Instruction on Requirements for Bank Operations with Affiliated and Related Parties

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Creation date: 2025-11-27

Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic of May 31, 2017 No. 21/5

INSTRUCTION on requirements for bank operations with affiliated and related parties

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of December 28, 2020 No. 2020-P-12/75-3, December 14, 2022 No. 2022-P-12/78-10, December 28, 2022 No. 2022-P-12/83-7, January 17, 2024 No. 2024-P-12/1-3, March 20, 2024 No. 2024-P-12/12-2, April 12, 2024 No. 2024-P-12/17-3, September 25, 2024 No. 2024-P-12/46-3, June 27, 2025 No. 2025-P-12/31-2-(NPA), November 12, 2025 No. 2025-P-12/60-4-(NPA))

1. General Provisions

2. This Instruction is developed to establish requirements for the activities of banks, including those conducting activities in accordance with Islamic principles of banking and financing, banks having an Islamic window, and JSC "Financial Company of Credit Unions" (hereinafter - the Bank), when carrying out operations and transactions with affiliated and related parties.

At the same time, this Instruction applies to JSC "Financial Company of Credit Unions" taking into account its features and in part that does not contradict the requirements specified in the Rules for regulating the activities of JSC "Financial Company of Credit Unions".

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of March 20, 2024 No. 2024-P-12/12-2)

2. The Bank must maintain a registry of affiliated and related parties, to which unrestricted access must be provided for employees of the National Bank of the Kyrgyz Republic (hereinafter - the National Bank). The registry of affiliated and related parties must contain, at a minimum, information on the surname, first name, and patronymic of the Bank's official, their position in the Bank, the surname, first name, and patronymic of the person related to them who is a close relative, and the degree of kinship with the official (parents, spouse, etc.). Keeping the registry in electronic form is permitted, provided that the Bank has a security system ensuring the safety of information.

A Bank with 100% state share in the context of maintaining the registry of affiliated and related parties has the right not to include in the registry persons who do not exercise control over the Bank and do not influence its activities.

At the same time, a Bank with 100% state share must include in the registry as mandatory persons affiliated and related to the Bank specified in paragraphs 4, 5, and 6 of Part 1 of Article 52 of the Law of the Kyrgyz Republic "On Banks and Banking Activity" under the following conditions:

• when issuing loans and loan substitutes to affiliated and related parties;
• when concluding transactions involving credit risk with affiliated and related parties.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 12, 2024 No. 2024-P-12/17-3)

3. Relationships of a person affiliated with the Bank can be tracked through company and person links, relationships between which are based on ownership of a threshold share in the Bank's capital, regardless of the number of affiliated persons.

4. In the event of the Bank attracting funds, a participant of the banking group (deposit/loan and other assets carrying credit risk), the corresponding contract for attracting funds from the parent company, a participant of the banking group, or any other foreign company/banking group participant must contain a condition on mandatory notification to the National Bank about the early termination of the contract 30 working days prior to its termination. At the same time, the initiator of the notification must be the banking group participant that is subject to the supervision of the National Bank.

5. Procedure for carrying out operations and transactions

6. The Bank is not entitled to lend (hereinafter also including the issuance of financing in accordance with Islamic principles of banking and financing) to affiliated or related parties if any of the following conditions exist:

1. in the presence of current losses as of the last reporting date;
2. the maximum risk size for one borrower related to the Bank (K1.2 ratio) exceeds 20% of the Bank's own (regulatory) capital (hereinafter - OC);
3. the maximum risk size for interbank placements in another bank related to the Bank (K1.4 ratio) exceeds 20% of OC;
4. the total amount of all loans and their substitutes provided to all affiliated and/or related parties exceeds 60% of the Bank's OC;
5. the Bank does not meet the requirements for capital (adequacy) and own (regulatory) capital established by the National Bank.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 27, 2025 No. 2025-P-12/31-2-(NPA))

6. The Bank is recommended to establish internal limits for restricting lending to affiliated and related parties, which must be lower than those established by the National Bank.

7. The maximum size of any investment in each non-bank organization, including any financial investments and loans, must be less than 20% of the Bank's own (regulatory) capital. The total size of such investments cannot exceed 60% of the Bank's own (regulatory) capital.

The Bank is not entitled to issue loans, loan substitutes, or provide any assets carrying credit risk to subsidiary or dependent companies providing services specified in sub-item 17 of item 2.1 of the Rules for the creation and/or acquisition of subsidiary or dependent companies by commercial banks of the Kyrgyz Republic, approved by the Resolution of the Board of the National Bank of June 10, 2009 No. 26/3, as well as to members of the supervisory and executive bodies of such companies.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of June 27, 2025 No. 2025-P-12/31-2-(NPA), November 12, 2025 No. 2025-P-12/60-4-(NPA))

8. Transactions of the Bank with related parties in an amount exceeding 1% of Net Own Capital (NOC) are considered interested transactions. The decision to conclude an interested transaction, and other banking operations carried out with affiliated and related parties, the size of which is from 1% to 14% of NOC, is made only by disinterested members of the Bank's Board of Directors. At the same time, the minutes of the Board of Directors' decision must indicate the interest or disinterest of the Board of Directors members.

9. The decision on loans and assets carrying credit risk, as well as operations with other property, real estate/movable property of the Bank with affiliated and related parties, the size of which is from 300,001 som to 14% of NOC, is made only by disinterested members of the Bank's Board of Directors. At the same time, the minutes of the Board of Directors' decision must indicate the interest or disinterest of the Board of Directors members, as well as stipulate the conditions for the conducted operation.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of December 28, 2020 No. 2020-P-12/75-3, November 12, 2025 No. 2025-P-12/60-4-(NPA))

10. The decision to conclude an interested transaction, and other banking operations, including loans and their substitutes, carried out with affiliated and related parties, the size of which is more than 14% of NOC, is made by the General Meeting of Shareholders.

At the same time, such transactions and operations, except for concluded public contracts, must be approved by the Bank's Board of Directors.

11. Any operation or transaction of the Bank with any person must be considered an operation or transaction with an affiliated or related party if even part of the income from operations or transactions is used for the benefit of an affiliated or related party or transferred to their disposal.

12. The Bank has the right to conduct operations or transactions with an affiliated or related party only if all of the following conditions are met:

1. Operations, except those specified in item 13 of this Instruction, and transactions may be conducted only on such terms and requirements that are not more favorable compared to the terms and requirements applied at the same time for similar operations and transactions between this Bank and other persons - Bank clients who are not employees of this Bank and are not any other persons related to the Bank and/or having common interests with the Bank. Such terms and requirements include, in particular, the prohibition of:

• charging lower interest rates (hereinafter also including markup and/or other payments agreed between the Bank and the client/partner in accordance with Islamic principles of banking and financing) or fees compared to those charged to other persons - Bank clients who are not employees of this Bank and are not any other persons related to the Bank and/or having common interests with the Bank;
• paying higher interest on deposits (hereinafter also including attracting funds in accordance with Islamic principles of banking and financing, with the exception of limited mudaraba) compared to other persons - Bank clients who are not employees of this Bank and are not any other persons related to the Bank and/or having common interests with the Bank;
• accepting collateral that has a lower value than that required from other persons - Bank clients who are not employees of this Bank and are not any other persons related to the Bank and/or having common interests with the Bank. When accepting collateral, a methodology allowing its valuation higher than similar collateral must not be applied;
• issuing loans and loan substitutes that would not be issued to other persons - Bank clients who are not employees of this Bank and are not any other persons related to the Bank and/or having common interests with the Bank, due to the risk level of the operation or the low creditworthiness of the borrower;
• purchasing low-quality assets from an affiliated or related party or accepting low-quality assets as collateral;
• purchasing an asset at a price higher than that which could be paid to another person - a Bank client who is not an employee of this Bank and is not any other person related to the Bank and/or having common interests with the Bank;
• selling an asset at a lower price than that which could be accepted from another person - a Bank client who is not an employee of this Bank and is not any other person related to the Bank and/or having common interests with the Bank;
• investing in securities in which the Bank would not otherwise invest due to the risk level of the securities or the type of activity engaged in by the investor or the considered affiliated or related party;
• paying for goods, services, or property rent at a higher price than that which would be paid to another person - a Bank client who is not an employee of this Bank and is not any other person related to the Bank and/or having common interests with the Bank, or under conditions under which payment would not be made to another person - a Bank client who is not an employee of this Bank and is not any other person related to the Bank and/or having common interests with the Bank;
• restructuring loans of affiliated or related parties when such restructuring would not be done for another person - a Bank client who is not an employee of this Bank and is not any other person related to the Bank and/or having common interests with the Bank.

2. In the case of issuing loans, its risk at the time of the Board of Directors' decision must not exceed the risk embedded in loans classified as satisfactory, according to the Regulation on asset classification and corresponding provisions for potential losses and losses.

3. The decision to conduct an operation or transaction in the amount of 1% to 14% of NOC is made only by disinterested members of the Bank's Board of Directors by roll-call vote, by a majority of votes (more than 2/3 of the listed composition of Board of Directors members), taking into account the conclusion of the Bank's risk manager regarding the risk associated with conducting the operation or transaction with an affiliated or related party, in the absence of direct or indirect influence from the person interested in conducting the operation or transaction. The Chairman or any member of the Board of Directors with a direct or indirect interest in the proposed operation or transaction must leave the Board of Directors meeting during the discussion of the issue, and they have no right to vote on this issue.

4. The Bank must keep a written protocol of approval of such an operation or transaction. The decision on approval must be made based on a written analysis of all merits of the operation or transaction, including justification that the operation or transaction is conducted not to the detriment of the Bank and in its interest. The analysis must include:

• for credit operations and loan substitutes - the loan amount, loan term, interest rate, financial information about the borrower proving the borrower's ability to repay the loan in accordance with the agreement, and information confirming the value of the loan collateral;
• for operations or transactions related to the purchase or sale of assets - the purchase price and information confirming the value of the asset;
• for investments - an assessment of the risk of such investments and potential benefits for the Bank and the considered person;
• a detailed explanation of the reasons for the necessity of this operation or transaction;
• for operations or transactions involving the sale/acquisition of assets or services, the Bank's Board of Directors must consider at least three offers for the purchase/sale of the asset or provision of the service. These offers must be made by persons not related to the Bank or persons having common interests with the Bank, and correspond to average market prices.

5. Related parties who are a party to the proposed operation or transaction with the Bank or are connected with this party by common interests must disclose in writing the degree of their interest in the operation or transaction and the degree of relationship with the other party to the operation. Such written disclosure must be provided to the Bank's Board of Directors before voting on the proposed operation or transaction, which must be part of the protocol of approval of the operation or transaction by the Board of Directors.

13. The Bank has the right to provide loans to officials, with the exception of the Chairman and members of the Board of Directors, the Chairman and members of the Shariah Council, in accordance with the Bank's employee social support program. The specified program must provide identical conditions for the social support of Bank employees and officials. At the same time, the lending conditions for officials must meet, at a minimum, the following requirements:

1. loans are provided to Bank officials only for the purchase or construction of housing;
2. the purchased or constructed housing must belong by right of ownership only to the Bank official to whom the loan is provided;
3. the Bank official to whom the loan is provided and their family members (if any) must reside in the purchased or subsequently constructed housing;
4. the maximum loan amount must not exceed ten million som;
5. the maximum loan amount must not exceed eighty percent of the fair value of the purchased or constructed housing. A loan may be issued in the amount of one hundred percent of the fair value of the purchased or constructed housing in cases of providing:

• additional collateral in the form of a related deposit or real estate with a value/fair value of not less than forty percent of the fair value of the purchased or constructed housing;
• real estate with a fair value of not less than one hundred forty percent of the loan amount, meeting the requirements of the legislation of the Kyrgyz Republic, regulatory legal acts of the National Bank, and internal documents of the Bank;

6. for determining the fair value of housing, services of an appraiser/appraisal organization are used;
7. (ceased to be in force in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic of November 12, 2025 No. 2025-P-12/60-4-(NPA))
8. the issuance of a loan for the purchase of housing by a Bank official from persons who are their close relatives is prohibited.

The loan agreement concluded between the Bank and the Bank official must contain a clause stating that in the event of the Bank official violating the lending conditions specified in sub-items 1-8 of this item, the loan agreement is subject to modification on the terms specified in item 17 of this Instruction.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of December 28, 2022 No. 2022-P-12/83-7, November 12, 2025 No. 2025-P-12/60-4-(NPA))

14. The provisions of sub-items 3, 4, and 5 of item 12 apply to operations with Bank officials specified in item 13 of this Instruction.

15. The Bank's internal document regulating the procedure for lending to employees must contain provisions on lending to Bank officials, meet the requirements of the Law of the Kyrgyz Republic "On Banks and Banking Activity", regulatory legal acts of the National Bank, and contain, at a minimum, the following:

• the share of loans issued to Bank officials specified in item 13 of this Instruction in the total volume of the Bank's loan portfolio and the Bank's NOC;
• types of loans;
• loan currency;
• maximum loan amount;
• loan terms;
• interest rates (pricing);
• criteria for assessing the value and acceptability of collateral.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 14, 2022 No. 2022-P-12/78-10)

16. The Bank's internal document regulating the procedure for lending to employees must be approved by the Bank's Board of Directors. The Bank's Board of Directors must also:

• annually review the Bank's internal document regulating the procedure for lending to employees to ensure its relevance and compliance with the Bank's credit policy;
• control the activities of the Bank's Board of Directors (or another similar executive body of the Bank) to ensure compliance with the requirements of the Bank's internal document regulating the procedure for lending to employees.

17. In the event of Bank officials violating the lending conditions specified in item 13 of this Instruction:

• the Bank must, on the day of discovering the violation, amend the loan agreement, providing in it such requirements and loan provision terms that are not more favorable compared to the terms and requirements applied for similar operations;
• the Bank official is obliged to compensate the Bank for the difference in interest accrued from the date of receiving the loan to the date of changing its terms;
• compensation for the difference in interest must be provided in the loan repayment schedule and interest schedule, starting from the month following the month in which the loan terms were changed.

18. The Chairman of the Bank's Board of Directors must notify in writing the members of the Bank's Board of Directors that all applicable conditions of item 12 of this Instruction have been met before the members of the Bank's Board of Directors vote on the considered issue. Any member of the Bank's Board of Directors has the right to review the supporting documentation before voting. The Chairman and each voting member of the Bank's Board of Directors must personally sign the decision to approve the operation or transaction. The decision must clearly indicate that the Chairman and the member of the Bank's Board of Directors reviewed and understood the conditions of the proposed operation or transaction and personally read the analysis required by sub-item 4 of item 12 of this Instruction.

19. The provisions of sub-items 3, 4, and 5 of item 12 of this Instruction do not apply to the Bank's acceptance of deposits from affiliated or related parties, the Bank's spot operations with a bank/company that is a related party, with the exception of the parent bank, the provision of cash settlement services, and the issuance and servicing of bank payment cards to affiliated or related parties on the same terms and requirements as for other persons - Bank clients who are not employees of this Bank and are not any other persons related to the Bank and/or having common interests with the Bank.

Funds and subordinated loans must be attracted based on the decision of the Bank's Board of Directors on such terms and requirements that are not more favorable compared to the terms and requirements applied at the same time for similar operations and transactions between this Bank and other persons who are not affiliated persons and persons related to the Bank and/or having common interests with the Bank.

19-1. Banks with a state share in the Bank's charter capital of 50 percent or more have the right to conduct cash settlement operations at preferential tariffs when servicing state/executive bodies of the Kyrgyz Republic, taking into account the requirements of sub-item 4 of item 12 of this Instruction.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of November 12, 2025 No. 2025-P-12/60-4-(NPA))

20. Exceptions to the lending limits for affiliated and related persons are possible in cases established in the Instruction on lending restrictions.

21. Each loan issued to an affiliated or related party (with the exception of a loan up to 300,000 som and an interbank loan during ordinary correspondent activity) must be secured by collateral, the realization value of which is not less than:

1. 100 percent of the loan amount if the loan is secured by a guarantee issued by the decision of the Cabinet of Ministers of the Kyrgyz Republic to subjects of the national economy, aimed at ensuring national and food security of the country for the purpose of supporting subjects of the national economy;
2. 120 percent of the loan amount if the loan is secured by securities of the Cabinet of Ministers of the Kyrgyz Republic or a related deposit in the Bank issuing the loan.

A related deposit means a separate time deposit (deposit) that is not a correspondent account:

• with a term not less than the term of the issued loan;
• properly оформленный as collateral;
• on which the movement of funds is prohibited;
• inaccessible to the client until the loan obligations are fulfilled.

The market value of collateral in the form of securities must be revalued by the Bank monthly in the form of a deposit (deposit) in foreign currency - weekly/daily.

3. 140 percent of the loan amount in the case of any other type of collateral.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of April 12, 2024 No. 2024-P-12/17-3, November 12, 2025 No. 2025-P-12/60-4-(NPA))

22. If the value of the collateral becomes less than the amount established in item 21 of this Instruction over time, such collateral must be brought up to the required amount by concluding a new collateral agreement or making changes to the existing collateral agreement and guaranteed by additional collateral property or replaced by a new type of collateral with a value sufficient to meet the established requirement, no later than fifteen working days from the date of revaluation.

23. After approval and issuance of a loan to an affiliated or related party, such a loan must be tracked and evaluated in the same way as similar loans issued to other persons - Bank clients who are not employees of this Bank and are not any other persons affiliated, related to the Bank and/or having common interests with the Bank. Investments in affiliated and related parties must be tracked and evaluated periodically in the same way as investments in other persons - Bank clients who are not employees of this Bank and are not any other persons affiliated, related to the Bank and/or having common interests with the Bank.