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RESOLUTION OF BOARD OF NATIONAL BANK OF THE KYRGYZ REPUBLIC

of July 18, 2018 No. 2018-P-12/30-3-(BS)

About approval of the Provision "About the Minimum Requirements on Risk Management in the Banks Performing Transactions according to the Islamic Principles of Banking and Financing"

According to article 68 of the Law of the Kyrgyz Republic "About National Bank of the Kyrgyz Republic, banks and banking activity" the Board of National Bank of the Kyrgyz Republic decides:

1. Approve the Provision "About the Minimum Requirements on Risk Management in the Banks Performing Transactions according to the Islamic Principles of Banking and Financing" it (is applied).

2. Recognize invalid:

- in the resolution of Board of National Bank of the Kyrgyz Republic "About modification and amendments in some regulatory legal acts of National Bank of the Kyrgyz Republic" of May 31, 2017 No. 21/10:

- paragraph third Item 1 of the resolution;

- Item 2 appendices to the resolution.

3. To legal management:

- publish this resolution on the official website of National Bank of the Kyrgyz Republic;

- after official publication to send this resolution to the Ministry of Justice of the Kyrgyz Republic for entering into the State register of regulatory legal acts of the Kyrgyz Republic.

4. This resolution becomes effective after fifteen days from the date of official publication.

5. To management of methodology of supervision and licensing of banks to bring this resolution to the attention of Ekoislamikbank Ltd, JSC Bakay Bank, BTA Bank Ltd, the Union of banks of Kyrgyzstan, Association of Islamic finance, regional managements and representative office of National Bank of the Kyrgyz Republic in Batken Province.

6. To impose control of execution of this resolution on the board member of National Bank of the Kyrgyz Republic Dzhusupova T.Dzh.

Chairman of the board of National Bank of the Kyrgyz Republic

T. Abdygulov

Appendix

to the Resolution of Board of National Bank of the Kyrgyz Republic of July 18, 2018 No. 2018-P-12/30-3-(BS)

Provision "About the Minimum Requirements on Risk Management in the Banks Performing Transactions according to the Islamic Principles of Banking and Financing"

1. General provisions

1. The purpose of this provision is determination of the minimum requirements to forming of adequate risk management system and requirements to the organization of internal control in the commercial banks performing transactions by the Islamic principles of banking and financing including the banks having "Islamic window" (further - banks).

2. For the purpose of this provision the following concepts are used:

Risk - probability that the expected or unforeseen events can exert negative impact on the capital of bank or its income.

The credit risk is risk of losses as a result of non-execution or improper execution by the client of the obligations provided by terms of the contract.

The risk of investments into the capital is the risk arising in case of investment of means of bank into share capital of the companies according to agreements of mudarab, musharak.

The market risk is probability of the losses connected with adverse change in value of assets and liabilities of bank as a result of the change in price for raw materials, goods, change of currency rates, share value. The market risk can arise at various stages of implementation of agreements or be present constantly during all term of their action. The market risk includes price risk and currency risk.

The price risk is risk of losses to which the bank in case of adverse changes in value of the financial instruments and other investments or assets belonging to bank or any of its subsidiary companies is subject (on balance or behind balance). The risk results from activities in the market, dealer activities and the taken positions in capital markets, the exchange and goods markets.

The currency risk is risk of emergence of expenses (losses) connected with change of currency rates when implementing of the activities by bank. The probability of expenses (losses) arises owing to revaluation of line items of bank on currencies in value term.

The country risk is risk of emergence of expenses (losses) owing to insolvency or unwillingness of the foreign state or resident of the foreign state to answer for the obligations to bank for the reasons which are not connected with financial risks.

As a part of country risk the risk of the translation and sovereign risk are also considered:

The risk of the translation is risk of real or indirect loss to which the bank or any of its subsidiary companies as a result of inability of private customers / partners to fulfill the obligations owing to government actions, such as introduction of restrictions on money transfer to foreign creditors in the country specified by debtors on financial or other reasons is subject. This type of country risk is applicable only concerning private customers / partners. For example, the risk of the translation can arise in case of introduction of currency restrictions by the government that leads to the fact that the client can not fulfill obligations according to the arrangement.

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