RESOLUTION OF BOARD OF CENTRAL BANK OF THE REPUBLIC OF UZBEKISTAN

of October 11, 2003 No. 25/7

About approval of the Regulations on not building-up of percent

According to Article 3, of 7, of 17, of 51 Law of the Republic of Uzbekistan "About the Central bank of the Republic of Uzbekistan" the Board of the Central bank of the Republic of Uzbekistan decides:

1. Approve Regulations on not building-up of percent according to appendix.

2. Enact this resolution after ten days from the date of its state registration in the Ministry of Justice of the Republic of Uzbekistan.

3. From the date of entry into force of this Resolution to declare invalid the Resolution of Board of the Central bank of November 2, 1998 No. 16/2 and the Regulations on policy of not building-up of percent on the credits of commercial banks approved by it (reg. No. 561 of December 2, 1998).

Approved by the Resolution of Board of the Central bank of the Republic of Uzbekistan of October 11, 2003 No. 25/7

Regulations on not building-up of percent

I. General provisions

This Provision is developed according to the Laws of the Republic of Uzbekistan "About the Central bank of the Republic of Uzbekistan", "About banks and banking activity" and "About financial accounting".

This Provision determines procedure for not building-up of percent on the credits, debt securities and other financial instruments (further - assets) commercial banks of the Republic of Uzbekistan (further - banks) according to international accounting standards (further - IFRS).

Banks shall adopt procedures for application of requirements concerning transfer of assets in the status of "not building-up of percent" and concerning cancellation of the status of "not building-up of percent" according to this Provision.

II. Determinations

1. In this Provision the following determinations are used:

the accrual method of financial accounting is method in case of which transactions and events are recognized and reflected in accounting entries when they happen (but not in process of obtaining or payment of money or their equivalents), and they are represented in the financial reporting of those periods which they treat;

the actual interest rate is the interest rate used for discounting of flow of future cash receipts expected throughout the term of use of asset for equating with initial asset carrying amount;

the method of actual interest rate is method which leads to recognition of permanent rate of percent during service life of asset (obligation) by depreciation of discount or award on interest income (or expense) or by distribution of deferred interest payments (for example, received or paid annually, but not monthly);

impairment - reduction of recoverable amount of asset below book value;

not building-up of percent - concerning asset stops application of accrual method when there is no probability any more that the added interest income will be gained completely or when the main amount of debt cannot be completely received;

recoverable amount - the greatest of the net value of asset realization or its value of use.

III. Procedure for the transfer of asset to the status of "not building-up of percent"

2. Banks transfer assets to the status of "not building-up of percent" in the following cases when:

1) assets are classified unsatisfactory, doubtful and hopeless according to regulating documents of the Central bank;

2) the asset depreciates according to IFRS (appendix No. 1);

3) return of the main amount or interest payment are delayed for 60 days and more (on percentage assets from repayment period to one year);

4) return of the main amount or interest payment are delayed for 90 days and more (on percentage assets with repayment period more than one year);

3. From the moment of giving to status assets of "not building-up of percent" banks shall perform:

1) suspension of charge of interest income on balance sheet accounts;

2) the interest incomes all added, but not gained shall be transferred from the balance sheet account to accounts of contingencies and after giving to asset of the status of "not building-up" are made further charge of percent on accounts of contingencies;

3) all subsequent payments on this asset go first of all for repayment added, but not drawn interest, and then on covering of principal debt.

4. Transfer of the added interest incomes from the balance sheet account into accounts of contingencies is made by the following accounting entries:

Dt Interest incomes on the corresponding accounts

Kt 16300 "The added interest receivable"

Dt 91500 "Percent on assets and commission charges"

Kt 96333 "Counter - the account on the added percent on securities to obtaining" or

96335 "Counter - the account on percent on assets and commission charges"

5. On the asset which is in the status of not building-up, banks make charge of percent only on accounts of contingencies. Banks shall bring the amount of receivable interest receivable into accounts of contingencies and continue further calculation in accordance with the established procedure according to the agreement.

Giving to status assets of "not building-up of percent" does not exempt the borrower from obligations of debt repayment on the added percent, and also the percent added on accounts of contingencies after giving of the status of "not building-up of percent".

5-1. According to article 125 of the Law of the Republic of Uzbekistan "About bankruptcy" from the moment of adoption by economic court of the decision on recognition of the debtor by the bankrupt and opening of liquidating production by all types of debt of the debtor charge of penalty (penalty, penalty fee) and percent stops.

6. The capitalization of percent leading to inclusion of interest arrears in the main amount of asset is not allowed.

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