RESOLUTION OF BOARD OF NATIONAL BANK OF THE KYRGYZ REPUBLIC

of June 30, 2010 No. 52/4

About some regulatory legal acts of National Bank of the Kyrgyz Republic

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

DECIDES:

1. Approve the Provision "About the Minimum Requirements on Credit Risk Management in the Commercial Banks and Other Financial Credit Institutions Licensed by National Bank of the Kyrgyz Republic" it (is applied).

2. Make changes and additions to the resolution of Board of National Bank of the Kyrgyz Republic of July 21, 2004 No. 18/3 "About approval of new edition of the Provision "About Classification of Assets and the Corresponding Allocations to Reserve on Covering of Potential Losses and Losses", registered in the Ministry of Justice of the Kyrgyz Republic on August 23, 2004, registration number 95-04 (is attached).

3. Declare invalid the resolution of Board of National Bank of the Kyrgyz Republic No. 12/7 of April 25, 2005 "About approval of the Regulations on crediting in the commercial banks and other financial credit institutes licensed by National Bank of the Kyrgyz Republic", registered in the Ministry of Justice of the Kyrgyz Republic on June 3, 2005, registration number 69-05.

4. This resolution becomes effective after one month after official publication.

5. After official publication to send to Legal department this resolution to the Ministry of Justice of the Kyrgyz Republic for inclusion in the State register of regulatory legal acts of the Kyrgyz Republic.

6. To management of methodology of supervision and licensing to bring this resolution to the attention of commercial banks, Finance Company on support and development of credit unions and microfinance companies, the attracting term deposits.

7. To impose control of execution of this resolution on the board member of National Bank of the Kyrgyz Republic of Alybayeva S. K. 

Approved by the Resolution of Board of National Bank of the Kyrgyz Republic of June 30, 2010 No. 52/4

Changes and amendments in the resolution of Board of National Bank of the Kyrgyz Republic of July 21, 2004 No. 18/3 "About approval of new edition of the Provision "About Classification of Assets and the Corresponding Allocations to Reserve on Covering of Potential Losses and Losses", registered in the Ministry of Justice of the Kyrgyz Republic on August 23, 2004, registration number 95-04

Make the following changes and additions to the Provision "About Classification of Assets and the Corresponding Allocations to Reserve on Covering of Potential Losses and Losses", the Board of National Bank of the Kyrgyz Republic approved by the resolution of July 21, 2004 No. 18/3 "About approval of new edition of the Provision "About Classification of Assets and the Corresponding Allocations to Reserve on Covering of Potential Losses and Losses", registered in the Ministry of Justice of the Kyrgyz Republic on August 23, 2004, registration number 95-04:

- in Item 1.1 of Section 1 to exclude words "the Settlement and Savings Company, the Kyrgyz Agricultural Finance Corporation";

- Item 1.7 of Section 1 after the paragraph "-leasing;" to add with the paragraph "-the debt obligations acquired by means of factoring;";

- in Item 1.7 of Section 1 the paragraph "-leasing;" to state in the following edition:

"-the assets received as a result of leasing;";

- add Section 2 with Item 2.3-1 of the following content:

"2.3-1. Factoring is understood as financing under concession of monetary claim when one party (financial agent) transfers or shall transfer to other party (client) money on account of monetary claim of the client (creditor) to the third party (debtor) following from provision by the client of goods, accomplishment by it of works or rendering services to the third party, and the client yields or shall yield to the financial agent this monetary claim.";

- add Section 3 with Item 3.6-1 of the following content:

"3.6-1. When carrying out classification of the assets of banking group provided to the same borrower or group of the connected borrowers it is necessary to consider the classification of these assets which is carried out by each of members of banking group and to classify these assets by the worst of categories of the classification which is carried out by each member of banking group on these assets.";

- in all text of Item 12.1 of the Section 12 after the word "credit" in various case and numerical forms to add with words ", the debt obligations acquired by means of factoring" in the corresponding cases and numbers.

Approved by the Resolution of Board of National Bank of the Kyrgyz Republic of June 30, 2010 No. 52/4

Regulations on the minimum requirements on credit risk management in the commercial banks and other financial credit institutions licensed by National Bank of the Kyrgyz Republic

1. General provisions

1. This Provision extends to all commercial banks, specialized financial credit institution of JSC Finance Company of Credit Unions and microfinance companies attracting term deposits (further - banks).

2. The purpose of this provision is determination of the minimum requirements to forming in banks of adequate management system credit risk.

2-1. This Provision extends to other assets bearing in themselves credit risk (including correspondent accounts, securities, interbank placements, etc.).

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

The credit risk is present at all types of activity of bank where the positive result depends on accomplishment by the borrower, the client of the obligations to bank provided by agreements and/or agreements.

The purpose of credit risk management consists in determination of degree of exposure of bank to credit risk, identification of the reasons of its origin and determination of internal and external upward tendencies of risk based on which it is possible to predict credit risk, and acceptance of necessary measures for its minimization to acceptable level.

3-1. Refinancing is the conclusion of the relevant new agreement for complete or partial repayment of the operating asset.

3-2. Blank credits are the credits on which providing is not real estate, personal estate, guarantees or the guarantee and other tools considered in case of classification of assets as providing, except for overdrafts on payment cards within salary projects, overdrafts on the payment cards issued to pensioners and are issued to exclusively creditworthy borrower based on its reputation, assessment of level of its income.

3-3. The cooling-off period is period of time after signing of the credit agreement during which the bank does not list money to the borrower. During this period the borrower has the right to refuse receipt of the credit.

4. For the purpose of this provision the credits are understood as assets and off-balance obligations, including factoring, leasing and other assets bearing in themselves credit risk. The cross-border credits - the credits issued to residents/nonresidents for activities financing only outside the Kyrgyz Republic, at the same time the concept of the resident/nonresident corresponds to the concept determined in the legislation of the Kyrgyz Republic.

Contractual financing presents itself credit product in the form of short-term financing (up to one year) working capital for obligation fulfillment of the client under the contract with partners.

Financing on the security of warehouse certificates - the credits issued to holders of double warehouse certificates and/or its separate parts (the warehouse certificate or the mortgage certificate (warrant)), the sample established by the legislation (security). The term of the issued credit shall not exceed products storage duration in warehouse by which it is issued the double warehouse certificate (is granted).

5. Provisions of this regulation, and also other regulations of National Bank of the Kyrgyz Republic (further in the text National Bank) shall be completely used in the internal documents of bank regulating its credit policy.

2. Credit policy and credit strategy of bank

6. Credit operations of bank are performed according to its domestic credit policy and credit strategy approved by the Board of directors of bank.

Credit strategy can be included in the Business plan of bank by the separate/additional Section.

6-1. Credit strategy shall consider and include the following at least:

- the target markets of crediting and their general characteristics which the bank plans to reach (including the diversification level, the planned indicators in case of quality evaluation of credit portfolio, etc.);

- the main sources of financing on crediting (the bank needs to specify loan financing sources at the expense of what means it is planned to credit, increase credit portfolio);

- requirement about carrying out the analysis of indirect currency risk;

- ratio of share of the credits to assets of bank;

- market conditions and financial condition of bank, and also its risk appetite;

- the expected profit margin and the size of the capital of bank;

- the possible costs connected with return of assets subject to credit risk;

- short-term/mid-term/long-term plans of bank;

- the requirement about carrying out the analysis of credit portfolio which will be performed on the basis of the operating credit portfolio of bank. In addition to it, the bank shall have methodology of carrying out such analysis which will allow to estimate credit risk and indirect currency risk;

- urgent adequate economic indicators of bank;

- organizational structure of bank, technical capabilities and potential (qualifications, number of staff) of personnel and management of bank responsible for credit activities of bank. The corresponding personnel shall be informed on credit strategy and provide clarity credit strategists of bank.

6-2. The board of directors periodically, but at least once a year considers the financial and economic performance influencing or provided, pledged in credit strategy and if necessary makes necessary changes.

6-3. The board of directors of bank shall provide that the policy on appointments and remunerations in bank did not contradict strategy for credit risk management.

7. Credit policy determines strategy, criteria, parameters and procedures by which bank employees in activities for provision, registration of the credits, monitoring and risk management shall be guided.

Credit policy of bank shall be based on the principles of responsible crediting: conscientiousness, transparency, reliability, partnership in relation to borrowers, accounting of their economic interests and financial opportunities.

8. All basic provisions concerning issuance of credits shall be reflected in credit policy:

8.1. General provisions, including:

- list of potential borrowers;

- types of loan depending on the purposes of crediting and other conditions;

- quantitative limits of crediting;

- crediting terms;

- criteria for evaluation of creditworthness of borrowers;

- the interest rates including the taxes established by the tax legislation of the Kyrgyz Republic and methods of establishment of interest rates;

- requirements to financial information of the borrower;

- geographical restrictions;

- issue currency;

- concentration of the credits (on groups of borrowers, geographical sign, on industry, currency and other factors);

- restrictions on the credits issued by the face tied with bank and to affiliates;

- criteria for evaluation of cost and the acceptability of pledge, including on risks assessment, connected with the fact that the subject of pledge is the single housing of the borrower/pledger at the time of registration of the credit;

- control of observance of the procedure of preparation of issuance of credits;

- requirements for issue of guaranty letters by bank (appendix 2);

Note: except for the microfinance companies attracting term deposits.

- ratio of credit portfolio to assets;

- specific weight of each type of loan in credit portfolio;

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