Law of the Republic of Azerbaijan on Non-Banking Credit Institutions
This Law regulates establishment, management and activities of non-bank
credit institutions with purpose of more thoroughly meeting needs of legal and
natural persons for financing resources, and creating favorable funding
environment to use financial services.
Chapter I. General Provisions
Article 1. Key definitions
1.0. Definitions used herein bear the following meanings:
1.0.1. Non-banking credit institutions (hereinafter referred to as “NBCI) –
are specialized credit institutions which perform lending and other activities
prescribed herein based on a special permit (license).
1.0.2. Joint borrower group – parties that based on a contract act as mutual
guarantors for repayment of a borrowing by any group member.
1.0.3. Collateral\collateral deposit – is the cash which is repaid by a
borrower or joint borrowers group to NBCI fully or by installments for the duration
of a loan agreement and acts as loan repayment collateral.
1.0.4. Administrator – single manager of NBCI or members of NBCI’s
executive body, accounting manager (chief accountant, CFO etc.), other employees
authorized to make decisions on collateral deposit, internal auditor, as well as a
branch and an accounting manager of NBCI that is authorized to accept collateral
deposit.
1.0.5. Related parties – NBCI founders, administrators, managers of
structural units and their close siblings (spouses, parents, children, including
adopted children), as well as parties authorized to act on their behalf.
Article 2. Legal framework for NBCI activities and the scope of the
present Law
2.1. Activities of NBCIs are regulated by the Constitution of the Republic of
Azerbaijan, the present Law, the Civil Code of the Republic of Azerbaijan, the
Law of the Republic of Azerbaijan on the Central Bank of the Republic of
Azerbaijan (hereinafter “the Central Bank”), other laws and legal acts of the
Republic of Azerbaijan, Regulations of the Central Bank, as well as international
treaties Azerbaijan is a party to.
2.2. This Law is not applicable to credit unions and pawnshops.
Article 3. Independence of NBCIs
3.1. NBCIs shall perform their activities independently within the
framework of authorities set forth herein.
3.2. With exception of cases provided for in the legislation, NBCIs shall be
independent from public and municipal bodies and those authorities may not
intervene in NBCI’s current activities.
3.3. NBCI and government shall not bear any responsibility for each other’s
commitments.
3.4. Interest rates on loans issued by, as well as the amount of commissions
and service fees on financial services provided by NBCIs in accordance with the
present Law shall be set independently in an agreement between NBCI and the
borrower (users of service).
Article 4. NBCI unions and associations
4.1. NBCI may establish unions and associations to coordinate their
activities, as well as represent and protect their common interests.
4.2. NBCI may not use unions and associations to conclude agreements
limiting competition and monopolizing the market and conduct coordinated
activities, including establishment of interest rates and commissioning fees.
Associations and unions shall comply with the anti-monopoly legislation in their
activities.
Chapter II. Establishment and Management of NBCIs
Article 5. Organizational-legal types and forms of NBCIs
5.1. NBCIs may be established by a domestic and\or foreign legal and
natural persons, as well as international organizations under the organizationallegal form provided for commercial entities in the Civil Code of the Republic of
Azerbaijan. Non-commercial NBCIs may be established solely as a Fund by
international organizations, as well as non-governmental organizations funded
from state budgets of foreign countries according to the agreements entered into by
the Republic of Azerbaijan. Non-commercial NBCIs may not launch or participate
in commercial entities.
5.2. NBCI shall be divided into two types: entities with and without
authority to accept collateral deposit.
5.3. NBCIs functioning on the territory of foreign countries may establish
only branches without the right to accept collateral deposit in the Republic of
Azerbaijan. Such branches shall be licensed, their activities regulated and
supervised in accordance with procedures set forth herein related to NBCIs without
pledge acceptance right.
Article 6. Names of NBCI
6.1. NBCI name should contain “non-banking credit institution”.
In documents, advertisements or announcements an NBCI may not be
referred to by any name other than the name used in its charter.
6.2. NBCI may not use names of state registered and acting banks, credit
unions and other non-banking credit institutions.
Article 7. NBCI statutory (share) capital
7.1. Minimum paid in (share) capital of NCBIs, as well as property rights of
founders of non-commercial legal person - NBCI shall be paid in cash. Paid-in
(share) capital (property rights) shall be denominated in the national currency of
the Republic of Azerbaijan.
7.2. Requirements for minimum statutory (share) capital of NBCIs, as well
as initial property of NBCI established shall be set by the Central Bank.
Article 8. Requirements on organizational structure and administrators
of an NBCI
8.1. Irrespective of their organizational-legal status, organizational structure
of an NBCI shall at least contain the following positions:
8.1.1. manager (director, head of joint executive body);
8.1.2. accounting manager (chief accountant, chief finance officer);
8.1.3. loan officer;
8.1.4. internal auditor.
8.2. NBCI administrators shall have higher education and at least one year of
relevant work experience. Accounting manager should have higher education and
at least one year of accounting experience or vocational education and at least 5
years of accounting experience.
8.3. Persons prohibited by the Law to take a relevant position, as well as
persons with willful crime records may not become NBCI administrators.
Article 9. NBCI branches and representative offices
9.1. NBCIs may open their branches and representative offices.
9.2. Branches of NBCI with authority to accept collateral deposits may be
opened with the permission issued by the Central Bank.
9.3. Branches of NBCI without authority to accept collateral, as well as
representative offices of both types of NBCIs may be opened through prior written
notification to the Central Bank. If that is the case, the NBCI shall deliver a written
notification to the Central Bank within 5 business days from the day the decision is
made to open a branch or a representative office. The notification shall contain the
name of decision-making management body, decision date and number, name of
the opening branch or representative office, addresses and information on
managers (qualifications and work experience).
9.4. Statutes of branches and representative offices shall be approved by the
NBCI.
9.5. NBCI shall bear full responsibility for all activities and liabilities of its
branches and representative offices.
Chapter III. Issue of Licenses and Permits
Article 10. License
10.1. In order to issue loans the NBCI shall obtain a special permission
(license) (hereinafter - “license”) from the Central Bank.
10.2. In order to allow the NBCI to perform activities with authority to
accept collateral deposit, the license of the NBCI shall contain a special note
thereof. NBCI shall be prohibited to accept collateral deposits without such
permission.
10.3. NBCI shall be licensed for unlimited duration.
10.4. Licenses shall take effect from the date of issue by the Central Bank.
License may be used solely by the recipient NBCI.
Article 11. Application for license
11.1. In order to obtain a license an NBCI should submit the following
documents to the Central Bank:
11.1.1. application signed by the founder(s) or agent(s) authorized under the
legislation;
11.1.2. notarized copies of state registration certificate and charter;
11.1.3. bank statement on payment of minimum statutory (share) capital
(formation of initial property);
11.1.4. written statement on organizational structure;
11.1.5. written statement on administrators professional qualifications and
absence of willful crime record;
11.1.6. written information on funding sources, as well as key indicators of
lending policy (territory covered, lending subjects, loan terms, interest rates etc.);
11.1.7. if NBCI is operating in a foreign country, written permission of
foreign supervisory body (if required by foreign country’s legislation) to open a
branch in Azerbaijan;
11.1.8. bank statement indicating payment of state duty for a license.
11.2. The information listed in Article 11.1 hereof shall be signed by
person(s) applying for the license. The format and content of the application,
attachments thereof shall meet the requirements specified in Regulation of the
Central Bank,
11.3. Central Bank shall review the license application within 30 days. In the
event the submitted documents are incomplete, the Central Bank shall deliver a
written notification to eliminate those deficiencies upon not later than 15 days from
receipt of application. After elimination of deficiencies the Central Bank shall
review the documents and make a relevant decision within 15 days.
Article 12. Grounds to reject license application
12.1. Licenses shall be rejected in the following cases:
12.1.1. in the event of incompliance of submitted documents with
requirements of the legislation or inaccurate data;
12.1.2. if the applicant fails to submit a bank statement about repayment of
minimum statutory (share) capital or establishment of founders’ property rights
required by the Central Bank;
12.1.3. if the administrators do not meet professional qualification
requirements and\or have willful criminal record.
12.2. In the event the Central Bank shall reject to issue a license, it shall
provide a written rejection decision to the applicant through indication of grounds
thereof.
12.3. The applying party may raise a claim in court in accordance with the
legislation, against the Central Bank’s decision to reject the license.
Article 13. Application for permit to open NBCI branches
13.1. In the event an NBCI with authority to accept collateral deposit intends
to open a branch, following documents should be submitted to the Central Bank:
13.1.1. An application signed by a senior authority of the NBCI;
13.1.2. NBCI senior management body’s decision to open a branch;
13.1.3. Branch charter;
13.1.4. Decision of NBCI senior management authority to appoint a branch
administrator, information on their professional qualifications and absence of
willful crime record (this information is signed by the senior authority of the
NBCI).
13.2. Central Bank shall review the branch permit application within 20
days. In the event the submitted documents are incomplete or deficient, the Central
bank delivers a written notification to eliminate those deficiencies not later than 5
work days upon receipt of application. After elimination of deficiencies the Central
Bank reviews documents and makes a decision within 10 days.
13.3. If the submitted documents and information are in compliance with the
legislative requirements the Central Bank shall make a decision to permit branch
opening, otherwise the CBA will deliver a written notification on rejection
indicating grounds for such a decision.
Article 14. Licenses and permits registry
14.1. The Central Bank shall develop a unique registry of NBCIs, their
branches and representative offices available for public. Names and addresses of
NBCIs, their branches and representative offices, registration numbers and dates of
issued and annulled\revoked licenses and permits, information on administrators,
as well as information on terminated NBCIs, their branches and representative
offices shall be input to the registry within 3 days.
14.2. NBCI shall inform the Central Bank in writing about any amendments
or changes to the registry information, as well as constituent documents (charter,
statute) within 5 calendar days. In the event new administrators are appointed to
the NBCI, the abovementioned written notification should verify that those persons
meet requirements of Articles 8.2 and 8.3 herein.
Chapter IV. Requirements to NBCI Activities
Article 15. Activities of NBCIs
15.1. NBCIs may grant secured and unsecured loans based upon the license
issued by the Central Bank. Loans issued by NBCIs may be secured through
movable and immovable property, collateral deposit, guarantees and other means
under the legislation. Collateral deposit may be accepted solely upon special
permit thereof under the license issued by the Central Bank for the NBCI.
15.2.NBCIs obtained licenses for lending may perform the following
operations\activities:
15.2.1. purchase-sale of debt obligations (factoring, forefeiting);
15.2.2. leasing;
15.2.3. accounting for bills\bonds;
15.2.4. issue of guarantees;
15.2.5., perform insurance agent services.
15.2.6.provide funding, technical and management consulting services for
borrowers, including joint borrower groups.
15.3. In the event when the legislation requires an additional license to
perform activity types indicated in Article 15.2 herein, the NBCI may perform
those activities solely after obtaining a relevant license from related state
structures.
15.4. NBCI shall be prohibited to accept deposits from natural and legal
persons.
Article 16. Funding sources of NBCI activities
16.1. NBCI activities may be funded through the following sources:
16.1.1. statutory (share) capital (property rights) and acquired income;
16.1.2. attracted loans;
16.1.3. donations, grants and other types of free funds of natural and legal
persons;
16.1.4. funds obtained from other sources not prohibited by the legislation.
16.2.Free funds from international organizations, governments of foreign
countries and other donors, as well as income generated thereof shall not be
repatriated from the Republic of Azerbaijan.
Article 17. Loan agreement
17.1. In lending process, NBCI shall ensure transparency and inform
borrowers thoroughly on the value of their borrowing and associated costs.
17.2. Loan agreement between the NBCI and the borrower shall contain at
least the following, unless otherwise required by the legislation:
17.2.1. names and legal addresses of parties;
17.2.2. purpose of the loan;
17.2.3. loan amount;
17.2.4. maturity of the loan;
17.2.5. repayment type;
17.2.6. collateral (if the loan is secured);
17.2.7. interest payments, including annual interest rates (annual interest rates
shall be indicated irrespective of the loan maturity);
17.2.8. in the event of annuity repayment of the debt (principal and interest),
average payable real interest rate for the duration of loan;
17.2.9. responsibilities of parties.
17.3. Loan agreement is developed in writing in at least 2 copies, one copy is
presented to the borrower, other copies are incorporated in an NBCI’s credit file.
17.4. Loan agreement entered into with a joint group of borrowers should
contain information on all group members (names, legal addresses etc) and a
separate copy should be developed per member and each member should receive a
copy.
17.5. In the event the terms and conditions indicated in Article 17.2 hereof
are not incorporated in the loan agreement and as a result the borrower incurs some
losses\damages, he/she may claim compensation\reimbursement of those costs
from NBCI in the order specified in the legislation.
Article 18. Collateral deposit
18.1. Loan agreement may provide for securitization of the loan with
collateral deposit. Value of collateral deposit may not exceed outstanding balance
of the principal and accrued interest payment, its term should not exceed the loan
maturity.
18.2. Collateral deposit is disbursed to NBCI in cash or non-cash form and
within 2 days is deposited to special account(s) in the servicing bank(s).
18.3. NBCI shall account for each collateral deposit received. Accounting
information should allow to fully reconcile\identify borrower (joint group of
borrowers) and the loan secured with collateral deposit.
18.4. In the event the loan is fully repaid or other cases set by the loan
agreement the collateral deposit is returned by NBCI to the borrower (group of
joint borrowers) within not later than 2 days upon borrower’s application.
18.5. In the cases set by the loan agreement, NBCI should pay interest on
collateral deposit.
18.6. In the event the borrower (joint borrower group) fails to repay the
borrowing (principal, interest, penalty), in cases stipulated in the loan agreement,
the NBCI may recover that borrowing indisputably (without acceptance) from the
collateral deposit.
18.7. NBCI may not make loans and provide other financial services from
the funds allocated in collateral deposit accounts. Collateral deposit accounts may
be used solely in the following cases:
18.7.1. purchase of T-bills and securities of central banks (in accordance
with Article 18.4 hereof);
18.7.2. exercise the rights stipulated in Article 18.6 hereof.
Article 19. Prudential norms and requirements on NBCI activities
19.1. In order to ensure financial stability of NBCIs with authority to accept
collateral deposit, the Central Bank may impose the following prudential norms
and requirements on their activities:
19.1.1. maximum loan amount payable to one borrower and joint borrower
group;
19.1.2. maximum loan amount to related parties and requirements to related
party transactions;
19.1.3. ratio of accepted collateral deposits to NBCI capital;
19.1.4. depending on classification and valuation of assets and off-balance
sheet liabilities, requirements to specific reserves to be created from possible loan
loss expenses.
19.2. In regulating NBCI activities the Central Bank may impose all or part
of norms as deemed necessary.
19.3. NBCI who operate as non-commercial legal entities or do not have
authority to accept collateral deposit shall maintain the minimum level of statutory
(share) capital (property) established by the Central Bank.
19.4. New prudential norms and requirements set by the Central Bank, as
well as amendments thereto take effect not earlier than one month upon official
declaration to NBCI; amendments to minimum required statutory (share) capital
(property) take effect not earlier than six months upon declaration to NBCI. New
prudential norms and requirements are not revocable.
Article 20. NBCI accounting and financial reporting
20.1. NBCI shall maintain accounting and develop financial statements in
accordance with the Law of the Republic of Azerbaijan on Accounting and other
relevant legislative acts.
20.2. Borrowers, as well as other stakeholders enjoy the right to acquaint
with NBCI’s latest financial statements.
20.3. NBCI should submit annual financial statements approved by an
external auditor to the Central Bank not later than 5 months upon the end of fiscal
year and publish the statements in mass media.
Article 21. Transparency requirements on NBCI activities
21.1. NBCI and their branches should post terms and conditions for lending
and other services provided and demonstrate their license (permit) in a suitable
location in their administrative building and allow any interested party to get
acquainted with them.
21.2. NBCI may not allow deliberately false advertising about its activities
and should comply with other advertising requirements of the legislation.
21.3. In the event the name or address of the NBCI is changed, relevant
information should be published in mass media within 7 calendar days.
Article 22. Submitting information to Centralized Credit Registry
22.1. NBCI shall submit information on each borrower to the Centralized
Credit Registry created at the Central Bank in accordance with the work schedule
set by Central Bank’s regulations, as well as nature of information, terms and
procedures for submission of this information.
22.2. NBCIs may receive information regarding their borrowers and persons
applying for loans from the aforementioned registry in accordance with work
procedures of Centralized Credit Registry, as well as terms and guidelines on
receiving information.
22.3. Any of NBCI borrowers may obtain information from the Centralized
Credit Registry in accordance with the registry’s work schedule.
22.4. Bank secrecy regime shall be exercised on the data obtained from the
Centralized Credit Registry by the NBCI under the legislation. All persons
violating the regime of bank secrecy shall bear obligation in accordance with the
legislation of the Republic of Azerbaijan.
Article 23. Confidentiality
NBCI shall ensure confidentiality of information on transactions with its
customers as well as information on received collateral deposits in accordance with
the Law of the Republic of Azerbaijan on Commercial Secrecy and shall not allow
its illegal disclosure. Such information should be kept with NBCI for at least 5
years upon termination of mutual relations with a customer.
Chapter V. Supervision over NBCI Activities
Article 24. Supervision over NBCI activities
24.1. NBCI activities are supervised by relevant managerial authority
identified in its Charter.
24.2. NBCIs should submit their prudential reports to the Central Bank in
the format and context established by the Central Bank not later than 10 calendar
days upon the end of each reporting quarter.
24.3. If as a result of review of reports, cases of violation of the present Law
or other relevant regulations of the Central Bank, as well as facts that might cause
such violations are discovered, the Central Bank shall direct a notification letter to
NBCI to eliminate such cases. The letter shall delineate measures and their
implementation deadlines to eliminate NBCI violations (deficiencies) or facts
preceding such violations.
24.4. Within the period indicated in the notification, the NBCI shall inform
the Central Bank in writing on implementation of measures indicated therein. If
within the allocated time the NBCI fails to fully or properly implement those
measures the Central Bank shall forward a second letter to the NBCI and notify
that in the event of failure to implement those actions in the allocated time, their
license shall be revoked.
24.5. In case of necessity to verify reporting information, the Central Bank
may provide on-site examination of the NBCI activities through sending 10 days
prior written notice. Central Bank’s inspectors shall enjoy the right to enter NBCI
premises producing an examination certificate and inspect their reports, accounting
books, documents and other records, as well as request their explanation thereof.
Article 25. Termination of licenses and permits
25.1. The Central Bank may terminate NBCI licenses or branch permits in
one or more of the following cases\grounds:
25.1.1. NBCI submits a relevant application;
25.1.2. information submitted by NBCI for license or permit application is
found to be erroneous;
25.1.3.NBCI or its branch fails to commence activities within twelve months
upon effective date of its license or permit;
25.1.4. failure to implement the Central Bank instructions to eliminate
violations\deficiencies in activities;
25.1.5. failure to submit required reports to the Central Bank for two
consecutive reporting periods or purposeful submission of fraudulent\erroneous
information to the Central Bank;
25.1.6. implementation of activities not stipulated herein or prohibited by the
license (permit);
25.1.7. termination or bankruptcy of NBCI in accordance with the
legislation.
25.2. Decision to terminate the license shall be delivered to NBCI
immediately, to the relevant tax authority not later than 5 business days upon its
effective date, as well as published in mass media. The Central Bank’s decision to
terminate the NBCI branch permit shall be forwarded to the NBCI in writing
within 3 business days upon its effective date.
25.3. Unless another date is intended in the decision to terminate the license,
it becomes effective as of its publishing date in media.
25.4. The NBCI shall suspend its activities from the effective date of the
relevant decision and is liquidated in accordance with the Civil Code of the
Republic of Azerbaijan.
25.5. NBCI may, in accordance with the legislation, raise a court claim
against Central Bank’s decision to terminate its license. A claim to the court does
not impede implementation of Central Bank’s relevant decision.
Chapter VI. Transition Provisions
Article 26. Transition provisions
26.1. The requirements of the present Law shall apply to loan agreements
entered into by operating NBCIs after the present Law shall take effect.
26.2. The NBCIs, who intend to acquire authority to accept collateral
deposit desiring to receive a new license under the present Law, may apply to the
Central Bank in accordance hereto.
Ilham Aliyev
President of Azerbaijan
Baku
, _______200_
№ _____