Procedure for Applying Special Classification to Loans Meeting Certain Criteria

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Date of creation: 2025-03-25

Approved

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

of March 2, 2006 No. 5/6

PROCEDURE

for applying special classification to loans meeting certain criteria

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of April 25, 2012 No. 18/8, May 18, 2012 No. 19/7, October 31, 2012 No. 41/10, November 27, 2013 No. 45/16, October 17, 2014 No. 45/2, April 15, 2015 No. 22/7, August 15, 2018 No. 2018-P-33/33-8, June 17, 2020 No. 2020-P-33/35-1, December 21, 2022 No. 2022-P-12/81-8, April 5, 2023 No. 2023-P-12/22-3, December 20, 2023 No. 2023-P-12/80-4, March 19, 2025 No. 2025-P-12/11-7-(NFBU))

1. General Provisions

1.1. The Procedure for applying special classification to loans meeting certain criteria (hereinafter referred to as the Procedure) is developed on the basis of the legislation of the Kyrgyz Republic with the aim of optimizing approaches to assessing credit risks and costs arising from lending activities by commercial banks and other financial and credit organizations licensed and regulated by the National Bank of the Kyrgyz Republic, including those operating in accordance with Islamic principles of banking and financing, taking into account the special terminology used by them in carrying out banking operations (hereinafter referred to as banks/FKOs).

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of October 17, 2014 No. 45/2)

1.2. The Procedure defines the minimum conditions and requirements under which banks/FKOs apply special classification to loans and make corresponding allocations to reserves for covering potential losses and losses (hereinafter referred to as RPPU).

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of November 27, 2013 No. 45/16)

2. Criteria Determining Loans Subject to Special Classification

(Name of the chapter

in the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 21, 2022 No. 2022-P-12/81-8)

2.1. Special classification is applied to loans that simultaneously meet the following criteria:

• the loan amount (in national or foreign currency at the official exchange rate of the National Bank on the date of issuance) must not exceed 500,000 som;

• the term for which the loan is issued must not exceed 24 months;

• the intended purpose of the loan is for consumer needs and/or the development of an existing small business owned by the borrower and providing regular income;

• repayment of the loan debt is made through regular (at least once a month) payments of the principal amount and interest;

• the bank/FKO has no evidence of the borrower's failure to fulfill obligations to this bank/FKO or to another creditor;

• the borrower, as a rule, provides collateral for the loan in the amount of 100% of the principal amount and interest.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 5, 2023 No. 2023-P-12/22-3)

2.2. (Excluded in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic of October 31, 2012 No. 41/10)

2.3. Special classification is also applied to loans meeting the following criteria:

• a loan issued based on a credit rating;
• a loan issued through a remote/distant service channel;
• a loan whose interest rate at the time of issuance exceeds the maximum permissible interest rate established by the Law of the Kyrgyz Republic "On Restricting Usurious Activities in the Kyrgyz Republic". However, if the interest rate on an existing loan is reduced (without worsening the borrower's financial position) to a level not exceeding the maximum permissible interest rate established by the Law of the Kyrgyz Republic "On Restricting Usurious Activities in the Kyrgyz Republic" on the day of the reduction, special classification may not be applied from the day of the interest rate reduction.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of April 5, 2023 No. 2023-P-12/22-3, December 20, 2023 No. 2023-P-12/80-4, March 19, 2025 No. 2025-P-12/11-7-(NFBU))

2-1. Classification of Loans Issued to a Group of Joint Liability under the Guarantee of Members of the Group of Joint Liability

(Section in the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of October 31, 2012 No. 41/10)

2-1.1. Special classification must be applied to loans issued to a group of joint liability under the guarantee of members of the group of joint liability.

2-1.2. In cases where a borrower - a natural person, including an individual entrepreneur without legal entity status, has, in addition to the loan obtained in this bank/FKO as part of a group of joint liability, any other individual loan or loan issued as part of this or any other group of joint liability in any other bank/FKO, then all loans of the borrower - a natural person, including an individual entrepreneur without legal entity status, obtained in this bank/FKO and subject to special classification in accordance with this Procedure, must be classified as at least "assets under supervision".

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of June 17, 2020 No. 2020-P-33/35-1, March 19, 2025 No. 2025-P-12/11-7-(NFBU))

2-1.3. Loans issued to a group of joint liability must be recognized as doubtful if there are serious internal problems within the group of joint liability that may lead to the dissolution of the group and non-fulfillment of obligations to repay the loan. In the event that the group of joint liability is on the verge of dissolution or for any other reason its members are unable to bear joint liability for obligations to the bank/FKO, then the loan of this group of joint liability must be recognized as a loss.

2-1.4. To all loans of a borrower - a natural person, including an individual entrepreneur without legal entity status, obtained in this bank/FKO and subject to special classification in accordance with this Procedure, the classification assigned to his loan with the largest debt is applied, if it is the worst.

FKOs have the right not to apply the worst classification category to all loans if the worst category is assigned to a loan of a borrower whose financial condition has deteriorated or is deteriorating due to declared states of emergency and/or emergencies due to epidemics/pandemics and other force majeure circumstances (circumstances of irresistible force) and restrictions associated with them.

In this case, the FKO may apply the classification category for each loan separately in accordance with the characteristic features of the category.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 17, 2020 No. 2020-P-33/35-1)

2-1.5. In the event of overdue debt on the principal amount and/or interest on loans obtained in this bank/FKO by participants of the GSO (Group of Joint Liability) who have joint business, classification must be applied to them depending on the number of days of overdue debt in accordance with this Procedure. In the event of overdue debt on the principal amount and/or interest on a loan of one of the GSO participants for more than 60 days, the classification category assigned to the loan of this GSO participant in accordance with this Procedure must be applied to all loans issued to the participants of this GSO.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 17, 2020 No. 2020-P-33/35-1)

3. Special Classification of Loans

3.1. When applying special classification, banks/FKOs must assess the quality of the loan based on the number of days of overdue scheduled payments of the principal amount and/or interest, as well as taking into account circumstances that may lead to a deterioration in the financial position and ability of the borrower to repay loan obligations.

3.2. For loans, including loans issued based on a credit rating, as well as loans issued through a remote service channel, to which special classification is applied, the following sizes of allocations to RPPU are established depending on the number of days of overdue scheduled payments of the principal amount and/or interest:

Special Classification of Loans and Corresponding Allocations to RPPU

Classification Category | Number of Days of Overdue Scheduled Payments | RPPU Satisfactory | 0-3 | 2% Under Supervision | 4-29 | 5% Substandard | 30-59 | 25% Doubtful | 60-89 | 50% Losses | 90 and more | 100%

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of June 17, 2020 No. 2020-P-33/35-1, April 5, 2023 No. 2023-P-12/22-3, March 19, 2025 No. 2025-P-12/11-7-(NFBU))

4. Requirements for Banks and Other Financial and Credit Organizations When Applying Special Classification

4.1. The Board of Directors of banks/FKOs makes a fundamental decision on the application of special classification of loans in accordance with the requirements of this document.

4.2. Loans to which special classification is applied are classified in accordance with established requirements until their full repayment.

4.3. Banks/FKOs applying special classification must have corresponding procedures approved by the Board of Directors of the bank/FKO, which define the internal control system ensuring:

• quality and reliability of preliminary (before loan issuance) assessment of the borrower's creditworthiness, based on an assessment of their financial condition, including analysis of the state of the business owned by the borrower (state of funds and business conditions; business cash flow; ability of the borrower to correctly spend borrowed funds and receive expected (planned) income; sufficiency of the borrower's income from business and other sources to service the loan debt; existence of debt to other creditors);
• timeliness and effectiveness of further (after issuance) monitoring of the borrower's financial condition and their business;
• timeliness and adequacy of classification of loans to which special classification is applied, and making corresponding allocations to RPPU;
• preparation of regular (at least monthly) reporting on the classification of loans to which special classification is applied;
• compliance with the requirements established by this Procedure for banks/FKOs when applying special classification.

Note of the IC "Toktom": The number of paragraphs in point 4.3 of this Procedure does not correspond to the number of paragraphs in point 4.3 of the text in the state language.

4.4. Classification of loans to which special classification is applied and corresponding allocations to RPPU must be carried out by banks/FKOs on a monthly basis.

4.5. In cases where multiple loans meeting the criteria established in point 2.1 of this Procedure are issued to one person in this bank/FKO, special classification must be applied if the total amount of all loans does not exceed the quantitative limit specified in point 2.1. At the same time, such loans must be classified according to the worst of the classification categories applied to them.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of May 18, 2012 No. 19/7, March 19, 2025 No. 2025-P-12/11-7-(NFBU))

4.5-1. (Excluded in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic of October 31, 2012 No. 41/10)

4.5-2. In the event that a borrower (natural or legal person) has multiple loans in one bank or within a banking group, the bank has the right not to apply the worst classification category to all loans if the worst category is assigned to a loan of the borrower due to a deterioration in the borrower's financial flows for the loan due to declared states of emergency and/or other force majeure circumstances (circumstances of irresistible force) and restrictions associated with them, upon documentary confirmation of their influence.

In this case, the bank may apply the classification category for each loan separately in accordance with the characteristic features of the category.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 20, 2023 No. 2023-P-12/80-4)

4.6. In cases where loans meeting the established criteria are issued to persons related to each other, special classification is applied to those of them whose total amount does not exceed the quantitative limit specified in point 2.1.

4.7. Loans to which special classification is applied and which have undergone restructuring twice, including extension of the loan term and/or change in the regularity of scheduled payments, are classified as "under supervision", and an RPPU is created for them in the amount of 5% of the principal amount of the loan. With subsequent restructuring of loans, the classification category must be downgraded by at least one category.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of June 17, 2020 No. 2020-P-33/35-1, March 19, 2025 No. 2025-P-12/11-7-(NFBU))

4.8. (Lost force in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 17, 2020 No. 2020-P-33/35-1)

4.9. The bank/FKO has the right not to downgrade the asset classification category upon its restructuring due to a deterioration in the borrower's financial flows due to declared states of emergency and/or other force majeure circumstances (circumstances of irresistible force) and restrictions associated with them, upon documentary confirmation of the influence of the situation on the borrower's activities.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 20, 2023 No. 2023-P-12/80-4)

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