Regulations on Accounting of Off-Balance Sheet Transactions in the Banking System of the Republic of Azerbaijan

Registered Approved
The Ministry of Justice at Resolution of Management The Republic of Azerbaijan Board of the Central Bank of the Republic of Azerbaijan Registration No 2685 19 April 2001 25 April 2001 Protocol N 14

Minister ______F.F.Mammadov Chairman of the Management Board ________ E.S.Rustamov

Regulations on accounting of off-balance sheet transactions in the banking system of the Republic of Azerbaijan

1. General provisions
   1.1. These Regulations have been developed in accordance with the Laws of the Republic
   of Azerbaijan on the Central Bank of the Republic of Azerbaijan, on Banks and Banking Activity, and other legislative acts of the Republic of Azerbaijan and determine the principles of accounting of off-balance sheet operations in the banking system of the Republic of Azerbaijan (hereinafter – the Bank).
   1.2. These Regulations govern accounting of off-balance sheet operations and are applied
   to record them in financial statements.

2. Definitions
   2.1. Off-balance sheet operations – operations not recognized as assets or liabilities in
   accounting report (balance sheet) at the moment of occurrence.
   2.2. Uncertain event – the event or situation the outcome of which (gain or loss) is only
   recognized by the fact of occurrence or non-occurrence of that event in future.
   2.3. Contractual (contingent) liabilities – bank’s consent on giving or taking liabilities for
   certain period in future under certain conditions.

3. Classification of off-balance sheet items
   3.1. Off-balance sheet transactions are classified as follows in terms of risk availability:

• contingencies and contingent off-balance sheet transactions
• memorandum off-balance sheet transactions
  3.2. Contingencies and contingent off-balance sheet transactions are transactions that
  may result in occurrence of uncertain events and contractual (contingent) liabilities in future, conducted on behalf of a customer or related to bank’s own trade activities and risky for the bank.
  3.3. Memorandum off balance-sheet transactions are not risky transactions for the bank
  unlike contingencies and contingent off-balance sheet transactions.

4. Accounting
   4.1. Off-balance sheet transactions are recorded in off-balance accounts according to double
   entry accounting, under which a relevant account is debited, while contra-account is credited, or a relevant account is credited and a relevant contra-account is debited.
   4.2. Contingencies and contingent off-balance sheet transactions are booked in relevant off￾balance sheets at pre-set value from the date of signing of related documents and
   recorded at future unused balance amount. Unused amount is recorded in accounting (balance sheet) report.
   4.3. Claims and liabilities related to contingencies and contingent off-balance sheet
   transactions are unrecorded from relevant off-balance sheets in the following cases:

• if paid;
• if recalled;
• if expired;
• in other cases specified in the legislation.
  4.4. Contingencies and contingent off-balance sheet transactions include contingencies
  and contingent off-balance sheet transactions on outstanding portion of declared authorized capital, outstanding portion of commercial banks’ required reserves, contingencies and contingent liabilities on credit operations, capital investments, buy/sell of foreign currency, buy/sell of securities, and on buy/sell of other financial instruments and other risky transactions for the bank related to other exposures and are booked in relevant off-balance sheet accounts.
  4.5. Memorandum off-balance sheet transactions are recorded in relevant off-balance
  sheet accounts based on the documents confirming the fact of their generation.
  4.6. Memorandum off-balance sheet transactions are unrecorded from off-balance sheets
  on the basis of documents denying their availability.
  4.7. Memorandum off-balance sheet transactions include collateral, payment transactions
  and documents, debt written-off from the balance sheet, rent and lease operations, transactions with low value and perishables and other transactions not risky for the bank and are recorded in relevant off-balance sheet accounts.

5. Revaluation
   5.1. Revaluation on off-balance sheet accounts is maintained in the following cases:

• when the manat/foreign currency exchange rate changes;
• when the price of collateral changes;
• in other cases specified in the legislation.
  5.2. Revaluation on off-balance sheet accounts is maintained via relevant contra-accounts.

6. Final provisions
   6.1. These Regulations take effect from 01 June 2001.

Methodological instructions on accounting of off-balance sheet transactions:
1) When off-balance sheet transactions are recorded in off-balance sheet accounts the
following accounting entry is made:
For off-balance sheet assets:
Dr relevant off-balance sheet asset account
Cr relevant off-balance sheet contra-account for assets For off-balance sheet liabilities:
Dr off-balance sheet contra-account for liabilities Cr relevant off-balance sheet liability account
2) When off-balance sheet transactions are unrecorded from off-balance sheet
accounts the following accounting entry is made:
For off-balance sheet assets:
Dr off-balance sheet contra-account for assets Cr relevant off-balance sheet asset account For off-balance sheet liabilities:
Dr relevant off-balance sheet liability account Cr off-balance sheet contra-account for liabilities