RESOLUTION OF BOARD OF NATIONAL BANK OF THE KYRGYZ REPUBLIC

of December 29, 2004 No. 36/10

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

Having considered the project of the Provision "About the Minimum Requirements on Risk Management in Banks of the Kyrgyz Republic", being guided by 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. To management of methodology of supervision and licensing together with Legal department to carry out state registration of this resolution in the Ministry of Justice of the Kyrgyz Republic in accordance with the established procedure.

3. This resolution becomes effective after state registration in the Ministry of Justice of the Kyrgyz Republic and the subsequent official publication.

4. To management of methodology of supervision and licensing to bring this resolution to the attention of regional managements and the Batken representative office of National Bank of the Kyrgyz Republic, commercial banks, JSC RSK, KSFK, FKPRKS and Banking associations of Kyrgyzstan.

5. To commercial banks, JSC RSK, KSFK and FKPRKS to bring the internal acts on risk management into accord with this resolution, after its entry into force, till July 1, 2005.

6. After official publication of this resolution to inform the Ministry of Justice of the Kyrgyz Republic on publication source (the name of the edition, its number and date).

7. To impose control of execution of this resolution on Omurzakova G. M., the vice-chairman of National Bank of the Kyrgyz Republic.

Approved by the Resolution of Board of National Bank of the Kyrgyz Republic of December 29, 2004 No. 36/10

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

I. General provisions

1.1. This Provision is developed according to the Laws of the Kyrgyz Republic "About National Bank of the Kyrgyz Republic", "About banks and banking activity in the Kyrgyz Republic", other legal acts and establishes obligatory for observance by banks and National bank of development of the Kyrgyz Republic (further - banks) the minimum requirements to the organization of risk management.

1.2. 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.

1.3. For the purposes of this provision the following concepts are used:

Bank - bank, the financial credit institute performing the activities based on the license of National Bank of the Kyrgyz Republic and National bank of development of the Kyrgyz Republic.

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 risk manager - the bank employee with sufficient experience in banking who 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 behind balance) as a result of change of market prices is subject. The risk appears as a result of activities in the market (market-making), 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.

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