RESOLUTION OF BOARD OF NATIONAL BANK OF THE KYRGYZ REPUBLIC

of December 24, 1997 No. 26/6

About Policy of accounting of the transactions reflected in off-balance accounts in National Bank of the Kyrgyz Republic

For the purpose of development of accounting rules of the transactions reflected in the off-balance accounts in National Bank of the Kyrgyz Republic corresponding to International accounting standards, the Board of National Bank of the Kyrgyz Republic decides:

1. Approve the enclosed Policy of accounting of the transactions reflected in off-balance accounts in National Bank of the Kyrgyz Republic and enact it since January 1, 1998.

2. To the relevant divisions of NBKR till February 1, 1998 to develop and approve Regulations on stand-alone accounting.

3. To impose control of execution of this resolution on the vice chairman of the board madam Esenaliyeva Zh. S.

Approved by the Resolution of Board of National Bank of the Kyrgyz Republic of December 24, 1997 No. 26/6

Policy of accounting of the transactions reflected in off-balance accounts in National Bank of the Kyrgyz Republic

1. Introduction

1.1. This procedure determines policy for accounting of the transactions reflected in off-balance accounts (further by the text - "off-balance transactions") in National Bank of the Kyrgyz Republic (further in the text - "Bank"), and corresponds to Regulations on accounting standards and the principles of the financial reporting for National Bank of the Kyrgyz Republic.

1.2. Development of procedures of realization of this Policy is performed by Management of financial accounting and reporting of Bank.

2. Determinations

2.1. Off-balance transactions are transactions which are not recognized as assets or liabilities now the balance statement, but which lead to emergence of uncertain events and contractual commitments, and are considered on off-balance accounts.

2.1.1. The uncertain event is situation, the resulting effect (profit or loss) of which will be confirmed only upon making or non-execution of one or more events in the future.

2.1.2. The contractual (conditional) commitment is the consent of Bank to issue the credit or to provide means at the certain rate during certain time in the future. Usually for such service commission charges are collected.

2.1.3. The obligations received for benefit of Bank is the contractual commitment of Bank granting it the right to obtain the credit at the certain rate during certain time.

2.2. Off-balance accounts include only those Articles which put Bank at risk, but with the individual clause Article of the obligations on financing received for benefit of Bank as financial agent of the Government of the Kyrgyz Republic shall be selected. Stand-alone accounts, unlike off-balance, include the Articles which are not representing risk for Bank and not considered on balance sheet accounts. These Articles can include accounting of forms, copies of agreements, the written off credits, the securities which are stored and other similar Articles. These Articles shall be considered on stand-alone accounts according to Regulations on stand-alone accounting in Management of financial accounting and reporting of National Bank of the Kyrgyz Republic.

3. Organization of financial accounting of off-balance transactions and risk control

3.1. Management of financial accounting and reporting shall store all relevant information necessary for assessment of contingent obligations and uncertain events. Accounting entries on accounting of off-balance transactions shall not is made in other divisions of Bank.

3.2. After the conclusion of the transaction, approval of release of the obligation, the relevant division which signed the contract shall provide Management of financial accounting and reporting of all necessary information. It includes the name of transaction, the amount, the duration of the agreement or value date, details and conditions of agreement performance.

3.3. Off-balance transactions represent special part of activities of Bank and can bear in themselves considerable risk degree to which the Bank is exposed. When making off-balance transactions, the Bank can reduce risks on them by carrying out hedging to the performed operations.

3.4. Bank, being Central Bank of the Kyrgyz Republic, adheres to conservative strategy when making off-balance transactions.

3.5. Monitoring risk is established according to the Law of the Kyrgyz Republic "About National Bank of the Kyrgyz Republic", the Provision of National Bank of the Kyrgyz Republic "On management of the international reserves" and other domestic policy of Bank. Risk minimization is reached by imposing of reasonable restrictions for the made off-balance transactions.

4. Accounting

4.1. The off-balance obligation is recognized and entered in ledgers while it is signed from bank name and becomes irrevocable, i.e. undertaken obligation cannot be withdrawn at the discretion of Bank without risk of payment of penalty or incurring of other expenses. The management of financial accounting and reporting shall receive timely all necessary documents from other divisions for reflection of any changes in off-balance Articles.

4.2. Off-balance transactions shall be considered at the cost established in the relevant agreement and further be reflected on the amount of unused balance. The used amount is considered on the balance sheet account.

4.3. Account of off-balance transactions is kept by method of double record. The contractual commitments issued by Bank are debited, the corresponding contra account is credited. The contractual commitments received by Bank are credited, the corresponding contra account is debited.

4.4. The income and expenses earned or suffered on off-balance transactions are recognized and reflected according to Policy of the accrual-basis accounting, Policy of accounting of currency transactions and International accounting standards.

4.5. The advance payment received as covering (pledge) on credit substitutes (for example, advance payment for the letter of credit), is considered on balance sheet accounts. Only the difference between pre-paid covering (pledge) and full amount of the issued contractual commitment is recognized on off-balance accounts.

4.6. When claims or obligations of Bank connected with off-balance transactions are settled, respond or term on them expires, they are taken out from off-balance accounts. The specified events shall be confirmed with the corresponding documentation and records.

4.7. Management of financial accounting and reporting prepares regular reports and represents them to management for risk management objectives. Regular reports of accounts department shall contain sufficient information for assessment of the credit, currency, percentage risks and concentration risk inherent for off-balance transactions.

4.8. Obligations and exchange transactions in foreign currency shall be considered according to the multiple currency system of accounting described in Policy of accounting of foreign currency transactions.

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