BANK OF BAKU
AUDITORS REPORT AND FINANCIAL STATEMENTS AT 31 DECEMBER 1999

Bank of Baku ("the Bank") was established on 14 February 1994 as the commercial bank "Tugai". Upon the decision of the shareholders, the Bank changed its name to "Bank of Baku" on 10 February 1997 and re-registered as a joint-stock company on 27 August 1997. It operates under a general banking license and a license for foreign currency operations granted by the National Bank of Azerbaijan Republic ("NBAR"). The Bank is located in Baku and has 19 employees as of 31 December 1999 (1998: 25). Bank of Baku has one business segment (commercial banking) and one geographical segment (Azerbaijan Republic).

The Azerbaijan economy has shown progress in achieving a lower rate of inflation and stable exchange rates in recent years. However, the Azeri economy is largely dependent on oil prices, and all sectors of the economy, including the banking sector, might be affected by fluctuations in oil prices.

Note 1 Principal Activities 
Note 2 Basis of Presentation 
Note 3 Significant Accounting Policies 
Note 4 Cash and short-term Funds 
Note 5 Loans and Advances to Banks 
Note 6 Loans and Advances to Customers 
Note 7 Other Assets 
Note 8 Premises and Equipment 
Note 9 Due to Banks 
Note 10 Customer Accounts 
Note 11 Other Borrowed Funds 
Note 12 Other Liabilities
Note 13 Paid-in Capital 
Note 14 Retained earnings / Accumulated Deficit 
Note 15 Fees and Commission Income 
Note 16 Fees and Commission Expense
Note 17 General, Administrative and Other Operating Expenses 
Note 18 Taxation 
Note 19 Dividends 
Note 20 Asset and Liability Concentration 
Note 21 Risk Management 
Note 22 Commitments and Contingent Liabilities 
Note 23 Reconciliation of Azeri Accounting Rules to International Accounting Standards 
Note 24 Related Party Transactions