens in case of death of the owner are given to persons indicated by the owner of the account or deposit in his will, to state notary’s offices concerning cases under consideration as per deposits of deceased investors, and also to foreign consular departments accomplishing notary’ functions.

1. Money and other values of legal entities, foreign and international organisations and also citizens, placed with banks might be arrested or penalty might be imposed thereupon only based on decisions of Law Courts according to procedure established by existing legislation.

2. Confiscation of money and other values belonging to citizens might be accomplished only based on verdict that has become valid or resolution about confiscation of property taken according to legislation.

Chapter IV. Savings deposits in Azerbaijan Republic

1. Savings deposits from citizens in Azerbaijan Republic can be accepted by all banks.

2. Banks themselves will establish terms of acceptance of deposits from citizens.

1. Banks are obliged to provide safety of money and timely fulfilment of their responsibilities before investors.

2. Banks are obliged to insure deposits of citizens establishing interbank funds according to procedure and on terms determined by National bank.

1. Citizens of Azerbaijan Republic, foreign citizens and stateless persons might be depositors of banks.

2. Depositors are free when choosing the bank for keeping their savings and might possess deposits in one or several banks.

3. Acceptance of money to deposits is accomplished by banks, with giving out document confirming acceptance of deposit.

4. Depositors might dispose of their deposits, obtain profits as per their investments in the form of percents or other form suggested by banks, accomplish noncash operations.

5. Depositor has the right to give order to the bank about giving out money from his deposit to any person or to the state in case of his death.

6. In case of depositor’ death if no order has been given in connection with this deposit it will be given to the heirs according to legislation of Azerbaijan Republic. If no legal heir appeared at least once a year, during 10 years, bank will be obliged to make official statements in mass media about search for such heirs. If no heir is found said deposits are transferred to state budget.

1. Person under age who placed deposit on his own name will dispose of his deposit himself.

2. Concerning deposits made on the name of the person under age by other persons, the following persons will dispose of said deposits:

· before said person reaches 15 years — his parents or other legal representatives;

· after said person reaches 15 years — this person himself, however on agreement of his parents or other legal representatives.

Chapter V. Accounting and reports in banks, control over their activity

Procedure of accountancy in banks, kinds and volumes of reports are established by National bank of Azerbaijan Republic.

Banks publish annual balance and profit-ans-loss account according to forms and within terms established by National bank of Azerbaijan Republic, after confirmation of reliability of data presented therein by Auditor organisation.

National bank exercises control over banking activity according to Law of Azerbaijan Republic “About National bank of Azerbaijan Republic”.

President of Azerbaijan Republic
Abulfaz Elchibey
Baku, August 7, 1992,
No 262

National Assembly of Azerbaijan Republic issues decree:

1. To give paragraph 3 of Article 5 of the Law “About banks and bank activity in Azerbaijan Republic” as follows, and add paragraph 4:

“3. Banks might be involved in material production within the limits stipulated by National bank using its own profits.

4. Banks have no right to accomplish any operations, including commercial ones, except insurance of hard currency and credit risks. ”

2. The present Law becomes valid from the moment of its signing.

In order to attract foreign investments to Republican economy National Assembly of Azerbaijan Republic issues decree:

1. To give paragraph 1 of Article 6 as follows: “Except political parties and specialised funds legal entities and citizens might be constitutors, shareholders (participants) of banks. Contribution share of any constitutor, shareholder (participant) except state, municipal bodies and foreign constitutors should not exceed 12 percent of Partnership fund, number of constitutors must be at least 9”.

2. The 2^nd paragraph of Article 6 must be supplemented with the following phrase “Share of foreign constitutors in the Partnership fund should not exceed 49 percent”.