Procedure for Assigning Non-accrual Status to Interest Income

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Date of creation: 2018-08-23

Registered with the Ministry of Justice of the Kyrgyz Republic

June 10, 2004. Registration number 70-04

Approved

by the resolution of the Board of the National Bank of the Kyrgyz Republic

of April 28, 2004 No. 11/2

PROCEDURE

for assigning the status of non-accrual of interest income

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of May 17, 2006 No. 14/4, November 16, 2012 No. 43/1, August 24, 2016 No. 35/4, of June 15, 2017 No. 2017-P-12/25-12-(NPA))

1. General Provisions

1.1. This Procedure determines the procedure for assigning the status of non-accrual of interest income on loans and assets carrying credit risk (hereinafter - loans) in commercial banks, the State Development Bank of the Kyrgyz Republic, and other financial and credit organizations regulated by the National Bank of the Kyrgyz Republic, except for exchange offices (hereinafter - credit organizations).

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of November 16, 2012 No. 43/1, August 24, 2016 No. 35/4, of June 15, 2017 No. 2017-P-12/25-12-(NPA))

1.2. This Procedure addresses issues related to the accrual and recognition of interest income by a credit organization. Assigning the status of non-accrual of interest income does not affect the terms of the contract between the client and the credit organization (for example, the terms or amounts of payments to repay the principal and pay interest or the order of their payment).

1.3. The credit organization is responsible for developing and implementing the Policy on assigning the status of non-accrual of interest income of the credit organization, procedures, and internal control systems ensuring compliance with this Procedure.

1.4. The Policy on assigning the status of non-accrual of interest income of the credit organization must be approved by the Board of Directors or the corresponding body of the credit organization.

2. Assigning the Status of Non-accrual of Interest Income

2.1. The application of the accrual method for accounting and financial reporting purposes does not mean that the credit organization must continue to accrue, capitalize, and/or recognize as income interest, the probability of receipt of which by the credit organization is very low, or is completely absent.

Recognition of interest income on loans whose payment schedule is not being executed leads to the presentation of unreliable information about the financial condition of the credit organization (incorrect information about the size of assets and income) for depositors, creditors, and shareholders.

2.2. The credit organization must assign the status of non-accrual of interest income on:

a) loans and assets on which payments of principal or interest are overdue by 90 days or more;

b) loans on which full repayment of principal and payment of interest is not expected, regardless of the duration of payment arrears (but not exceeding the terms established in sub-paragraph a) of this paragraph for payments of principal or interest thereon).

3. Procedure for Non-accrual of Interest Income

3.1. The credit organization must create a Reserve for Potential Losses and Damages (RPPU) in the amount of 100 percent on the sum of overdue accrued interest payments on loans to which the status of non-accrual of interest income is subsequently assigned.

3.2. All incoming payments on loans in the status of non-accrual of interest income must be accepted as repayment of overdue payments on the principal amount of the loan until they are fully repaid.

Only after the full repayment of the overdue part of the principal amount of the loan in the status of non-accrual of interest income can cash inflows be directed by the credit organization to repay the remaining debt in accordance with the credit agreement.

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of May 17, 2006 No. 14/4)

3.3. The credit organization may recognize as interest income part or all of the amount of the interest payment on loans in the status of non-accrual of interest income based on the "cash" method, only if the following conditions are met simultaneously:

a) all overdue periodic payments to repay the principal amount of the loan in the status of non-accrual of interest income and interest thereon have been fully paid by the borrower;

b) there is a high probability of full repayment of the remaining part of the principal amount of the loan in the status of non-accrual of interest income, which is assessed based on market conditions, the borrower's business plan, analysis of their financial condition, and other factors.

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of May 17, 2006 No. 14/4)

3.4. (Excluded in accordance with the resolution of the Board of the National Bank of the Kyrgyz Republic of May 17, 2006 No. 14/4)

4. Return of the Status of Accrual of Interest Income

4.1. A loan in the status of non-accrual of interest income may be returned to the status of accrual of interest income only in the case of simultaneous fulfillment of the following conditions:

a) all overdue payments on the principal amount of the loan, interest payments, and penalty sanctions have been repaid according to the debt repayment schedule as of the reporting date;

b) the probability of the borrower making payments, both on the principal amount of the loan in the status of non-accrual of interest income and on interest, is high, which is assessed based on market conditions, the borrower's business plan, analysis of their financial condition, and other factors;

c) the borrower made payments on the loan in the status of non-accrual of interest income in accordance with the approved repayment schedule for this loan: for three months.

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of August 24, 2016 No. 35/4)

4.2. The decision to return the status of accrual of interest income must be made by the credit organization only after a thorough assessment of the borrower's financial condition, as well as the borrower's ability and willingness to fully repay the debt in the future according to the loan repayment schedule.

Appendix

to the Procedure for Assigning the Status of Non-accrual of Interest Income

EXAMPLE

on the organization of accounting for loans in the status of non-accrual of interest income

(EXCLUDED

in accordance with the resolution of the Board of the National Bank of the Kyrgyz Republic of May 17, 2006 No. 14/4)

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