State registration with the Ministry of Justice of Azerbaijan Republic Registration No. 2657 February 8, 2001 Minister F.F. Mammadov Approved by Resolution of January 31, 2001 by the Management Board of the Central Bank of Azerbaijan Republic Protocol No. 03 Governor of the Management Board E.Rustamov REGULATION FOR SETTING AND MANAGEMENT OF OPEN CURRENCY POSITION LIMITS FOR AUTHORIZED BANKS OPERATING IN AZERBAIJAN REPUBLIC (as amended on January 23, 2007; December 17, 2008 and April 15, 2010) BAKU 2001
1. General UNOFFICIAL TRANSLATION 1.1.This Regulation has been developed in accordance with the Laws of Azerbaijan Republic «On the Central Bank of Azerbaijan Republic», «On banks» and «On currency regulation», and is designed to address exchange rate risks associated with foreign exchange/currency transactions conducted by authorized banks. 1.2.For the purposes hereof, «credit institution» and «bank» shall have the meanings ascribed to them in the Law of Azerbaijan Republic «On banks»; «residents», «nonresidents», «foreign exchange», «foreign exchange transactions» and «authorized bank» shall have the meanings ascribed to them in the Law of Azerbaijan Republic «On currency regulation»; and «bankable metals» shall have the meaning ascribed to it in the Law of Azerbaijan Republic «On precious metals and gems». 1.3.In addition to terms defined in laws of Azerbaijan Republic, other terms used herein shall have the following meanings: 1.3.1. Currency position an authorized bank's claims and liabilities in any given currency (including in bankable metals); 1.3.2. Open currency position the mismatch between the amounts of the authorized bank's claims and liabilities in individual foreign currencies (including offbalance claims and liabilities on transactions to be settled) that gives rise to a risk of losses when the related exchange rate changes adversely; 1.3.3. Short open currency position an open currency position where on-balance and off-balance liabilities in any foreign currency exceed on-balance and off-balance claims; 1.3.4. Long open currency position an open currency position where on-balance and off-balance claims in any foreign currency exceed on-balance and offbalance liabilities; 1.3.5. open currency position the greater of the total Manat equivalent of all long open currency positions and the total Manat equivalent of all short open currency positions. open currency positions are calculated separately for hard and soft currencies. Open currency positions are marked with a plus, whereas short open currency positions are marked with a minus; 1.3.6. Closed currency position a currency position where on-balance and off-balance claims are equal to on-balance and off-balance liabilities; 1.3.7. Open currency position limit a quantitative limitation imposed by the Central Bank of Azerbaijan Republic (hereinafter referred to as «Central Bank») on the ratio of the Manat equivalent of the open currency position to the bank's capital; 1.3.8. Bank capital total regulatory capital calculated in accordance with the Central Bank's requirements; 1.3.9. Hard currencies currencies listed in Annex 2 hereto; 1.3.10. Soft currencies all foreign currencies other than those listed in Annex 2 hereto; 1.3.11. End-of-day exchange rate the official exchange rate or the cross exchange rate calculated based on the official exchange rate as stated by the Central Bank at the close of business on the date the open currency position is established; 1.3.12. Structural currency position long-term currency positions accepted in order to minimize the effect of inflation and foreign exchange risks on the bank's capital. Such position may include positions opened in association with incorporation of foreign subsidiaries of a bank, issuance of equities in a foreign currency and other non-speculative transactions. 1.4.Claims and liabilities in the foreign currency and bankable metals used in calculating the open currency position, as well as off-balance claims and liabilities shall be determined by the Central Bank.
1.5.Net off-balance liabilities shall be used in calculating the open currency position, i.e., less the balances in this currency or a portion thereof secured with term deposits. In this case, the bank must block the deposit in a special account. If guarantees issued by the bank are secured with guarantees from third party banks, they are posted net (i.e., less guarantees received in the same currency), provided that the third party bank's long-term liabilities are rated not below Standard and Poor's BBB rating or an equivalent of such rating by other international credit rating agencies (e.g., Moody's, BankWatch or Fitch). 1.6.Removed. 1.7.Open currency positions shall be calculated by banks based on the close-of-business (end-of-day) exchange rate from consolidated balance statements. 2. Assignment of open currency position limits 2.1.In order to minimize currency and exchange rate risks of authorized banks the Central Bank sets open currency position limits for the following positions: 2.1.1. Long open currency position limit for hard currencies; 2.1.2. Short open currency position limit for hard currencies; 2.1.3. Long total/gross open currency position limit for hard currencies; 2.1.4. Short total/gross open currency position limit for hard currencies; 2.1.5. Long open currency position limit for soft currencies; 2.1.6. Short open currency position limit for soft currencies; 2.1.7. Long total/gross open currency position limit for soft currencies; 2.1.8. Short total/gross open currency position limit for soft currencies; 2.1.9. Long total/gross open currency position limit for bankable metals; 2.1.10. Short total/gross open currency position limit for bankable metals. 2.2.The thresholds for open currency position limits for authorized banks shall be determined by the Management Board of the Central Bank. 2.3.Open currency position limits set by the Central Bank shall apply only to the results of the banking day's conclusive consolidated balance. Currency positions opened by banks during a banking day shall not be regulated by the Central Bank. 3. Management of structural currency positions 3.1.Banks, when calculating open currency positions, may, with a prior approval from the Central Bank, not consider structural currency positions. 3.2.Structural currency positions may not be included in the calculation of the open currency position if any of the following applies: i. establishment of a currency position for a long period and for non-speculative purposes has been substantiated; ii. the currency position is established in order to protect the bank's capital; iii. exceptional cases of structural currency position (i.e., non-inclusion in calculations) are applied consistently and this position remains unchanged throughout the period of its existence. 3.3.Banks shall submit an official petition to the Central Bank to gain approval for exceptional cases of structural currency position. 3.4.The Central Bank shall review such petitions and give its official reply concerning the structural currency position to banks within 10 business days. 4. Open currency position reporting of authorized banks 4.1.Authorized banks shall report their open currency positions to the Central Bank in the
format presented in Annex 1 hereto. 4.2.Open currency position reports shall contain consolidated information on both domestic and foreign branch offices. Banks that have branch offices outside the Republic of Azerbaijan shall, in parallel, prepare and submit to the Central Bank identical reporting forms containing data on business units operating only in the country. 4.3.Weekly open currency position reports prepared on a daily basis shall be submitted to the Central Bank on the first business day following the end of the reported week. 5. Liability of authorized banks for non-compliance with open currency position limits and reporting requirements 5.1.Banks and bank administrators failing to comply with the provisions hereof shall be held liable in accordance with the existing laws. 5.2.Removed. 5.3.Removed. 1. Final provisions 6.1.Upon effect hereof, the Central Bank's Regulation for Setting Open Currency Position Limits for Authorized Banks in Azerbaijan Republic, No.64, of October 28, 1996; accompanying directives On Amendments to the Regulation for Setting Open Currency Position Limits for Authorized Banks in Azerbaijan Republic, No.116, of November 28, 1998, as well as letters No.05/05-1319 of December 29, 1998, and No.05/05-1358 of November 22, 1999, shall be null and void. 6.2.This Regulation shall take effect on February 22, 2001.
OPEN CURRENCY POSITION REPORT Report ( 20 ) UNOFFICIAL TRANSLATION Annex 1 Regulation for Setting and Management of Open Currency Position Limits for Authorized Banks Operating in Azerbaijan Republic The bank s name _ Responsible officer: Phone number: Currency USD EURO GBR JPY RUR CBAR s currenc y rate Assets (in foreign currency) Balance Offbalance TOTAL Banks total regulatory capital upon report date Liabilities (In foreign currency) Balance Offbalance Note: (information on structural currency positions) Manat equivalency liabilities Open Currency Position(OCP) Long Short Foreign currency Manat Foreign currency Manat OCP ratio % hard currency Man. Man. - sof currency Man. Man. - Bankable metals Man. Man. - OCP by hard currencies OCP by soft currencies
Annex 2 Regulation for Setting and Management of Open Currency Position Limits for Authorized Banks Operating in Azerbaijan Republic Hard currencies used for the purposes of the Regulation for Setting and Management of Open Currency Position Limits for Authorized Banks Operating in Azerbaijan Republic Hard currencies for the purposes of the Regulation for Setting and Management of Open Currency Position Limits for Authorized Banks Operating in Azerbaijan Republic include: No. Issuer Currency ISO code 1. United States of America US Dollar USD 2. European Union Euro and currencies with Euro-pegged exchange rates EUR 3. Australia Australian Dollar AUD 4. Canada Canadian Dollar CAD 5. Denmark Danish Crown DKK 6. removed removed removed 7. Iceland Icelandic Crown ISK 8. Japan Yen JPY 9. New Zealand New Zealand Dollar NZD 10. Norway Norwegian Crown NOK 11. Sweden Swedish Crown SEK 12. Switzerland Swiss Franc CHF 13. Great Britain, United Kingdom Pound Sterling GBP 14. International Monetary Fund Special Drawing Rights SDR