Regulation on Requirements for Disclosure of Information on the Activities of Commercial Banks

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Date of creation: 2024-01-17

Appendix

to the Resolution of the Board of the National Bank of the Kyrgyz Republic

of October 30, 2019 No. 2019-P-12/54-4-(NPA)

REGULATION

on requirements for disclosure of information on the activities of commercial banks

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of October 25, 2023 No. 2023-P-12/67-3-(NPA))

Chapter 1. General Provisions

1. This Regulation defines the requirements for the disclosure of information on the activities of banks in order to increase the level of transparency and confidence of participants in the banking services market regarding the banking system.

The action of this Regulation extends to systemically significant banks (hereinafter referred to as "banks"), determined by quantitative indicators in accordance with the Regulation "On Criteria for Systemicity of Commercial Banks and Non-Bank Financial and Credit Organizations," approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic (hereinafter referred to as the "National Bank") of June 8, 2017 No. 2017-P-12/23-9-(NPA).

(As amended by the Resolution of the National Bank of the Kyrgyz Republic of October 25, 2023 No. 2023-P-12/67-3)

2. This Regulation is developed in accordance with the requirements of the Law of the Kyrgyz Republic "On Banks and Banking Activity," as well as international standards of the Basel Committee on Banking Supervision, and is aimed at stimulating market discipline through the disclosure of information that allows market participants to familiarize themselves with information and, based on it, assess key data on the scope of the bank's activities, risk exposure, and processes for risk assessment and management, as well as the bank's capital adequacy.

(As amended by the Resolution of the National Bank of the Kyrgyz Republic of October 25, 2023 No. 2023-P-12/67-3)

Chapter 2. Basic Concepts and Procedure for Calculating Financial Indicators

3. For the purposes of this Regulation, the following concepts are applied:

Banking secrecy - information defined in accordance with the Law of the Kyrgyz Republic "On Banks and Banking Activity."

Commercial secrecy - information defined in accordance with the Law of the Kyrgyz Republic "On Commercial Secrecy."

Total interest income - interest income calculated on an annual basis in accordance with the requirements of the National Bank.

Total interest expense - interest expense calculated on an annual basis in accordance with the requirements of the National Bank.

Operating income - net operating income of the bank calculated on an annual basis in accordance with the requirements of the National Bank.

Material information - information is considered material if its omission or misstatement could change or influence the assessment or decision of an interested party relying on this information for the purpose of making economic decisions. The criteria for the materiality of information must be defined in the internal documents of the bank, taking into account the following:

• the materiality of information must be reviewed by the bank on a quarterly basis as necessary and determined at least once a year, as the bank's activities and its risk exposure change over time, and the bank is required to disclose such changes;
• materiality must be determined for both quantitative and qualitative information;
• the materiality of information depends on the economic and political situation in the country;
• the materiality of disclosed information must be determined based on the specifics of the bank's activities, its risk profile, and other characteristic features, i.e., materiality should not be based solely on the size of the bank and its market share;
• the materiality of information must be determined based on the needs of information users: information may be immaterial for the bank but material for the user.

Net interest margin - the ratio of net interest income calculated on an annual basis to average annual assets, calculated in accordance with the requirements of the National Bank.

(As amended by the Resolution of the National Bank of the Kyrgyz Republic of October 25, 2023 No. 2023-P-12/67-3)

4. For the calculation of financial indicators, the data taken for their calculation must be taken as average annual indicators or indicators calculated on an annual basis, calculated in accordance with the following points of the Methodological Recommendations for Conducting an Analysis of Bank Activities Based on Coefficients, approved by the Resolution of the Supervisory Committee of the National Bank of February 12, 2004 No. 7/7:

1. average annual indicators for balance sheet data are calculated using the preferred method, according to subparagraph a) of point 2.4;
2. data from the income statement are brought to annual measurement, according to point 2.8.

Chapter 3. Basic Principles for Disclosure of Information

5. Requirements for the disclosure of information on the activities of the bank include qualitative and quantitative information concerning capital adequacy, risk exposure, risk assessment and management processes, as well as corporate governance. The frequency of disclosure of this information is quarterly and annual. Qualitative information is disclosed by the bank in free form and must be presented in an accessible manner for understanding by market participants.

6. Quantitative information must also include comments describing all material changes during the reporting period, and any additional information necessary for the correct understanding of the provided quantitative information, as well as any other information that the bank's management considers useful for market participants.

7. In cases where the disclosure of material information required by this Regulation may constitute banking or commercial secrecy, or in any way disclose information about the bank, or contradict the bank's position on the execution of its obligations in accordance with legislation or a contract, the bank has the right not to disclose detailed information of this kind, but instead it must disclose more general information about the required subject. In this case, the bank must provide explanations in the reports as to why the requirement for disclosure of information cannot be fully met.

8. The bank's report on the disclosure of information must be available to interested parties and published on the official website of the bank in the state and/or official language(s) in accordance with the following requirements:

• quarterly disclosure report - within 30 calendar days after the end of the reporting quarter;
• annual disclosure report - no later than the date of publication of the annual financial report.

9. The reporting forms presented in this Regulation represent the minimum requirements for the disclosure of information. The bank may additionally disclose information about its activities that it considers material for informing market participants in free form.

10. The bank must have a policy on the disclosure of information approved by the Board of Directors, which describes the bank's procedure for determining the nature of the disclosed information, as well as internal control over the process of its disclosure.

11. Information provided by banks for disclosure must at least undergo the same processes of internal analysis and internal control as the information provided by banks for the preparation of their financial reporting.

12. The Board of Directors and the Management of the bank bear responsibility in accordance with the legislation of the Kyrgyz Republic for the creation and maintenance of an effective internal control structure, which also includes responsibility for the disclosure of financial information and information disclosed under this Regulation.

Chapter 4. Requirements for Quarterly Disclosure of Information

13. Banks must disclose the following information on a quarterly basis:

1. an overview of compliance with economic standards and disclosure of the bank's financial indicators (Table 1 of Appendix 1);
2. information on the Board of Directors, Management, shareholders owning more than 5 (five) percent of the bank's shares, and beneficial owners (Table 2 of Appendix 1);
3. capital structure in accordance with the Appendix to the Instruction on Determining Standards for Capital Adequacy of Commercial Banks of the Kyrgyz Republic, approved by the Resolution of the Board of the National Bank of October 12, 2022 No. 2022-P-12/63-1-(NPA);
4. industry structure of loans (Table 3 of Appendix 1);
5. explanations regarding the differences between the requirements of international financial reporting standards and the requirements of the National Bank on accounting, including indicating the difference in quantitative data.

(As amended by the Resolution of the National Bank of the Kyrgyz Republic of October 25, 2023 No. 2023-P-12/67-3)

Chapter 5. Annual Report

14. The bank's annual disclosure report includes:

• information presented in accordance with the requirements for the quarterly report;
• a list of all entities included in the accounting and/or regulatory consolidation, and the corresponding consolidation methods (Table 1 of Appendix 2);
• volumes (balance amounts) of operations and transactions with affiliated and related parties (Table 2 of Appendix 2);
• quantitative information concerning operational risk (Table 3 of Appendix 2);
• qualitative information defined in Section 6 of this Regulation.

Chapter 6. Requirements for Disclosure of Qualitative Information

15. In the annual disclosure report, banks are required to present the following information on corporate governance:

1. composition of shareholders owning more than 5 (five) percent of the bank's shares, information on the number of shareholder meetings held with brief information on adopted decisions;
2. organizational structure of the bank;
3. composition and activities of the Board of Directors:

• composition of the Board of Directors and committees of the Board of Directors, as well as the duties of their members;
• description of the involvement of the Board of Directors in the bank's activities, in particular, disclosure of the frequency of meetings of the Board of Directors and committees, format of meetings, periodicity of assessment and approval of risk management policies;
• brief information on the education, qualifications, independence, and business reputation of the members of the Board of Directors;

4. composition and activities of the Management:

• composition of the Management, information on active committees at the management level and the periodicity of meetings of these committees;
• policy for the selection of Management members and brief information on their education, qualifications, and business reputation, work experience, including in the position held;

5. types and conditions of operations and transactions with affiliated and related parties by categories of persons listed in Table 2 of Appendix 2;
6. information on the applied standards of professional ethics, containing at least key provisions and norms on the relationship of the bank with employees, clients, competitors, the procedure for monitoring compliance with professional ethics standards, and other key aspects;
7. brief description of the policy on preventing conflicts of interest and conditions for their occurrence, as well as information on the existence of a policy on remuneration of officials and employees of the bank.

In the event that the above information of this paragraph is disclosed by the bank in another section of the official website of the bank, it may provide a link in the annual disclosure report to where such information is published (web link or number and name of the document, pages and sections of the document).

16. The parent company of the banking group - a resident of the Kyrgyz Republic and banks that are participants of the banking group, in the annual report, must disclose information on the scheme of ownership of bank shares by shareholders owning more than 5 (five) percent of the bank's shares, information on the structure and interrelationships of participants of the banking group (in schematic form), including information on the size of investments made by the bank and associated companies, if any.

17. The bank must disclose the following information concerning its risk management and internal control systems, in order to provide users with a clear understanding of the nature and types of risks to which the bank is exposed, and its risk appetite:

1. the main strategic directions of the bank and how the Board of Directors and Management of the bank assess and manage risks associated with these directions;
2. the relationship between the business model, the bank's risk profile, and its risk appetite;
3. for each separate type of risk (for example, credit, market, operational, interest rate risk, liquidity risk, and others), the bank must describe its risk management goals and policies, including:

• strategies and processes;
• structure and scheme of organization of the relevant risk management function;
• scope and nature of risk reporting and/or measurement systems, in particular, the volume and main content of risk exposure reporting provided to the Board of Directors and Management of the bank;
• communication channels for reducing risks and strengthening the risk management system in the bank, including procedures ensuring the independence of the risk management function;
• hedging and/or risk reduction policy, as well as strategies and processes for continuous monitoring of the effectiveness of hedging or risk reduction instruments;

4. qualitative information concerning the applied stress testing approach in risk management;
5. information on the reduction of credit risk:

• main characteristics of the policy and processes for collateral assessment and management;
• description of the main types of collateral assessment and management;
• information on the concentration of credit risk.

Appendix 1

to the Regulation "On Requirements for Disclosure of Information on the Activities of Commercial Banks"

Table 1. Economic Standards and Financial Indicators

No.

p/p

Economic Standards and Financial Indicators

T

T-1

T-2

T-3

T-4

Established Value of the Standard

Capital Indicators, in thousands of soms

1

Tier 1 Common Equity

2

Tier 1 Capital

3

Total Net Capital (TNC)

4

Risk-Weighted Assets, in thousands of soms

Capital Adequacy Ratios Based on Asset Weighting

5

Tier 1 Common Equity Adequacy Ratio (K2.3)

not less than 4.5%

6

Tier 1 Capital Adequacy Ratio

not less than 6%

7

Total Net Capital Adequacy Ratio

not less than 12%

8

Leverage (K2.4)

not less than 8%

9

Additional Bank Capital Buffer ("Capital Buffer Index")

not less than the value established by the National Bank

Profitability Indicators

10

Total Interest Income / Average Annual Assets

11

Total Interest Expense / Average Annual Assets

12

Operating Income / Average Annual Assets

13

Net Interest Margin

Asset Quality

14

Classified Loans / Total Loans

15

NPL Ratio / Total Loans

16

Foreign Currency Loans / Total Loans

17

Credit Portfolio (at the end of the period, in thousands of soms)

Liquidity

18

Liquidity Ratio K3.1

not less than 45%

19

Liquid Assets / Total Assets

Other Economic Indicators

20

Maximum Risk Size for One Borrower or Group of Related Borrowers Not Related to the Bank (K1.1)

not more than 20%

21

Maximum Risk Size for One Borrower or Group of Related Borrowers Related to the Bank (K1.2)

not more than 15%

22

Maximum Risk Size for Interbank Placements in a Bank Not Related to the Bank (K1.3)

not more than 30%

23

Maximum Risk Size for Interbank Placements in a Bank Related to the Bank (K1.4)

not more than 15%

24

Number of Days of Violations of the Total Size of Long Open Currency Positions (K4.2)

not more than 20%

25

Number of Days of Violations of the Total Size of Short Open Currency Positions (K4.3)

not more than 20%

26

Number of Days of Violations of the Total Size of Long Open Currency Positions (K4.2)

not more than 20%

27

Number of Days of Violations of the Total Size of Short Open Currency Positions (K4.3)

not more than 20%

Notes:

(1) Total Net Capital, Tier 1 Capital, Tier 1 Common Equity, and Capital Adequacy Ratios Based on Asset Weighting are determined in accordance with the Instruction on Determining Standards for Capital Adequacy of Commercial Banks of the Kyrgyz Republic, approved by the Resolution of the Board of the National Bank of July 21, 2004 No. 18/2.

(2) Liquid Assets - the numerator of the K3.1 ratio, determined in accordance with the requirements of the Regulation "On Economic Standards and Requirements Mandatory for Compliance by Commercial Banks of the Kyrgyz Republic," approved by the Resolution of the Board of the National Bank of July 21, 2004 No. 18/1.

(3) T - reporting quarter, T-1, T-2, T-3, T-4 - preceding reporting quarters.

Table 2. Information on the Board of Directors, Management, Shareholders, and Beneficial Owners

No.

p/p

Members of the Board of Directors

Date of Appointment

1

2

3

4

5

Members of the Management

Date of Appointment

1

2

3

4

5

List of Shareholders Owning More Than 5% of Issued Share Capital

% Share

1

2

3

4

5

List of Beneficiaries of the Bank Indicating Surnames of Direct and Indirect Holders of More Than 5% of Shares

% Share

1

2

3

4

5

Table 3. Industry Distribution of Client Loans

No.

p/p

Industry Distribution of Client Loans, in thousands of soms

T

T-1

1

Loans and Financial Leasing, Total

including:

2

loans for production

3

loans for agriculture, storage, and processing

4

loans for trade and services

5

loans for construction

6

mortgage

7

consumer loans

8

other loans

Note:

(1) T - balance at the end of the reporting period, T-1 - balance at the end of the previous period.

Appendix 2

to the Regulation "On Requirements for Disclosure of Information on the Activities of Commercial Banks"

Table 1. Consolidation of Entities

No.

p/p

Name of Entity

Subject to Accounting Consolidation (Yes/No) and Consolidation Method

Subject to Regulatory Consolidation (Yes/No) and Consolidation Method

Notes (on differences in the application of types and methods of consolidation)

1

XXX

2

XXX

3

XXX

Table 2. Information on Operations and Transactions with Affiliated and Related Parties

No.

p/p

Amount of Operations, in thousands of soms

T

T-1

1

legal and natural persons exercising control over the bank

2

subsidiary companies

3

companies affiliated with the bank

4

legal entities over which the bank exercises control

5

other persons falling under persons jointly owning shares

6

officials, including members of the Management, Board of Directors, as well as any other natural and legal persons associated with the specified persons and significant participants by common interests

Table 3. Information on Operational Losses

No.

p/p

Operational Losses, in thousands of soms

T

T-1

T-2

1

Total Amount of Losses

2

Total Amount of Losses Exceeding 1 million soms

3

Number of Events Leading to Losses

4

Total Amount of the 5 Largest Losses

Notes:

(1) T - at the end of the reporting year, T-1, T-2 - at the end of previous years;

(2) 1 million soms - conventionally accepted material indicator.

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