RESOLUTION OF COUNCIL OF CENTRAL BANK OF THE REPUBLIC OF ARMENIA

of November 24, 2017 No. 255-N

About approval of the Provision 6/03 "Procedure and methods of calculation of net current value of the assets and liabilities which are means of ensuring of secured mortgage bonds"

Accepted Council of the Central bank on November 14, 2017

Assuming as a basis part 2 of article 7 of the Law of the Republic of Armenia "About secured mortgage bonds",

being guided by article 16 of the Law of the Republic of Armenia "About legal acts" and the Item "d" of article 20 of the Law of the Republic of Armenia "About the Central bank of the Republic of Armenia", Council of the Central bank of the Republic of Armenia decides:

1. Approve the Provision 6/03f "The procedure and methods of calculation of net current value of the assets and liabilities which are means of ensuring of secured mortgage bonds" according to Appendix to this Resolution (is applied).

2. This Resolution comes into force for the tenth day after its official publication.

Appendix

Approved by the Resolution of Council of the Central bank of the Republic of Armenia of November 14, 2017 No. 255-N

Provision 6/03 "Procedure and methods of calculation of net current value of the assets and liabilities which are means of ensuring of secured mortgage bonds"

Chapter 1. Regulation subject

1. This Provision establishes procedure and methods of calculation of net current value of the assets and liabilities which are means of ensuring of the secured mortgage notes provided by the Law of the Republic of Armenia "About secured mortgage bonds" (further - the Law), including requirements to internal models, procedure of stress tests.

Chapter 2. Representation to the controller of reports on the actual cash flows

2. The issuer of secured bonds provides every week to the controller the schedule of the actual general cash flows, and also information on early repayments and failures to pay. The data on cash flows specified in the schedule established by this Item shall give opportunity to identify those assets, including the mortgage loans replacing assets and derivative tools from which these cash flows were received.

3. The issuer shall provide to the controller necessary reporting tools for group and the analysis of private cash flows according to different characteristics of the credits.

Chapter 3. Forecasts of future cash flows

4. The issuer of secured bonds provides every week to the controller the schedule of the expected general cash flows which shall consider early repayments and failures to pay.

5. The issuer shall use the parameters of early repayments (replacements) or failures to pay provided by the Central bank or to develop internal models for assessment of future cash flows. Internal models of early repayments (replacements) or failures to pay shall conform to the minimum requirements established by this Procedure and are subject to coordination with the Central bank.

Chapter 4. Internal models of early repayments

6. Internal models of early repayments shall consider, at least, the following factors:

- the forecast of interest rate (including scenario analyses, simulations), predicting yield curve;

- behavioural assumptions;

- assumptions on transactional expenses on early repayment, including legal expenses and compensations;

- age of the credit;

- actual and predicted regular depreciation, and also the actual irregular (partial) early repayments;

- level and change in price for the real estate;

- loan/credit amount;

- ratio of credit amount and cost of pledge;

- the coupon and the allowance at the time of loan granting;

- forecasts of economic indicators as unemployment, gross national income and other.

Chapter 5. Internal models of failures to pay (replacements)

7. The internal model of failures to pay (replacements), in addition to factors, stipulated in Item the 6th this provision, shall consider, at least, the following factors:

1) the rating (is fast) the borrower;

2) employment;

3) income level, ratio of size of maintenance expenses of debt and income.

Chapter 6. Other requirements to internal models

8. In case of the choice of factor (including the factors provided by Chapters 4 and 5 of this provision) the following criteria are considered:

communication between factor and repayment, failure to pay or replacement shall be proved (is statistically significant), and nature of communication shall correspond to economic cases;

the factor shall be established unambiguously.

9. The schedule of the expected cash flows shall contain the probability (expectation) of irregular payments (early repayments, other similar rights) received on the models provided by the Central bank or internal models.

Chapter 7. Assessment of duration of assets and liabilities and gap of duration

10. Observing requirements of Chapters 3-6, the issuer shall determine the expected duration of the assets included in utilities.

11. For determination of duration of the not withdrawn obligations provided with utilities, the issuer assumes as a basis the repayment date established by the agreement.

12. For determination of duration of the obligations containing the right to response, provided with utilities, the issuer assumes as a basis as repayment date the first or last date of response in case of which the gap of duration of assets obligations is the greatest.

13. The issued derivatives which are included in utilities shall be considered performed in the earliest or latest possible date in case of which the gap of duration of assets obligations is the greatest.

14. According to requirements of this Chapter, the issuer shall determine the expected duration of obligations and the expected gap of duration of utilities taking into account assets and liabilities.

15. The issuer shall determine sensitivity of the expected duration of assets and liabilities and gap of duration to interest rate realignment taking into account the parameters provided by this Provision for stress testing.

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