RESOLUTION OF BOARD OF NATIONAL BANK OF THE KYRGYZ REPUBLIC

of June 15, 2017 No. 2017-P-12/25-8

About approval of the Provision "About the Minimum Requirements on Risk Management in Banks of the Kyrgyz Republic"

According to articles 7 and 43 of the Law of the Kyrgyz Republic "About National Bank of the Kyrgyz Republic" the Board of National Bank of the Kyrgyz Republic decides:

1. Approve the Provision "About the Minimum Requirements on Risk Management in Banks of the Kyrgyz Republic" it (is applied).

2. Recognize invalid:

- the resolution of Board of National Bank of the Kyrgyz Republic "About approval of the Provision "About the Minimum Requirements on Risk Management in Banks of the Kyrgyz Republic" of December 29, 2004 No. 36/10;

- Item 30 of Appendix to 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 November 16, 2012 No. 43/1.

3. To legal management:

- publish this resolution on the official site 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 on June 22, 2017.

5. To management of methodology of supervision and licensing to bring this resolution to the attention of commercial banks, National bank of development of the Kyrgyz Republic, OYuL "Union of Banks of Kyrgyzstan", 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.

Appendix

to the Resolution of Board of National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-8-(NPA)

Regulations on the minimum requirements on risk management in banks of the Kyrgyz Republic

1. General provisions

1. This Provision establishes obligatory for observance by commercial banks, guarantee funds (further - banks) the minimum requirements to the organization of risk management.

2. The purpose of this provision is determination of the minimum requirements to forming in the banks of adequate risk management system and requirements to the organization of internal control providing application by banks of control methods of the risks providing effective determination, assessment and restriction of risks of bank taking into account type and amount of the operations performed by them.

3. For the purposes 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.

Risk management system is the process including four basic elements: risk identification, risk measurement, risk control and monitoring of risk.

The head of service risk management - the official of bank with sufficient experience in banking which bears responsibility for daily activities for risk management of bank.

The credit risk is risk of non-execution by clients of the obligations according to terms and terms of the contract.

The market risk is probability of losses to which the bank in case of adverse changes in asset cost and obligations of bank as a result of change of market interest rates, their fluctuation, the exchange rates, stock prices, credit spread and/or goods prices is subject. The following three subcategories of risk are applicable to market risk and include:

The price risk is risk of losses to which the bank in case of adverse changes in the cost of the financial instruments and other investments or assets belonging to bank or any of its subsidiary companies (on balance or zabalansy) as a result of change of market prices is subject. The risk appears as a result of activities in the market, dealer activities and the taken positions in capital markets, the exchange and goods markets.

The interest rate risk is risk of losses to which the bank in situation when assets and liabilities of bank do not match on final repayment dates, dates of revaluation or as a result of change of market interest rates is subject.

The currency risk is risk of emergence of expenses (losses) connected with change of the foreign exchange rates when implementing of the activities by bank. The probability of expenses (losses) arises because of 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 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 borrowers 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 borrowers. 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 debtor (in this case, the non-state debtor) can not pay obligations according to the arrangement.

Sovereign risk - risk of possible real or indirect loss to which the bank or any of its subsidiary companies as a result of inability is subject or unwillingness of the foreign government to settle the obligations in accordance with the terms, the stipulated agreements. The sovereign risk can arise, for example, as a result of shortage of foreign currency or unwillingness to service the public debt.

The operational risk is risk of direct or indirect losses to which the bank as a result of failures in the transactions of bank or its subsidiary companies caused by external events, human errors, fraud and also as a result of inadequacy or violation of processes, procedures or the control system is subject.

The risk of loss of liquidity is risk of losses to which the bank is subject, in case of its inability to timely fulfill the obligations without to suffering unacceptable losses (i.e. to reach liquidity only by realization of assets that will lead to unacceptable losses). It includes inability to manage not planned changes in financing sources. Also arises in case of refusal bank to recognize or react to changes in market conditions which influence capability of quick sale and with the minimum losses in asset cost.

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