BANK OF BAKU AUDITORS REPORT AND
FINANCIAL STATEMENTS AT
31 DECEMBER 1999
Note 22 -
Commitments and contingent liabilities
Legal proceedings
As of 31 December 1999 and 1998, the Bank was not engaged in
litigation proceedings.
Tax legislation
The Azeri commercial and tax legislation contains provisions
that sometimes imply more than one treatment for transactions. Moreover, the tax
authorities may make arbitrary judgements as to business activities and
transactions, including the arbitrary classification of the activities of the
enterprise when the regulatory basis for this decision is deemed insufficient.
Thus, managements judgement of the Banks business activities and
transactions may not coincide with the interpretation of the tax authorities.
In the event that a particular transaction treatment is
challenged by the tax authorities the Bank may be assessed penalties and taxes
on present and past transactions. 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 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 1999, the Bank did not have any outstanding
loan commitments and letters of credit. During 1999, the Bank issued guarantee
letters to individuals for purchase of cars and consumer goods. These guarantee
letters are collateralised by cars and household goods purchased by these
individuals. Outstanding guarantee letters at 31 December 1999 amounted to AZM
2,849,374 (1998: AZM 789,767) as set out below:
1999
1998
Guarantee letters
Issued to individuals for purchase of cars
1,571,432
527,435
Issued to individuals for purchase of consumer goods
