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27 October 2000
Azerbaijan's banking market has been developing since the enactment of the 1992 Law on Banks and Banking Activities. This legislation, together with the subsequent 1996 Law on Banks and Banking Activities and applicable banking regulations, provided the regulatory regime for basic banking operations (eg, establishment and maintenance of bank accounts, and making deposits, withdrawals and payments from these bank accounts).
The new Azerbaijani Civil Code, effective from September 1 2000, further updates local banking law. It includes specific provisions on the establishment of bank accounts with authorized banks, that is, banks which the National Bank of Azerbaijan has licensed to conduct banking operations in Azerbaijan. The new Civil Code provisions are intended to reflect the needs of modern commerce. In contrast to the civil codes of other countries of the former Soviet Union, and the Russian code in particular, the Azerbaijani Civil Code is better designed for commercial transactions. For example, it makes clear that bank accounts may be pledged as security.
Another example of this flexibility is the account holder's ability to transfer funds electronically or through the use of information technology services, if these systems can ensure the authenticity of the account holder's signature. Other post-Soviet states are still grappling with this concept.
Another novelty which the new Civil Code introduces is that a bank, while free to lend bank deposits, is required to pay interest for this use to account holders, unless otherwise provided by the bank account agreement. The new code also authorizes banks to finance any deficit/overdraft on commercial accounts if this is permissible under the bank account/deposit agreements, with the right to set-off any claims arising in connection with such financing. The financing of any deficit/overdraft is a quasi-loan, subject to the banking prudential rules.
While the new Civil Code adds innovative provisions (at least in the context of the former Soviet Union), it also includes many provisions common to all. For example, it requires that bank account and deposit agreements be in writing to be valid and enforceable. Further, accounts must be credited within two business days after the funds are transferred to the account.
The new code establishes the following priority of payments in the event of insufficient funds in an account:
The new Civil Code incorporates two main forms or methods of payment within Azerbaijan: (i) cash or hand-to-hand payments (ie, payments made outside the banking system), and (ii) non-cash payments (ie, payments made through the banking system). It does not mandate the use of one method over the other. It does, however, state the general rule that cash payments of physical persons may be made without limitation.
The code provides for the following forms of non-cash payment:
Under the existing foreign currency regulatory regime, residents(1) and non-residents(2) are entitled to open bank accounts both in manats, the national currency, and in foreign currency with the authorized banks of Azerbaijan. The 1994 Law on Currency Regulation subjects residents' capital operations(3) to a licensing requirement. To conduct these capital operations, residents must first obtain a licence from the National Bank of Azerbaijan.
Both residents and non-residents may open current foreign-currency accounts with any authorized bank of Azerbaijan. Non-residents, however, may open manat accounts only if they operate in Azerbaijan through established representative offices, branches and affiliates. Under banking rules, both residents and non-residents may receive payments in foreign currency, except when (i)the payments are made for goods sold and services rendered in Azerbaijan, or (ii) the payments are made in cash for exported goods and services.
Both residents and non-residents are allowed to make payments in foreign currency within the country in many instances, including the following:
While offshore payments made under various import contracts and loan repayments to non-residents are not automatically deemed to be capital operations, they may require the prior consent of the National Bank.
For further information on this topic please contact Daniel Matthews or Elvira Mamedzade at Baker & McKenzie by telephone (+99412 97 18 01) or by fax (+99412 97 18 05) or by e-mail (email@example.com or firstname.lastname@example.org).
(1) 'Residents' are defined as citizens
and other persons with a permanent residence in Azerbaijan; legal entities incorporated
or otherwise established pursuant to the Azerbaijani law; representative offices,
branches and affiliates of the Azerbaijani legal entities located both within
and outside Azerbaijan; and embassies and other diplomatic missions of Azerbaijan.
(2) 'Non-residents' are defined as foreign citizens and other persons with a permanent residence outside Azerbaijan; legal entities incorporated under the laws of the foreign jurisdictions; representative offices, branches and affiliates of non-residents in Azerbaijan.
(3) 'Capital operations' are defined as direct investments in the form of creation or acquisition of foreign legal entities abroad; purchase of securities; purchase of real estates, lands or mineral resources abroad; payments under export and import contacts made over 180-day period and the like.
The materials contained on this web site are for general information purposes only and are subject to the disclaimer
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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