BANK OF BAKU AUDITORS REPORT AND
FINANCIAL STATEMENTS AT
31 DECEMBER 2001
Note 22 - Commitments and contingent liabilities
Legal proceedings
As of 31 December 2001 and 2000, the Bank was not engaged in any litigation proceedings.
Tax legislation
Commercial and tax legislation in Azerbaijan contains provisions that sometimes imply more than one treatment for transactions. Moreover, the tax authorities may make arbitrary
judgments regarding 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
judgment of the Banks business activities and transactions may not coincide with the interpretation of the tax authorities.
In the event that the tax authorities challenge a particular transaction treatment, 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. Management believes that the financial statements adequately reflect the activities of the Company.
Credit related commitments
Credit related commitments might comprise loan commitments, letters of credit and guarantees. The contractual amount of these commitments represents the amount of exposure should the contract be fully drawn upon and if the client default or the value of any existing collateral becomes worthless. In general, the Banks import letters of credit and guarantee letters outstanding at 31 December 2001 and 2000 are fully
collateralized with cash deposits or liquid collateral pledged to the Bank. Accordingly, the Bank assumes minimal risk for those letters of credit and guarantee letters. Outstanding credit related commitments at 31 December are as follows:
