BANK OF BAKU
AUDITORS REPORT AND FINANCIAL STATEMENTS AT 31 DECEMBER 1998

According to the regulations of the NBAR, the Bank is required to maintain reserve deposits equivalent to 12% of balances of liability accounts calculated at month ends by using average balances.

Accordingly, balances with the NBAR include a mandatory reserve deposit of AZM 395,183 (1997: AZM 111,666). These funds are not available to finance the Banks day to day operations. The remaining AZM 1,928,193 with the NBAR represents the balance of a correspondent account through which the Bank makes its settlements in Manat with the other Banks in the country and no interest is applicable on this balance.

Note 1 Principal Activities
Note 2 Basis of Presentation
Note 3 Significant Accounting Policies
Note 4 Cash and Short-Termshort-term funds
Note 5 Loans and Advances to Banks
Note 6 Loans and Advances to Customers
Note 7 Premises and Equipment
Note 8 Deposits From Banks
Note 9 Customer Accounts
Note 10 Other Liabilities
Note 11 Share Capital
Note 12 Accumulated Deficit / Retained earnings
Note 13 Dividends
Note 14 Fees and Commission Income
Note 15 Fees and Commission Expense
Note 16 General, Administrative and Other Operating Expenses
Note 17 Taxation
Note 18 Asset and Liability Concentration
Note 19 Fair value of Financial Instruments
Note 20 Risk Management
Note 21 Commitments and Contingent Liabilities
Note 22 Reconciliation of Azeri Accounting Rules to International. Accounting Standards
Note 23 Related Party Transactions