About us

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About us

About the Bank

PASHA Bank is one of Azerbaijan's leading corporate banks. Established in 2007, we offer all major financial services, including investment banking, trade financing and asset management to a range of clients, from large corporates to small and medium enterprises. The Bank particularly works closely with companies operating in the non-oil sectors of the economy, including agriculture, transportation, construction and retail, which are vital for helping Azerbaijan to diversify its economy.

PASHA Bank is the largest private bank in Azerbaijan by total equity, and one of the top 3 private banks by assets. As of 30 December, 2020, the Bank's assets exceeded AZN* 5,516 million, while its total capital amounted to AZN 559 million. More detailed information on the Bank's financial figures can be found in the ‘Financial reports’ section.

PASHA Bank is headquartered in Baku and has a total of 6 business centres, 3 branches and 1 FX office across Azerbaijan. In 2013, we opened our first office in Georgia and office in Turkey in 2014. Our long-term regional vision envisages creating interconnected banking operations that will facilitate rapidly growing trade and deal flow between Baku, Tbilisi and Istanbul, the three most vibrant markets of the region.

We strive to be the best performing and most reliable bank in our country and we have been recognised internationally for our work, having been named ‘The Best Investment Bank of Azerbaijan' in 2011, 2012 and 2013 by EMEA Finance Magazine. At EMEA Finance Magazine's Europe Banking Awards 2013, PASHA Bank also won the award for ‘Best Corporate Social Responsibility (CSR) Programme'. In addition, our private banking division PASHA Private Banking was named the ‘Best Private Bank in Azerbaijan 2013' by World Finance magazine. Bank also has been named ‘The Best Bank of Azerbaijan' at the EMEA Finance Europe Banking Awards 2014-2015 and has received the Trade Award 2014 from Commerzbank AG for being Azerbaijan's most active bank in the area of trade finance in 2014. PASHA Bank was also selected as the Best Bank in Azerbaijan in 2016 by Global Finance and as the Best Banking Group and the Best Commercial Bank in 2016 by World Finance. In 2017, PASHA Bank has won "Best Bank in Azerbaijan" award from Euromoney financial magazine. EMEA Finance awarded PASHA Bank with "The Best Bank in Azerbaijan", "The Best Investment Bank in Azerbaijan" and "Corporate Social Responsibility in CEE & CIS" within Europe Banking Awards. PASHA Bank was selected as the Best Bank in Azerbaijan in 2017 by Global Finance Magazine. In 2018, PASHA Bank has been awarded the “Best Private Bank” and “Best Bank of Azerbaijan” by Global Finance, “Sap Value Award”, “Best Commercial Bank of Azerbaijan” by World Finance, “Bank of the Year” by The Banker. Moreover, PASHA Bank has been named as the "Leader Bank in the field of non-cash payments" in Azerbaijan within the frame of competition conducted on annual basis by the Central Bank of Azerbaijan together with the Azerbaijan Banks Association among all participants of the banking market.

In 2018 PASHA Bank has been awarded with “The Best Private Bank” and “The Best Bank of Azerbaijan” by Global Finance, “SAP Value Award”, “Best Commercial Bank of Azerbaijan” by World Finance, “Bank of the Year” by The Banker. According to final results of 2018, PASHA Bank has been awarded on the category “Non-cash payments at POS terminals” and “Contactless payment cards” among the top 3 leading financial institutions within the framework of competition conducted on annual basis by the Central Bank of Azerbaijan together with the Azerbaijan Banks Association, among all participants of the banking segment.

PASHA Bank has received strong rating from international rating agency. In 2020, Standard & Poor's reaffirmed the Bank’s a long-term rating of 'B+' and a short-term rating of 'B'.

Today, PASHA Bank is an international team of more than 900 people. We are constantly working to transform the Bank into one of the biggest and leading financial institutions of the region and to enhance the range of international standard products and services that we already offer.

We are part of PASHA Group, a large investment holding based in Azerbaijan, which has assets across a wide variety of sectors, including retail banking, insurance, construction and tourism. As one of Azerbaijan's youngest but largest banks, we constantly keep abreast of financial and technological innovations. We work hard to keep ahead of market trends and adopt international experience and state-of-the-art technology to ensure that we provide the best possible service to our customers.

*1 USD - 1.7 AZN (30.12.2020)

Dividend Policy of PASHA Bank

1. Dividend is a part of the Bank's net profit considered to be proportionally divided between the shareholders per the number of shares held by them.

2. The Bank shall ensure the payment of dividend in the following cases:
- when the financial position of the Bank is evaluated as stable and / or positive, and there is a prospect of development;
- there are no prohibitions on payment of dividend in accordance with the legislation of the Republic of Azerbaijan;
- when the appropriate decision by the General Meeting of Shareholders is accepted

3. The part of the profit (upon deduction of the relevant taxes) or its certain percentage payable as dividend shall be calculated in the established manner and shall be approved by the General Meeting of Shareholders of the Bank.

4. Prior to adopting a decision on the payment of the dividend by the General Meeting of Shareholders, a written consent is obtained to pay dividends by applying to the AR Financial Markets Supervision Chamber.

5. Unless otherwise specified by the General Meeting of Shareholders, payment of dividends shall be effected within the period not exceeding 10 working days upon the date of adoption of the decision.

PASHA Bank: Corporate movie

We present to you a short movie about the bank

Bank details

Full name – “PASHA Bank” Open Joint Stock Company
Contracted name - “PASHA Bank” OJSC
Mailing address - AZ 1005, Yusif Mammadaliyev Street, 13, Baku city, Azerbaijan

Requisites of the Bank:
Code: 505141
TIN: 1700767721
Correspondent account #:
AZ82NABZ01350100000000071944 (AZN)
AZ04NABZ01350200000000071840 (USD)
AZ30NABZ01350200000000071954 (EUR)
AZ16NABZ01350200000000019826 (GBP)
SWIFT BIK: PAHAAZ22

Mission and objectives

Mission and objectives

Vision:

PASHA Bank’s vision is to be a leading Azerbaijani bank committed to the highest standards of ethics, indisputable business reputation and financial strength, with dedication to top quality of services, supporting growth of clients and pioneering digital channels development.

PASHA Bank's mission is to serve our stakeholders.

-As a devoted financial partner we contribute to the growth and development of customers’ businesses by providing high quality innovative products, services and expertise tailored to their aspirations;
-As a responsible employer we build professional team by nurturing enabled, engaged and empowered people;
-As a committed corporate citizen we remain dedicated to the sustainable economic development of the country and prosperity of society;
-As a financial institution we create shareholder value, building a sound organization, which pursues arising opportunities, thoughtfully invests in strategic priorities and delivers sustainable financial results;
-As an organization we are committed to transparent and prudent conduct of business.

Strategic Goals

• Grow in core 
• Improve customer experience
• Strengthen processes and capabilities
• Best place to work

(updated as of 05.04.2021)

Management

Shareholders

The bank's shareholders are PASHA Holding Ltd. (≈ 56,8195%), Ador Ltd. (≈ 28,1796%), Mr. Arif Pashayev (≈ 9,9944%) and Mr. Mir Jamal Pashayev (≈ 5,0066%).

Shareholders rights

1. Shareholders holding ordinary shares of the Bank have the right to buy additional shares issued by the Bank. The shareholder's priority right shall be exercised in proportion to the equity interests before the issuance of the shareholder. Share-added stocks should be offered on the same terms as those offered to other buyers.
2. The shareholders, who have 5 percent of the Bank's shares, may require convening the extraordinary general meeting.
3. to participate in management of the bank in accordance with the legislation and this Charter, to be elected to and elect its governing bodies;
4. to participate in the general meeting of shareholders of the bank with the right to vote and request a copy of its protocols;
5. receive dividends from net profit of the bank;
6. in case of liquidation of Bank, to obtain a portion of the Bank's property remaining after the repayment of creditors' claims, accrued but unpaid dividends, as well as preference shares;
7. to use other rights provided by Charter and legislation.

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Structure

Structure of PASHA Bank

Link to Structure of PASHA Bank

Career

Contacts

Correspondent relations

Citizenship

Policy and Reporting

Risk management Policy

Reward Policy

Reward system is based on the following principles as one of the key components of the Bank's corporate governance mechanism:
• the stimulus created by the reward system ensures the Bank's competitiveness;
• the reward system provides improvement of risk management and human resource management;
• the reward system is aimed at ensuring long-term and sustainable development of the Bank.

Compliance Policy

AML Summary

Conflicts of Interests

Foreign Account Tax Compliance Act (FATCA)

Corporate Standarts

Risk management Policy

Reward Policy

Reward system is based on the following principles as one of the key components of the Bank's corporate governance mechanism:
• the stimulus created by the reward system ensures the Bank's competitiveness;
• the reward system provides improvement of risk management and human resource management;
• the reward system is aimed at ensuring long-term and sustainable development of the Bank.

Rules

Compliance Policy

AML Summary

Conflicts of Interests

Foreign Account Tax Compliance Act (FATCA)

Financial reports

Financial statements

The Bank’s official auditor:
Ernst & Young Holdings (CIS) B.V.
Address: Port Baku Towers, Business Centre
South Tower, 9th floor,
153 Neftchilar avenue
Baku AZ1010, Azerbaijan
Phone: +994 12 4907020

Fax: +944 12 4907017
www.ey.com/az

All reports

Sustainability

Our values and philosophy of customer cooperation

Our values and philosophy of customer cooperation

Our brand ideology reflects the opinion, culture, tradition and values of our company and forms our relations with customers. Ideology of PASHA Bank is based on 5 values: Integrity, Quality, Profitability, Entrepreneurship and Collaboration.

Visual concept of our values is reflected in the color array of our logo. Red color considered as energy and fire symbol in nature reflects the leader position, strength and vigilance of our Bank. Being symbol of life, regeneration, perennial youth stands for trust in tomorrow, positive worldview, achievement of goals and aiming at perfection.

The logo, which is the symbol of ancient cultural traditions, moral values and modern thinking, represents the main premise of our ideology – idea of creation of new reality.

Risk management

Liquidity Risks

As a leading bank, we ensure best-in-class liquidity risk management in the bank by:
• Applying risk-based decision making together with effective and proactive risk management strategies.
• Assuring quality of assets and sustainable profitability.
• Creating, maintaining and nurturing the risk aware culture.
• Taking measured risks to achieve our targets.

Liquidity is the bank's ability to fulfil its liabilities, effectively manage the changes that may occur in the sources of funding or in the liquidity of assets, as well as financing asset growth as planned without additional expenses. Liquidity risk is the risk that the Bank may be unable to meet its financial obligations. It is the risk of failure to perform planned and contingency obligations in a timely and effective manner, and a decline of the bank's ability to access additional liquid funds.

In order to manage liquidity risk, PASHA Bank has developed the Liquidity Management Policy, which intends to regulate the following procedures of the Bank:
o Management of intra-day liquidity;
o Management of current liquidity;
o Management of structural liquidity.

The Bank has an adequate Risk Appetite Statement, which controls all material risks through traffic lights system (red, yellow and green zones).

The following risk tools are used for liquidity risk management:
• Liquidity adjusted value at risk (VaR) techniques
• Liquidity at risk (LaR) techniques
• Stressed VaR techniques
• Dynamic liquidity gap analysis
• Liquidity Coverage Ratio (LCR) based on BASEL guidelines
• Net Stable Funding Ratio (NSFR) based on BASEL guidelines
• Time to wall measures
• Risk budgeting
• Duration limits
• Stress testing
• Scenario analysis
• Lending capacity limits
• Funding capacity limits
• Concentration limits

The Bank introduces following actions for the management and supervision of liquidity risks:
• The Bank ensures that it can meet its payment obligations at all times. Where necessary, the Bank also takes measures to manage the intra-day liquidity risk. It ensures sufficient diversification of refinancing sources and liquidity buffers. Effective monitoring and limit settings are crucial to mitigate concentration risk.
• The Bank ensures that a looming liquidity shortage is recognized early on. For this purpose, procedures are set up, the adequacy of which are reviewed regularly.
• The Bank prepares liquidity reports comparing the projected cash inflows with the expected cash outflows. The liquidity reports present the liquidity situation in the short, medium and long term. The fluctuations in cash flows in normal market phases are adequately reflected in the liquidity reports.
• It is important to keep an eye on the extent to which the Bank is able to meet the liquidity needs arising, even in a tense market environment. In doing so, particular attention is paid to the degree of liquidity of the assets. Permanent access to the refinancing sources relevant for the Bank is regularly reviewed. In case of short-term worsening of the liquidity situation, the Bank holds sufficient, sustainable liquidity buffers (e.g. high quality liquid assets).
• The Bank establishes robust liquidity risk management framework that ensures to maintain sufficient liquidity, including a cushion of high quality liquid assets, to withstand a range of stress events.
• The Bank incorporates liquidity costs, benefits and risks in the internal pricing, performance measurement and new product approval process for all significant business activities (both on- and off-balance sheet), thereby aligning the risk-taking incentives of individual business lines with the liquidity risk exposures their activities create for the Bank as a whole.

The Bank has a sound process for identification, assessment, mitigation, monitoring & controlling, communication and reporting of liquidity risk. This process covers a robust framework for comprehensively projecting cash flows arising from assets, liabilities and off-balance sheet items over an appropriate set of time horizons.

Legal risks

The bank pursues the following objectives in organizing a system on the management of legal risks:
- to ensure legitimacy of its activity in all spheres;
- to ensure that its legitimate interests at the time of signing and execution of agreements are met;
- to establish a legitimate framework for relationships between the Bank and its employees, to ensure that labor laws, business and corporate ethics are observed by the Bank and its employees.

The key objectives in establishing a system on the management of legal risks are:
- to organize unified management of legal risks;
- to engage all subdivisions and employees in risk management procedures;
- to establish common principles for identification, evaluation and control over legal risks required and sufficient to ensure the Bank’s interests in the legal sphere.

The fundamental principles for the organization of a system on the management of legal risks are: - to determine a procedure for identifying, evaluating, establishing an acceptable level (a level which does not jeopardize the financial security of the lending institution and the interests of its lenders and depositors) of legal risks and monitoring (permanent observation) of the level of legal risks, including consolidated grounds;
- to develop a set of measures towards maintaining an acceptable level of legal risks, including control and (or) minimization of risks;
- to specify a procedure for information support on issues of legal risks (procedure for exchange of information between subdivisions and employees, procedure and frequency of submission of reporting and other information pertaining to the management of legal risks, etc.);
- to determine a procedure for the management of legal risks in remote banking, including Internet banking, in developing and introducing new technologies and conditions for bank operations and other transactions, in other financial innovations and technologies, in accessing new markets;
- to allocate authority and responsibility among the Supervisory Board, executive bodies, subdivisions and employees as regards main principles for the management of legal risks;
- to establish a procedure for exercising control over the effectiveness of management of legal risks.

Considering the said principles, the Bank is using the following methods to minimize the level of legal risks:
- to standardize banking operations and other transactions (procedures, regulations, technologies for implementing operations and transactions and signing agreements);
- to establish in-house regulations for having agreements, banking operations and other translations differing from standardized ones approved by the Bank’s legal department;
- to analyze the impact of the factor of legal risks (both as a whole and in line with their classification) on the Bank’s performance indicators;
- to permanently monitor changes in national legislation of the Azerbaijan Republic, legislation of the countries in which the Bank operates or plans to operate;
- to coordinate activities towards identifying, classifying and evaluating legal risks;
- to ensure that the Bank’s legal department is subordinated to a unified executive body;
- to optimize workload of legal department employees to ensure their continuous professional development;
- to allow the maximum possible number of employees access to the latest information on legislation;
- to encourage employees depending on their impact on the level of legal risks;
- to enhance reserves for the event of possible losses;
-to arrange for the insurance of legal risks, including the risk of losing ownership rights.

The system on the management of legal risks is organized by the bank in three stages:
- preliminary;
- current;
- subsequent.

The preliminary stage represents a system of administrative, organizational and financial measures towards preventing the emergence of legal risks before the Bank enters into contractual relations. This system also includes a set of measures to prevent offences on the part of Bank employees.

The current stage consists of identifying, analyzing and evaluating the emerging risks, as well as the current monitoring of the level of legal risks.

The subsequent stage consists of analyzing the drawbacks in the organization of the system which have led to the emergence of risks, recommendations on streamlining it and control over its effectiveness.

To prevent the emergence of risks, the Bank takes the following measures:
- to develop a transparent and appropriate management model aiming to rule out conflict of interest and management quality risks.
- to establish qualification requirements for its employees to avoid incompetent and unjustified actions; to make such requirements part of job description and (or) Regulations on subdivisions. Qualification requirements are also established for managers of the Bank, employees and the legal department.
- to conduct rigorous screening among Bank employees to exclude those with a history of offences, as well as persons suspected of legalizing incomes obtained in criminal ways, and financing terrorism.
- to provide a system for users to access the required legal information by means of specialized legal programs and to acquire the necessary legal information for the needs of the legal department.
- programs have been developed and introduced to identify and study customers, first of all those the Bank implements banking operations and other high-risk transactions with, and to establish and identify beneficiaries. The legal department provides legal support to officers dealing with identification of customers.
- to adopt and use the principles “know your customer” and “know your employee”. - to establish accountability of managers and employees, establish a procedure for decision-making on banking operations and other transactions in accordance with the authorities stipulated under constituent and in-house documents; this procedure is established in such a way as to rule out conflict of interest at all stages of banking activity.
- to organize a system on developing, endorsing and approving standard agreements and transactions that would meet the requirements of legal protection of the Bank’s interests. - to establish requirements for coordinating operations with the legal department in specific cases.
- to establish a procedure for exercising in-house control over banking operations and other transactions considering the nature and scope of activity, including the issues of countering the legalization (laundering) of incomes obtained in criminal ways, and financing terrorism. - to establish a procedure for encouraging employees depending on the level of their qualification and workload; in doing so, the level of their engagement in the management of legal risks is taken into consideration.
- in order to prevent misappropriation and abuse, the Bank uses restrictive measures (limited access to the repository, signing of agreements on full financial liability with relevant employees, limited issue of resources to be accounted for, etc.).

The Bank exercises current control over changes in the legal framework and arranges for timely update of in-house regulatory documents and communication of such changes to its employees. Employees are continuously informed of the changes in national legislation by the legal department by means of electronic distributions containing brief summaries of changes in laws. The Bank monitors all information about the Bank available in the public domain in order to assess its impact on its business reputation, and makes a legal assessment of this information. The Bank makes a legal assessment of claims sent to the Bank and takes measures necessary to protect its legitimate interests.

The Bank continuously exercises control over professional aptitude of its employees, exercises current control over the integrity of valuables – auditing (inventory taking), control over the issue of funds to be accounted for and spending of materials for timely detection of misappropriation and abuse.

Operational risks

The management of operational risks is part of the Bank’s risk management system. The need for managing operational risks is determined by the proportions of possible operational losses which may pose a threat to the Bank’s financial stability.

In order to improve its business reputation, OJSC PASHA Bank considers it appropriate to communicate information (including the information provided as part of annual reports) on the management of operational risks to partners (shareholders), lenders, depositors and other customers, external auditors, rating agencies and other interested persons. In doing so, the bank wants to ensure that the level of detail being disclosed corresponds to the nature and scope of its activities.

The system on the management of operational risks at OJSC PASHA Bank has been organized to meet the following objectives:
- to ensure complete, timely and effective achievement of the Bank’s strategic goals in accordance with the nature and scope of its activities;
- to optimize technological processes;
- to observe legislative requirements, rules and traditions of the business turnover, conditions of agreements and transactions being executed, and to enhance the level of confidence in the Bank (business reputation) on the part of its customers and deposits.

The key missions of the system on the management of operational risks are as follows:
- to identify, evaluate and analyze emerging operational risks;
- to minimize operational risks, including by way of introduction of standardized procedures and maximum automation of banking processes;
- to improve the effectiveness of banking processes.

The fundamental principles for the organization of a system on the management of operational risks are:
- to determine a procedure for identifying and evaluating an acceptable level of operational risks and monitoring of the level of operational risks, including consolidated grounds;
- to develop a set of measures towards maintaining an acceptable level of operational risks, including control and (or) minimization of risks;
- to specify a procedure for information support on issues of operational risks (procedure for exchange of information between subdivisions and employees, procedure and frequency of submission of reporting and other information pertaining to the management of operational risks, etc.);
- to determine a procedure for the management of operational risks in remote banking, in developing and introducing new technologies and conditions for bank operations and other transactions, in other financial innovations and technologies, in accessing new markets;
- to allocate authority and responsibility among the Supervisory Board, executive bodies, subdivisions and employees as regards main principles for the management of operational risks;
- to establish a procedure for exercising control over the effectiveness of management of operational risks.

The Bank has laid down principles for the management of operational risks through appropriate in-house regulatory documents pertaining to every direction of its activity.

Considering the said principles, the Bank is using the following methods to minimize the level of operational risks:

- to standardize banking operations and other transactions (procedures, regulations, technologies for implementing operations and transactions and signing agreements);
- to organize a system of additional and subsequent control, a system of current verification of transactions and operations;
- to establish in-house regulations for the development and endorsement (approval) of in-house regulatory documents;
- to analyze the impact of the factor of operational risks (both as a whole and in line with their classification) on the Bank’s performance indicators;
- to ensure the required level of professional qualification and personnel development;
- automation of banking processes and technologies, especially in areas relating to standard operations and large workloads;
- to allocate responsibilities among subdivisions considering optimization of workload on individual employees;
- to furnish employees with the legal framework meeting domestic and external requirements to the maximum extent possible;
- to encourage employees depending on their impact on the level of operational risks.

The system on the management of operational risks is organized by the bank in three stages:
- preliminary;
- current;
- subsequent.

The level of operational risks is identified, evaluated and analyzed in accordance with an approved Methodology. Monitoring of operational risks is carried out on the basis of regular analysis of a system of indicators developed in accordance with the approved Methodology. Through this Methodology the Bank establishes the frequency of operational risk monitoring depending on its significance for a certain activity direction, in-house processes or the system of information technologies.

Minimization of operational risks envisages a wide range of measures aiming to reduce the likelihood of events and circumstances leading to operational losses and (or) reduce (limit) the volume of potential operational losses. Methods of minimizing operational risks depend on the nature of such risks.

The following measures are particularly important for exercising control over operational risks:
- to exercise control over compliance with limits established on banking operations and other transactions;
- to observe the established procedure for accessing the Bank’s information and material assets;
- to ensure proper personnel training;
- to regularly align basic documents and accounts on banking operations and other transactions.

In order to limit operational risks, the Bank has envisaged a comprehensive system of measures to ensure uninterrupted financial and economic activity in implementing banking operations and other transactions, including contingency plans (plans on ensuring uninterrupted and (or) resumed financial and economic activity).
The Bank attaches special importance to ensuring the integrity and restorability of its information systems and resources. To achieve this, the Bank stores initial and reserve information separately to avoid their simultaneous loss and (or) damage, and envisages other measures to protect information as stipulated under the Information security policy.

The Bank exercises control over the effectives of operational risks management. Management bodies regularly assess the effectives of operational risks management, and Bank employees are required to provide them with any requested information.

The Bank regularly but at least once in six months evaluates the level of operational risks and submits information to that effect to the Supervisory Board and the Board of Directors. The effectives of operational risks management is evaluated as a whole considering other elements of the risk management system.
The Bank regularly revises appropriate in-house processes and procedures and information technologies used to identify the previously unknown sources of operational risks. The frequency of such revisions is established as and when necessary but at least once in two years.

Credit risks

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.

Market risks

As a leading bank, we ensure best-in-class market risk management in the bank by:
• Applying risk-based decision making together with effective and proactive risk management strategies.
• Assuring quality of assets and sustainable profitability.
• Creating, maintaining and nurturing the risk aware culture.
• Taking measured risks to achieve our targets.

The management of market risks at the Bank is based on the principle of identification of different sources of market risks and responsibility for the risks, limitation of potential losses and centralization of market risks management.

The Bank organizes the system of market risks management with the following purposes:
• To avoid potential losses as a result of market fluctuations;
• Increase the economic value of assets and off-balance sheet instruments;
• To observe the requirements of the Central Bank of the Azerbaijan Republic and ensure best practice (Basel regulations, IFRS standards etc.) regarding to the assurance of the Bank’s financial stability;
• To ensure that the Bank and its customers’ legitimate interests are met when operating with market instruments.

The Bank has an adequate Risk Appetite Statement, which controls all material risks through traffic lights system (red, yellow and green zones).

The following risk tools are used for market risk management:
• Value at risk (VaR) techniques
• Stressed VaR techniques
• Risk budgeting
• Counterparty limit setting
• Country limit setting
• Open position limits
• Duration limits
• Stress testing
• Scenario analysis

The methods of market risk management depend on the nature of arising risks and are divided as follows:
• General, i.e. applicable to all risks considered as market risks (i.e. currency, interest rate, equity);
• Special, i.e. applicable only to specific risks or financial instrument (trading portfolio).

System on the management of currency risks

The Bank manages currency risk by assessing and analyzing the structure of assets and liabilities in foreign currencies, making hedging contracts and setting limits on individual transactions that involve currency risk.

The management of currency risks is related to structural methods of management. The following are subject to currency risk management:
• General open currency position of the Bank;
• Investment open currency position of the Bank;
• Trading currency position of the Bank.

The key instruments of control over currency risks are:
• Single exchange rate policy;
• System of control over open currency positions.

The Bank controls its currency position in accordance with the requirements of the Central Bank of the Republic of Azerbaijan through limiting the position. The Bank hedges the currency risk by exchanging resources through swap deposits.

System on the management of interest rate risks

The main sources of interest rate risk for the Bank are the mismatch between the maturity of assets and liabilities, which are sensitive to changes in interest rates. Interest rate risks may emerge both in assets and liabilities part. The following are key instruments of interest rate risks management:
• Unified policy on the establishment of interest rates;
• Control over GAP (difference between assets and liabilities).

The Bank pursues a unified interest rates policy considering internal and external factors. External factors include the value of market interest rates for a certain type of instruments. Internal factors include the comparison of the Bank assets and liabilities by interest rates, maturity and determination of GAP.

System on the management of price risks (equity and fixed income securities)

The system of limits is the key instrument of equity and fixed income price risks management. The Bank uses the following system of limits:
• Limit for the issuer of securities;
• Limit for the share of securities in trading and (or) investment portfolio;
• Limit for uniform financial instruments;
• Stop loss limits.

The system of limits is an integral part of the risk management system and is supported by relevant internal regulations defining a procedure for establishing limits, their types for specific instruments, as well as the authority and responsibility of involved departments.

Strategic risks

The difference between strategic and other banking risks (e.g. credit, currency or legal risks, the risk of losing business reputation, etc.) is the possibility that the Bank may sustain financial losses in consequence of managerial imperfections or incorrect determination of strategic goals and objectives.

OJSC PASHA Bank has organized the management of strategic risks to meet the following objectives:
- to minimize the possibility that the Bank may select a wrong, ineffective or insufficiently balanced strategy (both overall development strategy and individual strategic decisions) which may lead to the loss of the Bank’s business reputation, affect its positions on the market and, consequently, to financial losses;
- to reduce possible losses, preserve and maintain the Bank’s business reputation before customers and contractors, founders, participants in the financial market, bodies of state authority and local governments, banking associations of which the Bank is a member;
- to improve the effectiveness of operations being carried out by way of streamlining the quality of their management;
- to ensure compliance with the legitimate interests of customers, shareholders and depositors which have entered into financial relations with the Bank.

The key objectives behind the establishment of a system on the management of strategic risks are as follows:
- to develop a sound and effective corporate governance model meeting the goals and scope of the Bank;
- to build the reputation of a bona fide bank through ensuring that the Bank honors its commitments, follows the requirements of regulatory bodies, observes the norms of business ethics, professional rules and standards;
- to rule out conflict of interest at all stages of the Bank’s activity.

While developing the system on the management of strategic risks, the Bank applies the following key approaches:
- permanent control over compliance with laws of the Azerbaijan Republic, including the laws on bank secrets and organization of in-house control with the aim of countering the legalization (laundering) of incomes obtained in criminal ways, and financing terrorism;
- timely processing of customer and contractor orders, payment of amounts on deposits, interest on accounts (deposits) and processing of other transactions;
- monitoring the effectiveness of operations and their quality assurance;
- control over the accuracy of accounting reports and other published information submitted to founders (partners), customers and contractors, regulatory and surveillance bodies and other interested persons, including the information required for advertising purposes;
- development of a common system of information support and document flow, which prevents the use of the Bank information by persons accessing such information for personal interests and ensures timely, complete and reliable provision of information to persons requiring such information for decision-making;
the principle of joint decision-making on issues representing particular importance to the Bank’s operation, and regulatory support of this principle;
- compliance with the principle of division of responsibilities among subdivisions involved in management processes.

The common principles of the system on the management of strategic risks are as follows:
- to establish a procedure for identifying, evaluating and determining an acceptable level of strategic risks, and to monitor strategic risks;
- to take measures to maintain strategic risks at an acceptable level, including control and (or) minimization of risks;
- to establish a procedure for submitting information on the management of strategic risks to the Supervisory Board, executive bodies, subdivisions and employees of the lending organization;
- to allocate powers and responsibilities among the Supervisory Board, executive bodies, subdivisions and employees regarding the implementation of the main principles of strategic risk management;
- to exercise control over the effectiveness of strategic risk management.

The system of the management of strategic risks consists of three key directions:
- a system of measures to prevent the emergence of risk factors (preventive measures);
- a system of measures to identify, analyze and evaluate risk factors (current measures); - a system of measures to optimization, including the elimination of risk factors discovered (subsequent measures).

In order to establish a procedure for identifying, evaluating and determining an acceptable level of strategic risks, the Bank has developed a Methodology to identify and evaluate strategic risks. Interaction between subdivisions with the aim of identifying and evaluating strategic risks is carried out within the framework of their functions defined in the “Policy on the management of strategic risks”, as well as their responsibilities, job descriptions and the role in the management of the Bank’s activities.

Responsibility for the development and introduction of strategic risk management principles rests with the Supervisory Board in line with its powers as set forth by the Bank’s charter.

The Bank organizes a system of protective measures to prevent third-person actions towards engaging Bank employees in unlawful activity.

In order to carry out effective analysis and make decisions on minimization of strategic risks, the Bank, in accordance with the spheres of its activity, develops and maintains an analytical database on losses sustained as a result of strategic risks. The database reflects information on the proportion of losses, their causes and methods of reimbursement, and information about increased risk factors.

The Bank monitors all information in the public domain about the Bank and its managers in order to assess its impact on its business reputation. The Bank also makes a legal assessment of such information.

The subdivisions involved in the system of strategic risk management are as follows:
- Supervisory Board;
- Chairman of the Board and his deputies;
- Collegiate executive bodies (Board of Directors, Committees, etc.);
- Risk management department;
- Security department;
- Human Resources department;
- Control Compliance group;
- Other subdivisions of the Bank.