PASHA Bank

In order to exercise control over risks in the process of the most effective placement of credit resources, OJSC Pasha Bank adheres to a specifically developed Lending Policy. The main objective of the Bank’s lending policy is rational and effective placement of monetary resources enabling maximum revenue with minimum risk, while maintaining the required liquidity level of the Bank.

The Bank’s lending policy lays down the goals and priorities of lending activity, means and methods of their realization, contains principles and procedures for organization and control over credit operations.

The key factor of the Bank’s credit policy is the focus on meeting customer demand for borrowed funds with a broad selection of forms and methods for the provision of credit products and reduced risks of non-redemption of the principal amount and interest on it.

The Bank attaches special importance to the following priorities of control over risks:
- Qualitative assets
- Profitable relations
- Reasonable growth of the advances portfolio

To meet the objective of the best placement of resources, the Bank is governed by the following criteria:
- Requirements of the National Bank of the Azerbaijan Republic
- Mission and Corporate Strategy of the Bank (including high ethics standards)
- Lending culture of the Bank
- Interests of security and reasonable caution, which means participation only in transactions legitimate and reasonable from the risk standpoint.

To meet these objectives, the Bank has mid- and long-term strategic requirements on the advances portfolio. These requirements correspond to strategic directions and the acceptable level of risks. When these strategic requirements are determined, a careful analysis is conducted to consider their expected rate of return and risks. Strategic requirements are regularly reviewed and, if necessary, amended and supplemented.

It is the responsibility of every employee of the Bank involved with lending to act in accordance with the Lending Policy. All loan requests are considered in the following sequence: quality, profitability and portfolio growth.

In order to minimize the Bank’s credit risks in line with the requirements of the National Bank of the Azerbaijan Republic, as well as internationally recognized principles and standards on the management of credit risks in banking and recommendations of the Basle Committee on Banking Supervision, the Bank manages credit risks in accordance with the following key principles:
- Authority in the area of lending activity.
- Diversification of the advances portfolio.
- Monitoring of the advances portfolio.
- Creation of reserves to cover possible losses.

The Bank has also developed an in-house rating system as a standard means for evaluating borrowers. Information on customer ratings is used by the Bank at different managerial levels to ensure better understanding of the quality of assets and segmentation of the Bank’s credit portfolio.

The Bank regularly evaluates its assets to determine possible losses. If objective indications are revealed that assets are depreciating, the Bank establishes appropriate reserves in accordance with international requirements, regulations of the Central Bank of the Azerbaijan Republic and in-house regulations pertaining to lending activity.

If negative trends are discovered in the structure of the credit portfolio, the Bank takes prompt action to rectify lending activity within the framework of key principles of the current lending policy and the risk management policy.

When determining a fair value of the loans being advanced, the Bank proceeds from the need to fully reimburse the costs associated with the engagement of resources, and include overhead and commission enabling the Bank to compensate its expenditure on studying, processing and maintaining a loan, and receive acceptable profit considering the risk potential of a credit operation.

Control over the Bank’s lending policy and specific operations relating to the placement of resources is exercised within the framework of the Bank’s general system of in-house control. Besides the Supervisory Board and the Board of Directors, control is also exercised by in-house subdivisions (Credit Committee, Committee on risk management, Department of financial management, Department of risk management, Department of internal audits and Department of credit control).

To reflect the level of credit risks and their directions, to meet the requirements on issue, management and control over loans, as well as the quality of the advances portfolio and off-balance liabilities, the Bank operates the Information System of Management (ISM). The ISM provides information on the content and structure of the credit portfolio and exercises control over established limits, thus reducing the concentration of risks. The ISM also informs authorized employees and managers of the Bank involved with lending activities when credit risk indicators approach the limit. The ISM provides the Management with timely and regular information on the non-conformity of current quality criteria with the plan.