Regulation on the Calculation of the Effective Annual Percentage Rate When Disseminating Information on Bank Service Fees

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Date of Creation: 2018-08-23

Ministry of Justice Registration Number: 119-08 dated September 29, 2008

Approved by

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

No. 33/4 dated August 27, 2008

Regulation

"On the Calculation of the Effective Annual Percentage Rate When Disseminating Information on the Size of Remuneration for Banking Services"

(Amendments and additions were approved by resolutions of the Board of the National Bank of the Kyrgyz Republic No. 43/1 dated November 16, 2012, No. 51/3 dated December 27, 2012, and No. 2017-P-12/25-12-(NPA) dated June 15, 2017)

1. General Provisions

1.1. (Lost force in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 15, 2017, No. 2017-P-12/25-12-(NPA)).

1.2. The purpose of this Regulation is to define the procedure for calculating by commercial banks and other financial and credit organizations licensed and/or regulated by the National Bank of the Kyrgyz Republic, and the State Development Bank of the Kyrgyz Republic (hereinafter - Banks), the interest rates on loans and deposits in a reliable, annual, effective, and comparable manner when disseminating information on the size of remuneration for banking services.

2. Terms and Definitions

For the purposes of this Regulation, the following concepts are used:

Annual Effective Interest Rate – an interest rate in a reliable, annual, effective, and comparable calculation, in which the calculation takes into account client payments related to obtaining a loan or remuneration to the client for placing monetary funds in a deposit account. The Annual Effective Interest Rate is calculated in accordance with this Regulation.

Deposit Linked to a Loan – a deposit that serves as collateral for the provided loan or whose presence is mandatory under the terms of the loan agreement.

Clients – individuals, legal entities, or individual entrepreneurs who intend to use or are using bank services.

Services – the provision of banking services by banks regarding the provision of bank loans and/or the acceptance of deposits.

Method of Iterations

– a method that uses multiple iterations (steps) to obtain the final result.

3. Calculation of the Annual Effective Interest Rate

3.1. The Annual Effective Interest Rate is calculated by the bank for each type of service offered.

3.2. The Annual Effective Interest Rate for provided loans is calculated from the following equality:

[Formula Image/Representation]

Where:

APR (Annual Percentage Rate) - annual effective interest rate;

D - the amount of the first payment/first payment of the bank to the client (the first amount of the loan or its tranche);

k - the total amount of all client payments for obtaining bank loans, including all payments related to obtaining the loan, on the date of the first payment/first payment of the bank to the client;

L - the amount of deposits linked to loans deposited on the date of receipt of the first payment/first payment of the bank to the client;

n - the ordinal number of the last payment/last payment to the client;

j - the ordinal number of the payment/payment by the client after the date of receipt of the first payment/first payment by the client;

Sj - the amount of the j-th payment/payment to the client, including subsequent loans, payments of interest on deposits linked to loans, return of deposits;

tj - the time period from the day of providing the first payment/first payment to the client to the moment of the j-th payment/payment to the client (in days);

m - the ordinal number of the last payment by the client to the bank;

i - the ordinal number of the payment by the client;

Pi - the amount of the i-th payment by the client after the date of receipt of the first payment/first payment by the client, including interest on loans, deposit contributions, and payments in accordance with paragraph 3.3 of this Regulation;

ti - the time period from the day of providing the first payment/first payment to the client to the moment of the i-th payment by the client (in days).

3.3. The total amount of client payments when obtaining loans and all associated bank services, excluding amounts of remuneration paid to the client on a deposit linked to a loan, includes:

1. payments for the repayment of the principal debt and payment of remuneration for the loan;

2. payments to the bank related to the obtaining, processing, and servicing of the loan (fee for document review, commissions for obtaining cash, cost of servicing bank accounts, etc.), excluding fines for late payments and fines for non-compliance with the terms of the loan agreement.

3.3-1. For loans issued using payment credit cards within established credit limits, the following are not included in the calculation of the annual effective interest rate:

• commission for operations in a currency other than the account currency (currency of the provided loan);
• commission for the issuance and servicing of the credit card, including for suspension (resumption) of operations on the credit card;
• commission for obtaining the loan amount in cash using ATMs.

3.4. The Annual Effective Interest Rate for attracted deposits is calculated from the following equality:

[Formula Image/Representation]

Where:

APR - annual effective interest rate;

n - the ordinal number of the last payment/contribution by the client;

Sj - the amount of the j-th payment/contribution by the client, including depositing into the deposit and payment for associated bank services;

j - the ordinal number of the payment/contribution by the client;

tj - the time period from the day of attracting the deposit to the moment of the j-th payment/contribution by the client (in days);

m - the ordinal number of the last payment to the client;

i - the ordinal number of the payment to the client;

Pi - the amount of the i-th payment to the client, including interest on deposits, return of deposits;

ti - the time period from the day of attracting the deposit to the moment of the i-th payment (in days).

3.5. When calculating the effective interest rate, payments already made by the client and/or payments to the client for a loan/deposit are taken into account at the moment of their actual payment; future payments are calculated according to the payment schedule according to the terms of providing the banking service, known at the time of concluding the contract.

3.6. Banks calculate the annual effective interest rate using the algebraic method, successive approximations, the method of iterations with the application of computer programs (Appendix 1 to this Regulation provides examples of calculating the effective interest rate for issued loans; Appendix 2 provides an example of calculating the effective interest rate for attracted deposits). It is recommended to use the financial function XIRR (Russian: ЧИСТВНДОХ) of Microsoft EXCEL (function XIRR if the Microsoft EXCEL version is in English).

3.7. For the calculation formula, sums paid by the client and the bank at different times do not necessarily have to be equal and do not have to be paid at equal time intervals.

3.8. If the number obtained when calculating the annual effective interest rate has more than one decimal place, it shall be rounded to tenths as follows:

1. if the hundredth part is greater than or equal to 5, the tenth part is increased by 1, all following digits are excluded;

2. if the hundredth part is less than 5, the tenth part remains unchanged, all following digits are excluded.

4. Disclosure of Information Procedure

4.1. Banks must indicate the size of the annual effective interest rate:

1. in contracts concluded with clients;

2. upon oral and written requests from clients;

3. when disseminating information on the size of remuneration for services regardless of the type of carrier (advertising brochures, roadside billboards, stands, leaflets, etc.), including through mass media, websites, electronic mail, by phone, during oral consultation of clients.

4.1-1. Along with information on the size of the effective interest rate, banks must provide the client with information on the total cost of the loan (financing) in absolute value, showing separately the principal amount of the loan (financing), interest (markup), commission fees, and all other payments, including payments to third parties according to current tariffs, if the client's obligation for such payments arises from the terms of the loan agreement/financing agreement.

4.1-2. When disseminating information on the size of remuneration for services, regardless of the type of carrier (advertising brochures, roadside billboards, stands, leaflets, etc.), including through mass media, banks must indicate that upon appeal to the bank, the total cost of the loan/financing will be calculated taking into account the client's expenses related to obtaining the loan/financing.

4.2. The service provision contract must contain a list of services for which the bank charges commissions (paragraph 3.3 of this Regulation), which affect the size of the effective interest rate, with an indication of the amounts of these commissions or a reference to the procedure for their determination, as well as the procedure and terms for changing interest rates.

If the contract provides for a change in the interest rate, the method of bringing this information to the client is determined by the agreement of the parties.

4.3. For existing contracts concluded with clients before the introduction of this Regulation, when a client appeals to the bank to make changes to the contract by the bank, when making changes, the contract must indicate the annual effective interest rate.

In service provision contracts concluded with clients, the effective interest rate and the total cost of the loan/financing are printed using computer equipment in digital form, as well as in the same size and style of font formatting (italic, bold, color highlighting, size) in one paragraph with other remuneration rates.

The Bank may indicate the size of the total cost of the loan/financing in an appendix to the loan agreement/financing agreement, if the loan agreement/financing agreement itself contains a corresponding reference to this appendix.

4.4. When providing loans under credit lines and in the absence in the corresponding loan contract of values necessary for calculating the annual effective interest rate, the bank indicates it in each contract concluded within the framework of this agreement, based on the conditions available in the contract, as well as taking into account the following positions:

1. if there is no specific loan repayment schedule and it cannot be determined from the terms of the loan contract, the loan is considered issued for a term of one year from the date of concluding the loan contract;

2. if the loan contract stipulates several possible loan repayment dates in the absence of other indications, it is assumed that the loan is provided and repaid on the earliest of the specified terms;

3. if the amount of the provided loan is not specified, it is assumed that for the term of the loan contract, the maximum amount of the loan specified in the agreement is secured;

4. if the date of client payments is not defined, it is assumed that they are carried out at the moment the loan contract comes into effect.

Appendix 1

Example 1.

Loan Amount: $20,000 Loan Issue Date: 08.07.2008 Annual Rate: 22% Loan Term: 3 years Collateral in the form of a deposit: 30% ($6,000) Cash Withdrawal: 0.2% of the amount ($40) Monthly Payment (Annuity) Principal plus Interest: 763.81

Payment Date (Month/Day/Year)	Monthly Payment (Annuity) Principal plus Interest	Additional Expenses/Payments	Total Payment Amount
7/8/2008	-20000	6040	-13960
8/8/2008	763.81		763.81
9/8/2008	763.81		763.81
10/8/2008	763.81		763.81
11/8/2008	763.81		763.81
12/8/2008	763.81		763.81
1/8/2009	763.81		763.81
2/8/2009	763.81		763.81
3/8/2009	763.81		763.81
4/8/2009	763.81		763.81
5/8/2009	763.81		763.81
6/8/2009	763.81		763.81
7/8/2009	763.81		763.81
8/8/2009	763.81		763.81
9/8/2009	763.81		763.81
10/8/2009	763.81		763.81
11/8/2009	763.81		763.81
12/8/2009	763.81		763.81
1/8/2010	763.81		763.81
2/8/2010	763.81		763.81
3/8/2010	763.81		763.81
4/8/2010	763.81		763.81
5/8/2010	763.81		763.81
6/8/2010	763.81		763.81
7/8/2010	763.81		763.81
8/8/2010	763.81		763.81
9/8/2010	763.81		763.81
10/8/2010	763.81		763.81
11/8/2010	763.81		763.81
12/8/2010	763.81		763.81
1/8/2011	763.81		763.81
2/8/2011	763.81		763.81
3/8/2011	763.81		763.81
4/8/2011	763.81		763.81
5/8/2011	763.81		763.81
6/8/2011	763.81		763.81
7/8/2011	763.81		763.81

Effective Interest Rate (APR): 64.6%

Example 2.

Loan Amount: $20,000 Loan Issue Date: 08.07.2008 Annual Rate: 22% Loan Term: 3 years Cash Withdrawal: 0.5% of the amount $100 Monthly Payment (Annuity) Principal plus Interest: 763.81

Payment Date (Month/Day/Year)	Monthly Payment (Annuity) Principal plus Interest	Additional Expenses/Payments	Total Payment Amount
7/8/2008	-20000	100	-19900
8/8/2008	763.81		763.81
9/8/2008	763.81		763.81
10/8/2008	763.81		763.81
11/8/2008	763.81		763.81
12/8/2008	763.81		763.81
1/8/2009	763.81		763.81
2/8/2009	763.81		763.81
3/8/2009	763.81		763.81
4/8/2009	763.81		763.81
5/8/2009	763.81		763.81
6/8/2009	763.81		763.81
7/8/2009	763.81		763.81
8/8/2009	763.81		763.81
9/8/2009	763.81		763.81
10/8/2009	763.81		763.81
11/8/2009	763.81		763.81
12/8/2009	763.81		763.81
1/8/2010	763.81		763.81
2/8/2010	763.81		763.81
3/8/2010	763.81		763.81
4/8/2010	763.81		763.81
5/8/2010	763.81		763.81
6/8/2010	763.81		763.81
7/8/2010	763.81		763.81
8/8/2010	763.81		763.81
9/8/2010	763.81		763.81
10/8/2010	763.81		763.81
11/8/2010	763.81		763.81
12/8/2010	763.81		763.81
1/8/2011	763.81		763.81
2/8/2011	763.81		763.81
3/8/2011	763.81		763.81
4/8/2011	763.81		763.81
5/8/2011	763.81		763.81
6/8/2011	763.81		763.81
7/8/2011	763.81		763.81

Effective Interest Rate (APR): 24.8%

Example 3.

Loan Amount: $20,000 Loan Issue Date: 08.07.2008 Annual Rate: 22% Loan Term: 3 years Expenses for using the loan and other commission payments: 0.03% monthly ($6) Monthly Payment (Annuity) Principal plus Interest: 763.81

Payment Date (Month/Day/Year)	Monthly Payment (Annuity) Principal plus Interest	Additional Expenses/Payments	Total Payment Amount
7/8/2008	-20000		-20000
8/8/2008	763.81	6	769.81
9/8/2008	763.81	6	769.81
10/8/2008	763.81	6	769.81
11/8/2008	763.81	6	769.81
12/8/2008	763.81	6	769.81
1/8/2009	763.81	6	769.81
2/8/2009	763.81	6	769.81
3/8/2009	763.81	6	769.81
4/8/2009	763.81	6	769.81
5/8/2009	763.81	6	769.81
6/8/2009	763.81	6	769.81
7/8/2009	763.81	6	769.81
8/8/2009	763.81	6	769.81
9/8/2009	763.81	6	769.81
10/8/2009	763.81	6	769.81
11/8/2009	763.81	6	769.81
12/8/2009	763.81	6	769.81
1/8/2010	763.81	6	769.81
2/8/2010	763.81	6	769.81
3/8/2010	763.81	6	769.81
4/8/2010	763.81	6	769.81
5/8/2010	763.81	6	769.81
6/8/2010	763.81	6	769.81
7/8/2010	763.81	6	769.81
8/8/2010	763.81	6	769.81
9/8/2010	763.81	6	769.81
10/8/2010	763.81	6	769.81
11/8/2010	763.81	6	769.81
12/8/2010	763.81	6	769.81
1/8/2011	763.81	6	769.81
2/8/2011	763.81	6	769.81
3/8/2011	763.81	6	769.81
4/8/2011	763.81	6	769.81
5/8/2011	763.81	6	769.81
6/8/2011	763.81	6	769.81
7/8/2011	763.81	6	769.81

Effective Interest Rate (APR): 25.0%

Appendix 2

Example 4.

Deposit Amount: 100,000 Date of depositing the amount into the deposit: 10/7/2008 Deposit Term: 12 months Interest: 9% (interest is paid monthly) Client expenses for document processing when opening a deposit: 450 som

Payment Date	Principal and Interest	Additional Payments	Total Payment Amount
7/10/2008	100450	450	100450
8/10/2008	-750		-750
9/10/2008	-750		-750
10/10/2008	-750		-750
11/10/2008	-750		-750
12/10/2008	-750		-750
1/10/2009	-750		-750
2/10/2009	-750		-750
3/10/2009	-750		-750
4/10/2009	-750		-750
5/10/2009	-750		-750
6/10/2009	-750		-750
7/10/2009	-100750		-100750

Effective Interest Rate (APR): 8.9%

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