LAW OF THE REPUBLIC OF ARMENIA Adopted on October 23, 2001.

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1 LAW OF THE REPUBLIC OF ARMENIA Adopted on October 23, On Making Amendments and Supplements in the Law of the Republic of Armenia on the Central Bank of the Republic of Armenia. Article 1. In Article 5 of the law of the Republic of Armenia on the Central Bank of the Republic of Armenia: a) to add sub-paragraph c to Paragraph 1 with the following text: c) the issuing of the currency of the Republic of Armenia, the organization and regulation of money circulation. b) in Paragraph 2: -to remove the sub-paragraph a and to consider sub-paragraphs b - g as sub- Paragraphs a - f ; -to add the words including non bank payment and settlement servicing organizations after the word system in the former sub-paragraph f ; -to add a new sub-paragraph g with the following text: g) shall collect, finalize and promulgate monetary and bank statistics (administrative statistics). Article 2. To remove the word other after the word material from Paragraph 1 of Article 9 of the law. Article 3. To remove the words for the purpose of resale from Paragraph 1 of Article10 of the law. Article 4. To reword paragraph 1 of Article 11 of the law with the following text: 1.The capital of the Central Bank shall include the statutory capital, general reserves, revaluation reserves of foreign currency, precious metals, securities, fixed and other assets, retained earnings and profit. Article 5. In Article 13 of the law: a) to change the wording of sub-paragraphs c, d, and e in the following way: c) Fines and penalties charged from the banks registered by the Central Bank, other customers and contractual obligations (including those for non performance of mandatory provisioning by the banks as defined). d) proceeds gained from the sale of the foreign currency, precious metals and other monetary values at prices exceeding the book value. 1

2 e) proceeds from the sale of fixed assets, intangible assets at prices exceeding the book value and the sale of the stocks. b) to change the wording in Paragraph 3 in the following way: 3. The expenses of the Central Bank shall include: a) Operational expenses, i.e.: - Interests accrued on deposits attracted, credits received, securities issued and balances of customer accounts; - Expenses associated with the issuing, transportation, maintenance and elimination of bank notes, coins and monetary values; - All types of commissions and fees paid during banking operations; - Losses incurred from the revaluation of foreign currency, securities, precious metals and other assets; - Losses incurred from the sale of foreign currency, securities, precious metals and monetary values at prices lower than the book value and the purchase price; - Expenses incurred from the revaluation of fixed assets, intangible assets and stocks, sale of fixed assets, intangible assets at prices lower than the book value, as well as the ones incurred from the sale of the stocks; - Expenses associated with provisions for and write-offs of bad loans, receivables, monetary values and other assets; - Expenses associated with the depreciation of fixed assets; - Payments against all kinds of services related to the bank operation; - Expenses associated with international reserves management; - Expenses associated with payment system services; - Expenses associated with state foreign debt service; - Expenses associated with maintenance, servicing, use and insurance of other assets of the Central Bank such as buildings, premises, fixed assets and stocks; - Fees for auditing and consulting services; and - Other expenses associated with implementation of objectives of the Central Bank. b) Administrative expenses shall include, i.e. - - Expenses associated with the staff maintenance (staff salaries, rewards, payments to pension fund, staff training and skill upgrading, business trips and representation expenses, office vehicle operation costs and other social security expenses); - Expenses associated with the acquisition of press information and professional literature; - Expenses associated with the write-off of materials and non-durable assets; - Expenses associated with the communication means used for office purposes; - Contingent expenses (reserve for expenses). c) To add the words and capital repair after the words procurement of other fixed assets in Clause 3 of sub-paragraph a of Paragraph 4. 2

3 Article 6. To reword Paragraph 1 of Article 15 of the law in the following way: 1. Accounting at the Central Bank shall be conducted in the manner defined by the Board of the Central Bank, in accordance with the Accounting Standards of the Republic of Armenia. Article 7. In Article 20 of the law: - to reword Paragraphs c and d in the following way: c) shall approve the limits and interest rates for the open market operations conducted, credits provided and deposits attracted by the Central Bank; d) shall approve the procedure and terms for mandatory provisioning by the banks in the Central Bank. -to reword Paragraph jf in the following way: jf) shall grant banking and other licenses, shall revoke or consider as invalid these licenses, shall set out the procedure for the licensing of banks and other persons in the manner defined by law ; - to reword Paragraph jh in the following way: jh) shall recognize the bank as insolvent and initiate bankruptcy procedure for the insolvent bank according to the law of the Republic of Armenia on the Bankruptcy of the Banks, shall exercise other powers stipulated by that law, shall make decisions stipulated by the laws on the reorganization of the banks. -to reword Paragraph k in the following way: k) shall give an initial consent or decline the acquisition of a significant share in the statutory fund of the banks ; -to add the word,audits after the word examinations in the sub-paragraph ka ; -to add sub-paragraphs kb - kh with the following texts: kb) shall license the bank auditing organizations, shall set the minimum requirements for internal control at banks; kc) shall set the procedure, terms and regulations for issuing and circulating government securities jointly with government authorities of Republic of Armenia; kd) shall adopt legal acts regulating the settlement relationships and money circulation in the Republic of Armenia; ke) shall set the size, procedure for calculating and frequency of charging insurance premiums for the bank deposit insurance fund which ensures deposit repayment by the banks and shall undertake other authorities associated with the repayment of deposits; 3

4 kf) shall approve the procedure and terms for issuing and promulgating official and other periodicals of the Central Bank; kh) shall define the regulation for the credit risk assessment subject to mandatory execution for the banks, the procedure and terms for supervising those entities, the balance sheets of which are incorporated in the balance sheet of the Central Bank (consolidated balance sheet) in the manner defined by law and the legal acts of the Central Bank; -in this context, to consider the former kb as ki. Article 8. To add a new Paragraph 5 in Article 21 of the law with the following text: 5. When necessary, according to its work procedure defined the Board of the Central Bank, may make decisions through inquiry. The decision through inquiry shall be made by the procedure of voting stipulated by Paragraph 3 of this Article. Article 9. To change the wording in Paragraph 1 of Article 25 of the law in the following way: 1. The auditing group of the Central Bank shall be a special structural unit of the Central Bank. The chief auditor shall manage the work performed by the auditing group. The Central Bank Board shall appoint and dismiss from office the chief auditor and the members of the auditing group upon the Chairman s recommendation. Article 10. In Article 32 of the law: -to remove the words in the manner and by terms set jointly with the body authorized by the Government. -to continue Paragraph a with the following wording: Shall be considered the central depository of the bonds issued by the body authorized by the Government. Article 11. To replace the word Government in the first sentence of paragraph 3 of Article 33 of the law by the following words: bodies authorised by the Government, as well as national statistical service of the Republic of Armenia. Article 12. In Article 34 of the law: -to replace the words by this Article in Paragraph 1 by the words by this law ; -to remove Paragraphs 2, 3, 4, and 5, and also the numbering of Paragraph 1 in this context. Article 13. To add a paragraph 3 in Article 35 of the law with the following text: 4

5 3. Under the procedure and terms defined by the Central Bank, an information system on the client creditworthiness, i.e. a credit registry, shall be established in the Central Bank, which shall have the mandatory participation of all the banks operating on the territory of the Republic of Armenia. Article 14. To add the words main and other economic after the word activity in Paragraph 1 of Article 36 of the law. Article 15. To edit Paragraph 5 of Article 37 of the law with the following wording: 5. In case a bank does not meet the required provisioning requirement, the Central Bank shall charge a penalty from the bank in the amount set by the Central Bank. But the penalty shall not exceed 1% of the amount reserved daily lesser in average. Article 16. To reword Paragraphs 1 and 2 in Article 46 of the law in the following way: 1. In the manner defined by the Central Bank, the Central Bank shall exchange outdated and damaged bank notes and coins that meet solvency criteria for free, but there shall be no limitations on amounts in the case of the bank notes and coins that meet the solvency criteria. 2. The Central Bank shall not compensate for the currency not meeting the protection and solvency criteria set by the Central Bank and such currency shall be removed from circulation. Article 17. To reword Clause 1 of Paragraph 1 in Article 47of the law in the following way: 1. The Central Bank may call back from the circulation any bank note or coin issued and may remove it by issuing a new bank note or coin with the same face value with new protective features, or another bank note or coin with new face value. Article 18. In Article 49 of the law: a) To replace the word foreign currency by the word Currency in the title: b) To add a sub-paragraph e to Paragraph 2 with the following text: e) to exercise other powers stipulated by law and other legal acts. Article 19. To replace the word foreign currency by the word currency in the title of Article 50 of the law. Article 20. To remove the second sentence from the sub-paragraph a in Article 56 of the law. Article 21. To add a new Chapter 7 1 with the following text after Chapter 7 of the law: 5

6 CHAPTER 7 1 Compulsory Bank Deposit Guarantee (Insurance). Article 53 1 Object of Compulsory Guarantee (Insurance). Banks shall be obliged to guarantee, in the manner defined by this Chapter, all types of monetary and foreign currency deposits attracted by natural persons at the amount defined by the Board of the Central Bank. Hereby, the dram equivalence of the foreign currency deposits shall be determined on the basis of the settlement exchange rate set by the CBA at the date the bank receives the deposit and, if interests accrued, at the date of accrual of those interests. All the deposits of a person and related to him persons in one bank shall be considered as a single deposit. Article Guarantee Payments (Insurance premiums) The CBA shall open, maintain and manage a special fund for bank deposit guarantee, at the benefit of whose the banks shall make insurance premium payments. The size of insurance premiums, the procedure for settlement and management of the fund proceeds shall be defined by the CBA Board. The CBA shall charge the insurance premiums from the banks correspondent accounts located at CBA at the frequency rate specified by CBA normative-legal acts. In the event there is no relevant amount in the correspondent accounts, interests shall accrue on that amount in accordance with the rate defined by Article 411 of the Civil Code of the Republic of Armenia. Article Insured Amounts and the case of Receipt of Insured Amounts Recognizing a bank as bankrupt by court on the basis of a CBA claim in accordance with the RA Law on Bankruptcy of Banks, shall be deemed as a case of receipt of insured amounts. A maximum amount insured shall be the total amount of deposit available in the bank as of the date of receipt of insured amount, but not exceeding the dram or its foreign currency equivalent amount set by the Board of the Central Bank. Herein, the foreign currency equivalence shall be determined in the manner stipulated by Article 53 1 of this law. The Board of the Central Bank shall set the procedure, terms, sequence and timing for the reimbursement of the amount ensured. Article Right of CBA to Claim against the Receipt of Insured Amounts reimbursed. After the reimbursement of the insured amount, the CBA shall acquire a claim against the bankrupt bank at the amount of money reimbursed. Article Formation of a Special Fund for Bank Deposit Guarantee (Insurance) The guarantee premium amounts paid to the special bank deposit insurance fund, the interests accrued on them, the revenues acquired from the use of those amounts, the amounts of guarantee premiums received by the Central bank and received from the bankrupt banks on the basis of the claim acquired against the bankrupt banks, shall not be 6

7 transferred to the RA state budget under the fiscal year results and shall be accrued in the special bank deposit insurance fund. Article 22. The text in Article 57 of the law must be reworded in the following way: 57. The normative and individual legal acts of the Central Bank may be appealed to the court in the cases prescribed by law. The effectiveness of the normative and individual legal acts of the Central Bank shall not be suspended during the whole court examination process. Article 23. This law shall enter into force starting from the moment of its promulgation, except for the sub-paragraph jg of the new edition under Article 7 of this law, which shall enter into force starting from the entry of the law of the Republic of Armenia on the Bankruptcy of Banks into force. Payment of insurance premiums by the banks in the manner stipulated by Paragraph 21 of this law shall be made starting from July 1, 2003 and the reimbursement of the insured amounts shall be made starting from July 1, Robert Kocharyan, President of the Republic of Armenia, Yerevan 7