Bank of Baku

	1998

Profit before taxation	867,714
Taxation rate	32%
Expected taxation charge	277,668

Adjustments:
Contribution to the Disability Fund	11,051
Income from treasury bills which is exempt from taxation	(3,488)
Non deductible expenses net of amounts not assessable for profit taxation purposes	17,658

Taxation charge for the year	302,889

In Azerbaijan, there are no procedures for the final agreement of tax assessments. Tax returns are filed by 15 March of the following year. The tax authorities may, however, examine records and/or revise assessments over an indefinite period.

Deferred taxes are calculated on all temporary differences under the liability method using tax rate of 32 %.

The movement on the deferred tax account is as follows:

		1998

Balance at 1 January		-
Movement in deferred taxation		58,250

Deferred tax asset at 31 December		58,250

The deferred tax asset represents the tax effect of temporary differences arising due to the different treatment of certain items income and expenses included in the financial statements compared to the local tax return, in accordance with the applicable tax law.

The temporary differences giving rise to the deferred tax assets are as follows:

	Cumulative temporary differences	Deferred tax assets/liabilities
	1998	1998

Deferred tax asset
Provision for losses on loans to banks and customers net of statutory	78,801	25,216
Customers allowance
Additional depreciation on fixed assets	49,762	15,924
Accrual of other expenses	116,700	37,344

	245,263	78,484
Deferred tax liability
Accrued interest income on loans to customers	63,231	20,234

Deferred tax asset net	182,032	58,250

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