BANK OF BAKU
 AUDITORS REPORT AND
FINANCIAL STATEMENTS AT
31 DECEMBER 1998
Note 21 - Commitments and Contingent Liabilities
In Azerbaijan, there is no requirement to maintain
off-balance sheet accounts to record commitments and financial instruments. The
following disclosures were made based upon information available to management.Legal proceedings
As of 31 December 1998, the Bank was not engaged in
litigation proceedings.
Tax legislation
Due to the presence in the Azeri commercial legislation, and
tax legislation in particular, of provisions allowing more than one
interpretation, and also due to the practice developed in a generally unstable
environment by the tax authorities of making arbitrary judgements of business
activities, including the arbitrary classification of the activities of the
enterprise when the regulatory basis for this decision is insufficient,
managements assessment of the Banks business activity may not coincide
with the interpretation of the same activities by the tax authorities.
Management does not currently believe there are any known situations which might
be challenged by the tax authorities which have not already been reflected in
these financial statements. If a particular treatment was to be challenged by
the tax authorities, significant penalties could be imposed on the Bank.
Although the actual tax due on a transaction may be minimal, penalties can be
significant as they start from 110% of the value of the transaction and will
also include interest accrued on the unpaid tax at the rate of 0.1% per day.
Credit related commitments
The credit commitments comprise loan commitments, letters of
credit and guarantees. The contractual amount of these commitments represents
the amount of risk should the contract be fully drawn upon, the client default,
and the value of any existing collateral become worthless. In general, the Banks
import letters of credit are fully collateralised with cash deposits or liquid
collateral pledged to the Bank and, accordingly, the Bank assumes minimal risk.
At 31 December 1998, the Bank does not have any outstanding
loan commitments and letters of credit. During 1998, the Bank issued guarantee
letters to individuals for purchase of cars and consumer goods. Outstanding
guarantee letters at 31 December 1998 amounted to AZM 789,767:
|
|
1998 |
|
|
|
Guarantee letters |
|
|
Issued to individuals for purchase of cars collateralised |
527,435 |
|
Issued to teachers for purchase of consumer goods not
collateralised |
262,332 |
|
|
|
Total guarantee letters outstanding |
789,767 |
No provision was established for guarantee letters issued
without collateral on grounds of materiality.
|
