It is registered
Ministry of Justice
Republic of Uzbekistan
On February 11, 1999 No. 632
Approved by Board of the Central bank of the Republic of Uzbekistan of November 9, 1998 (Protocol 19/7), No. 242
This Procedure is developed according to the Laws "About the Central Bank of the Republic of Uzbekistan", "About Banks and Banking Activity", "About Financial Accounting" and establishes criteria of classification of assets, procedure for forming and use of the reserves created by commercial banks for covering of possible and these losses on assets.
1.1. The reporting of banks shall represent reliable picture of quality of assets.
1.2. Unauthenticity of the reporting is estimated as attempt to mislead investors, creditors and shareholders of bank, and also the Central bank and other concerned parties. Similar activities belong to unsafe and unhealthy banking practice.
1.3. The big share of the assets which are not bringing in incomes in balance of bank, and also large sum of not returned assets considered behind balance can form the basis for determination of qualification of executive management of bank control of the activities of bank which are not conforming to requirements of the Central bank, and also recognition insufficient from Council.
1.4. High level of the invalid credits is indicator of weakness of credit policy of bank, criteria of structuring the credits, procedures of management of the credits.
1.5. Lack of right and timely information on quality of asset portfolio can prevent management of bank to take necessary remedial measures timely.
1.6. According to this Procedure, all commercial banks shall classify the assets and create adequate reserves against possible losses on assets (further reserve against possible losses).
1.7. For the purpose of this document the following determinations are used:
1.7.1. Reserve on covering of possible loan losses (assets) - the contra asset account of reserves created for covering of losses on all credits of bank (or according to other active account) which represents the estimative amount of losses, possible or already present at credit portfolio (or in assets) bank and in off-balance obligations.
1.7.2. Special reserves - reserves, against possible loan losses and to leasing, classified as "standard", "substandard", "doubtful" and "hopeless" or to other separate specific assets.
1.7.3. General reserves - reserves which are created for the purpose of covering of possible losses from activities of bank in general or to any type of activity (to crediting, investments, etc.), but not against losses on separate specific transactions. Reserves against losses on the "good" credits or reserve on devaluation of national currency can be example.
1.7.4. Payments on the credit are distributed on all effective period of the credit agreement and paid by installments. The sizes and frequency of payments are established by the credit agreement.
1.7.5. The restructured credits (assets) are the credits (assets) on which original conditions of payment were changed in connection with deterioration in financial condition of the borrower. The credit (asset) is considered restructured if were brought in the contract between bank and the borrower at least one of the following changes:
- interest rate decrease or not collection of the added percent;
- reduction or write-off of all principal debt;
- delay or prolongation of payment due dates of the credit;
- forgiveness of part or all payments on percent and/or principal debt;
- other concessions which would not be made to the borrower in case of usual conditions and were made as a result of need of restructuring of the credit.
1.7.6. Not increased credits (assets) are the credits (assets) on which charge of percent is suspended according to established procedure.
1.7.7. Well secured loan (asset) is the credit (asset) provided with easily implementable mortgage providing in the form of property, quoted in the security market or bank deposits in the amount of allowing to compensate completely both the main credit amount (asset), and the added percent.
1.7.8. Partially secured loans (assets) under which providing does not correspond to criteria of "well secured loans". In particular, it is the credits (assets), cost of the provided pledge on which it is less than 100% of main amount and percent on it, and also expected selling expenses of pledge (regardless of declared value of pledge) or for which realization of pledge on declared value is doubtful.
1.7.9. Unsecured loans (assets) - the credits which were issued without any providing. Such credits (assets) are usually issued on the basis of steady cash flow of the borrower, or good credit history. To "unsecured" the credits (assets) after which pledge is not drawn up in accordance with the established procedure also belong.
1.7.10. Deposits of required reserves for covering of possible losses on bank assets - the deposits of commercial banks reserved in the Central bank for covering of possible losses on bank assets.
2.1. The classification system of assets is applied to all types of loan, including bank guarantees, credit lines, interbank credits, overdrafts and provides classification of off-balance obligations.
2.2. This system is also applicable to assessment of other bank assets, such as investments, purchase and sale of securities, accounts to obtaining, the acquired right to claim on obligation fulfillment from the third parties and other assets having risk of non-return.
2.3. Classification of the credit begins with the borrower's assessment by the following criteria:
- tendency and future of industry (economic sector);
- financial position of the borrower;
- credit history of the client;
- economic case (provision) of the specific project;
- quality of management and management at the company (if the loan is granted to the company).
2.4. Results of credit analysis and classification of assets depend on such factors as financial position of the borrower, history of payments for the credits and availability of the pledge which is drawn up as appropriate. It is very important to use these factors in case of the determination and risks assessment which are present at credit portfolio and other assets of commercial bank.
2.5. Classification of assets is made in the following procedure and according to the following categories:
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