NATIONAL BANK






The history of the bank

Like a number of other countries of the world Azerbaijan had not had any state central regulatory body until the 19th century. The first mechanisms of the banking sphere regulation started to form with the establishment of capitalism in the country. Thus, the State Bank of the Russian Empire was founded in 1860 and its Baku department opened a year later. The department mainly aimed at the expansion of the commodity turnover and at the acceleration of the credit system development. As a result of the capitalist relations in late 19th century Azerbaijan became the country with the most developed credit-banking system comprising nearly 200 credit establishments among the Caucasus countries.

The State Bank of Azerbaijan was established by the resolution of the government of the Republic of Azerbaijan on March 7, 1919, with the establishment of the first democratic country in the Muslim world-the Democratic Republic of Azerbaijan on May 28, 1918. The Financial Ministry of the Parliament of Azerbaijan approved the regulation of the State Bank of Azerbaijan on September 16 of the same year. The opening ceremony of the State Bank of Azerbaijan was held on September 30, 1919 and the bank started operating from that very day. The central office of the State Bank is located in Baku at Qorchekovsky (present H.Z.Taghiyev str) str. The Ganja department of the state bank was founded on November 9, 1919. Later the affiliates of the bank were opened in other regions of the country as well.

The main objective of the state bank of Azerbaijan is to facilitate money circulation, to assist trade, industry and agriculture and to arrange the policy for the strengthening of the monetary system in the country. The authorized capital stock of the state bank was 50000000 rubles. It was initially proposed that the capital would increase by the annual level of 10% of incomes. The reserve capital had increased by 20% of the income till the volume of 10000000 rubles and later by 10 %. The reserve capital had to cover the expenses of the bank. In case the volume of the reserve capital was small, the authorized capital was used.

The insufficient part of the authorized capital in turn must be recovered from the state budget. At the same time the creation of special fund was stipulated for the cases of insufficient incomes for maintaining the fund. The said fund was to form by 5% of the annual transfer from incomes.

The State Bank had a power to issue the banknotes. On the whole, through the years of the Democratic Republic the banknotes of over 2 billion 345 million rubles were issued in Azerbaijan. The government defined the exchange rate of other currencies through the Baku cheques for ensuring the circulation of the national currency.

The state bank of Azerbaijan bank regulated the activity of credit organizations. On the whole, the monetary credit system of Azerbaijan developed dramatically through the period of the Democratic Republic.

Yet as a result of the armed occupation of Azerbaijan by Bolshevist Russia on April 28, 1920 though retained the formal independence of the country (as the Azerbaijan SSR) yet it destroyed the monetary credit system of Azerbaijan. By the order of May 31, 1920 the State Bank of Azerbaijan was renamed the People's Bank of Azerbaijan. By the order of June 9, 1920 of the Revolutionary Committee of Azerbaijan all the banks and other credit organizations were nationalized and transferred under the jurisdiction of the People's Bank. Thus, the banking activity became fully controlled by the state.

Due to the establishment of the State Bank of USSR in 1923, its affiliate was created in Baku and the bank monopoly system started to be governed from the center. In accordance with the Constitution of USSR approved in December of 1936 Azerbaijan was annexed to USSR as a sovereign state. The Azerbaijan Department of the State Bank of USSR had been operating till 1991.

After Azerbaijan restored its independence on October 18, 1991 the legal foundation was created for the establishment of the banking system of independent Azerbaijan, including the National Bank. Thus, article 14 "Banking system and money turnover" of the Constitutional Law of May 25, 1991 of the Republic of Azerbaijan "On the fundamentals of the economic independence of the Republic of Azerbaijan" mainly cover these issues.

The said article along with fixing the legal status of the independent banking system in Azerbaijan and national currency turnover also defines the status and powers of the National Bank. Thus, the National Bank was declared the high emission organization, conducting the state policy on credits, money turnover, settlements and currency rate, regulating the overall activity of the banking system and performing the reserve banking functions.

At the same time according to the law of Azerbaijan of October 8, 1991 "On the additional measures for the stabilization of economic and sociopolitical life of the republic" the orders of the President of Azerbaijan defined the issues of the financial system regulation, as well as the central state executive bodies' establishment and dismissal.

On the basis of the said law and in accordance with the aforementioned Constitutional Law the National Bank of Azerbaijan was established on the basis of the Industrial Building Bank of the USSR and the Agroindustrial Bank of the Republic of Azerbaijan by the order of the President of the Republic of Azerbaijan on February 11, 1992 and the Law "On the National Bank of the Republic of Azerbaijan" was adopted on August 7, 1992.

The Milli Medjlis of the Republic of Azerbaijan adopted the resolution "On the ratification of the Regulation of the National Bank in the Republic of Azerbaijan" on December 1, 1992. The aforementioned Law defined the National Bank as the state central bank empowered to issue the banknotes and to perform the role of the reserve system. At the same time the National Bank was to fulfill the regulating and controlling functions.

Paragraph 2 of Article 19 of the Constitution of Azerbaijan, worked out by the commission headed by the prominent politician and the national leader of the Azerbaijani people Heydar Aliyev and adopted by the referendum held November 12, 1995 once more confirmed the power of the National Bank to put the banknotes to the circulation and to withdraw them. At the same time the National Bank was proven fully state property by the said Constitution. The adoption of the new Constitution implied a new stage in the legal state system establishment. Therefore, the new establishment works started in the banking system as well as other spheres of life.

Thus, the law "On the National Bank of the Republic of Azerbaijan" was adopted on June 10, 1996 and the law "On the banks and banking activity in the Republic of Azerbaijan" was approved on June 14, both in their altered forms.

The order of the President of the Republic of Azerbaijan of December 26, 2002 made an instruction to again apply the banking laws for the development of the banking system and its standard legal basis and the intensification of the subsequent reforms. As a result of the said law the Laws of the Republic of Azerbaijan "On the National Bank" and "On the banks" were adopted in their new altered forms in 2004.

The law of Azerbaijan "On the National Bank of the Republic of Azerbaijan" adopted on December 10, 2004 defined the legal state of the National Bank, its purposes and function, and its role and place among the state structures and stipulated for the corresponding mechanism for the increase of transparence in the duties and activity of the National Bank.

The Law of the Republic of Azerbaijan "On the National Bank of the Republic of Azerbaijan" is considered the most progressive legislative basis worked in accordance with the most advanced international practice.

The new law created conditions for the effective implementation of the activity of the National Bank in all spheres of its functioning. The most important functions of the National Bank is to define and implement the monetary policy of the state, to regulate and develop the reimbursement system of the country, to carry out the banking control and preserve and regulate the international gold and monetary reserves of the country.

The principles, forms and methods of the banking system stated in the new banking laws laid the foundation for the fulfillment of the said functions of the National Bank in accordance with the international standards including the Bazel principles on the banking control and the increase of the reliance of the country's banking system, effective protection of the creditors' and investor's interests.

The demands for the moral qualities of administrators were put forward for the first time in the history of the legislation of Azerbaijan. The administrators were defined as the persons with the satisfactory and necessary characteristics and the citizen irreproachability and the law stipulated for the selection of the most worthy candidates for the banking system.

Yet the conducted works can never be considered fulfilled as Azerbaijan that advances with great achievements is still continuing its reforms in the banking sector. The future plans stipulate for the new measures and state programs for the development of the country's banking system.

The functions of the bank

Article 5 of the Law of the Republic of Azerbaijan "On the National Bank of the Republic of Azerbaijan" stipulates for the following functions of the National Bank:

1. defines and conducts the state monetary policy;

2. arranges the turnover of ready money, issues the banknotes and withdraws them in accordance with paragraph 2 of Article 19 of the Constitution of Azerbaijan and the present law

3. defines the official exchange rate of the national manat against the foreign currencies;

4. regulates and controls currency in accordance with the legislation;

5. stores and regulates its international gold and monetary reserves in its powers;

6. works out the payment balance in accordance with the law and takes part in the development of the country's forecast payment balance;

7. In accordance with the law of Azerbaijan "On the banks", the present law and the standard acts, adopted according to them, the banking activity is licensed and regulated and the control of the banking activity is carried out in a way defined by the law;

8. ensures, coordinates, regulates and controls the payment systems activity in accordance with the law;

9. performs other functions stipulated in the Law of the Republic of Azerbaijan "On the National Bank of the Republic of Azerbaijan" and other laws.

The legal status of the bank

The National Bank is the state body and the central bank of the Republic of Azerbaijan.

The National Bank is independent in the fulfillment of its functions and powers, defined by the laws and the Constitution and its activity is not to be interfered with and impacted in a way contradicting to the law. Paragraph 2 of Article 19 of the Constitution of Azerbaijan states: "The issue and withdrawal of the banknotes from the circulation is the exclusive right of the National Bank. The Constitution defines the National Bank as the exclusive property of the state." According to the Constitution the National bank is not included in any of the state powers (either legislation, executive or judicial powers). Yet the inclusion of the principle on the National Bank into paragraph 2 of the Constitution "The state fundamentals" witnesses its special status of the state structure.

The Law of the Republic of Azerbaijan "On the National Bank of the Republic of Azerbaijan" reflects the interaction of the National Bank with other state bodies and defines its rights and duties as the state bank and financial agent and stipulated for its participation in the discussion of such matters as the major trends of the economic policy of the state, including the budget and taxes, prices and tariffs, the regulation of the volume of inner and foreign debt. This legal standard serves to the coordination of the activities of bodies carrying out the economic policy and the effective utilization of existing opportunities.

The law adopted in its new altered form on December 10, 2004 defined the effective mechanisms for the increase of the transparence in the activity and duty of the National bank through reporting to the country's leadership and community. In accordance to the Law the transparence in the Bank's activity is achieved through the introduction of the reports to the corresponding state bodies and delivery of information of the results of the activity and policy conducted. The National Bank reports on its activity only to the President of the Republic of Azerbaijan.

The new law stipulates for the application of the corporate management standards in the bank's management as one of the bases ensuring the transparence in the activity of the National Bank.

Thus, the application of the main principles and forms of the inner control, the separation of powers among the executive bodies and organizational structures of the National bank and the regulation of the issues of the clash of interests in the bank's management by the law also creates conditions for the transparence in the activity of the National Bank.

The National Bank possesses an independent balance, regulatory capital and other goods and the capital or other services may not be assimilated without the permission of the National Bank except for the cases stipulated by the Law. The authorized capital stock of the National Bank equals AZM 50 billion. The Bank can not be declared insolvent.

The executive functions of the management of the National Bank are performed by the Board of Directors and its chair. In accordance with the Constitution of the Republic of Azerbaijan the members of the Board of Directors of the National Bank are appointed by the Milli Medjlis of the Azerbaijan Republic on the introduction of the President of the country. The chair of the Board of Directors of the National Bank is appointed by the country's President from among the members of the Board of Directors of the National Bank.

The President of the Azerbaijan Republic appoints the auditors of the National Bank.

The new law creates conditions for the influence on all spheres of the functional activity of the National Bank and to carry out an effective control over the spheres it regulates in accordance with the international practice.

The international relations of the bank

The international relations of the National Bank aims at the development of the profitable cooperation with the international financial-credit institutes, the foreign central banks and donor organizations, the expansion of the international relations of the National Bank and the strengthening of the positive reputation of our country and the National Bank in the international arena and the provision of

the foreign technical aide to the reforms conducted by the National Bank. The cooperation is maintained in three directions:

1. The cooperation with the international financial institutions

The National Bank maintains intensive cooperation with the international financial institutions for the attraction of the financial reserves for the country's development and the development of the National Bank and the overall banking system.

The National Bank cooperates with the International Monetary Fund within the framework of the program on the Credit Mechanism for Poverty Reduction and the Economic Development. The experts of the International Monetary Fund render technical aide to the development of the State Program on the development of the National Payment System and the establishment of the Center of Cartography and in other spheres.

The National Bank also cooperated with the International Monetary Fund in the bringing the Laws "On the National Bank of the Republic of Azerbaijan" and "On the Banks" to conformity with the international standards.

The National Bank also maintained intensive cooperation with the World Bank in the conduction of measures, stipulated in the country Strategy in 2003-2005. The WB project on the technical aide to the financial sector occupies an important place in the delivery of aide to the reforms conducted in the financial sector of Azerbaijan. Within the framework of this project the partners implemented the important projects in the development of the payment system on the basis of the advanced technology including those on the Clearing System for the Settlement of Small Payments, Card Processing Center, the Centralized Credit Register and others.

The European Bank for Reconstruction and Development takes an active part in the strengthening of the financial sector in Azerbaijan. The EBRD activity in the financial sector is carried out for the provision of the credit lines for banks, participation in the capital of the Microfinancing Bank and private banks and the privatization of the state banks.

The opening of the Azerbaijan representation of the Asia Development Bank in 2004 also created conditions for the intensification of cooperation with the said structure. The experts of the Asia Development Bank conducted the discussion on the development of the project "The financing of lodgings" through 2004.

2. The cooperation with the foreign central banks.

The cooperation of the National Bank with the Central Banks of the developed countries was established for the familiarization with the progressive practice and technology existing in the banking sector of the world, application of these standards and technologies in the banking system of Azerbaijan and for determination of the place of the National Bank among the other central banks. The National Bank maintains effective relations with the Bundesbank of Germany, the National Banks of Poland and Switzerland, the Central Bank of Czechia, the Central Bank of Turkey, the National Bank of Kazakhstan and the Central Bank of France.

3. The cooperation with other foreign organizations.

The international relations of the National Bank with other foreign organizations are mainly directed on the provision of the technical aide to the reforms conducted in the bank. For this purpose the National Bank closely interacts with the State Secretariat of Sweden for Economic Issues, the Development Bank of Germany, the US Agency for International Development.

The address of the bank

Baku, 32 Rashid Behbudov str.
Tel: 493 11 22; Fax: 493 55 41;
E-mail: mailto:mail@nba.az
Web site:www.nba.az
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