Regulation on Minimum Requirements for Credit Risk Management in Project Financing by Commercial Banks

Return to previous page

Print version

Creation date: 2025-11-27

Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 26, 2023 No. 2023-P-12/27-8-(NPA)

REGULATION

on minimum requirements for credit risk management in the provision of project financing by commercial banks

(As amended by Resolutions of the Board of the National Bank of the Kyrgyz Republic of July 5, 2024 No. 2024-P-12/28-2, November 12, 2025 No. 2025-P-12/60-4-(NPA))

1. General Provisions

2. This Regulation applies to all commercial banks, including banks conducting operations in accordance with Islamic principles of banking and financing, taking into account the specifics of their activities and terminology used in conducting banking operations (hereinafter - banks).

(As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic of July 5, 2024 No. 2024-P-12/28-2)

2. The purpose of this Regulation is to define minimum requirements for credit risk management in the provision of project financing within the territory of the Kyrgyz Republic, including in accordance with Islamic financing principles.

3. Project financing is a form of project financing in which the main source of repayment of debt obligations is the flow of cash receipts and income generated from the implementation of the financed project.

Project financing does not relate to unsecured loans.

4. Depending on the scale and term, financed projects are classified as short-term and long-term.

Short-term project financing is provided for the implementation of specific stages of the project with a term of 1 to 3 years.

Long-term project financing is provided for the implementation of all stages of projects with a term of more than 3 years.

5. Project financing is based on such principles as profitability, timeliness, solvency, safety, and targeted nature of financing.

6. In the course of project financing, the bank has the right to provide financing by investing in the project's equity or by providing a loan for the purpose of creating or increasing capital.

When investing in the project's equity, the bank must actively participate in the management of the current activities of the project with the right to vote and/or make decisions at the level of management bodies in order to successfully implement the project and increase the efficiency of the bank's participation in the capital.

The bank has the right to participate jointly with other banks, development funds, legal entities, and individuals in the capital of the financed project. In this case, the bank must provide for its rights and obligations for project management in the agreement/contract.

The creation and/or acquisition of subsidiary and dependent companies within the framework of project financing is carried out in accordance with banking legislation.

Recipients of project financing may be legal entities and individual entrepreneurs.

7. Project financing may be secured by shares and/or equity participation in the financed object.

In this case, in the event of providing a loan for the purpose of creating or increasing capital, project financing may be secured by other property in accordance with the legislation of the Kyrgyz Republic.

8. The size of investments in each project, including any financial investments and issued loans, must be less than 10 percent of the bank's own (regulatory) capital. The total size of such investments cannot exceed 50 percent of the bank's own (regulatory) capital. For banks conducting activities in accordance with Islamic principles of banking and financing - less than 30 percent of the bank's own (regulatory) capital. The total size of such investments cannot exceed 60 percent of the bank's own (regulatory) capital.

In this case, loans secured by a guarantee/surety issued by decision of the Cabinet of Ministers of the Kyrgyz Republic are excluded from the calculation of the above restriction. The total amount of such guarantees/sureties must not exceed 60% of the size of the bank's net aggregate capital.

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

2. Investment Policy and Bank Strategy

3. Project financing is carried out in accordance with the investment policy and strategy of the bank, approved by the Board of Directors of the bank and approved by the Shariah Board of the bank conducting operations in accordance with Islamic financing principles.

4. The bank independently determines the types of projects, forms an investment portfolio in the course of its investment activities, and sets interest rates within the requirements established by the legislation of the Kyrgyz Republic.

In a bank conducting operations in accordance with Islamic financing principles, there must be a list of types of activities into which it is not permissible to invest funds according to Shariah standards, as well as a list of investments that have led the bank to losses in the past.

11. The investment policy, including the bank's activities in project financing, must at least include the following:

• short-term/medium-term/long-term plans of the bank;
• target markets and their general characteristics that the bank plans to reach (including the level of diversification, planned indicators in the assessment of the quality of project financing, etc.);
• main sources of financing (the bank must indicate the sources of financing, by means of which project financing is planned to be carried out, etc.);
• requirement to conduct an analysis of indirect currency risk;
• ratio of the share of investments to the bank's assets;
• for the purposes of analysis, the requirement for legal, financial, and market analysis of the bank's investment opportunities taking into account forecast values, the financial condition, and the bank's risk appetite;
• expected profit;
• possible costs associated with the return of assets subject to credit risk;
• requirement to conduct an analysis of the investment portfolio. The bank must have documents regulating the procedure for conducting such an analysis, which will allow assessing the associated risks of project financing;
• information on compliance with the bank's economic standards and indicators;
• the organizational structure of the bank, technical capabilities and potential (qualifications, staff size) of the bank's personnel and management responsible for carrying out activities in project financing.

12. The business plan/strategy of the bank may include the bank's investment activities as a separate/additional section.

13. All main provisions regarding participation in project financing must be reflected in the investment policy. General provisions, including:

• composition of potential project participants;
• types of project financing depending on the purposes of financing and other conditions;
• financing limits;
• financing terms;
• criteria for assessing the solvency of the project participant;
• interest rates and methods of their establishment;
• requirements for financial information of the project participant;
• geographical restrictions;
• currency of financing;
• criteria for assessing the value and acceptability of collateral, including risk assessment, in the event that the subject of the pledge is a share in the project's capital;
• control over compliance with the procedure for participation in project financing;
• requirements for the bank's use of guarantees as collateral for project financing;
• ratio of the share of participation in project financing to assets;
• specific weight of each financed project in the credit portfolio;
• conditions for extension and mechanisms for exiting project financing;
• and others.

14. The Board of Directors of the bank, taking into account paragraph 8 of this Regulation, must approve an acceptable level of the bank's participation in the implementation of project financing, establish a system of limits for each investment project, instruments and procedures for credit risk management, and a system of internal audit of the investment portfolio.

15. The Board of the Bank is responsible for the implementation of the bank's investment policy and strategy, for which it is obliged to develop and implement into the bank's activities policies and procedures for identifying, measuring, monitoring, and controlling risks in accordance with the requirements of regulatory acts of the National Bank.

The Financing Committee of the corresponding level of the bank, conducting operations in accordance with Islamic financing principles, for the purpose of reducing risks associated with project financing, in each separate case, may appeal to the Shariah Board of the bank to obtain recommendations and conclusions.

3. Organization of Bank Work on Project Financing

4. The organization of project financing begins from the moment the bank receives an application for project financing on the terms provided for by this Regulation.

5. The bank must establish a procedure for considering applications for project financing with a detailed description of the business process at each stage of consideration, which is an integral part of the organization of project financing, and minimum requirements imposed on the project must also be established.

6. For the purpose of analyzing the project's cash flows and determining the feasibility of financing the project, the bank must request from the applicant at least the following documents in paper form or in the form of an electronic document:

1. completed application for financing: type of activity, size of working capital, structure of income (revenue) by currency (in case of financing in foreign currency), project implementation plan and main business partners if any, etc.;

2. copies of constituent documents, notarized or stamped by the legal entity and signed by the head in the event that, in accordance with legislation, notarization of copies is impossible (if the applicant is a legal entity);

3. business plan with mandatory indication of at least the following information:

• purpose and objectives of the project;

• description of technical and economic ways to implement the project;

• total planned cost of project implementation;

• planned volume of financing with allocation of the size of own funds (own capital), size of required financing, project partner funds, and budget funds if any;

• forecast of cash receipts (cash flow), which must cover the entire term of project financing and the planned size of profit during the implementation of the project;

• project implementation schedule by year (intermediate periods may be provided by a special contract) with indication of key project events and persons responsible for the implementation of corresponding activities;

• analysis of project implementation risks, including macroeconomic, demographic, political, geographical factors that can negatively affect the implementation of the project, sensitivity analysis of the project, additional prospects, opportunities for expansion and/or scaling of the project in the future;

4. financial reporting of the applicant for the last reporting year (if available). If the applicant is a legal entity that is required to undergo annual audit in accordance with the legislation of the Kyrgyz Republic, the financial reporting must be confirmed by an external auditor. In this case, if a legal entity is required to provide interim financial reporting in accordance with the legislation of the Kyrgyz Republic, then the bank must request this reporting from the legal entity;

5. guarantees (sureties) with indication of the guarantor (surety), amount of guarantee (surety), etc. (if participants require the provision of a guarantee (surety), as well as the financial reporting of the guarantor (if the guarantor is a legal entity) if necessary);

6. certified copy of the certificate of state registration of a legal entity/individual entrepreneur;

7. information about the participant of project financing stored in the electronic database of legal entities, branches (representative offices);

8. list of pledged property, the types of which must also be indicated in the pledge agreement upon its further compilation, as well as documents confirming ownership rights (if the collateral is movable/immovable property), rights of use, and other documents in accordance with the bank's internal documents;

9. other documents necessary for the bank, including for project assessment (contracts, agreements, recommendation letters, extracts from state registers, information from credit bureaus, etc.), which may be provided in the form of an electronic document or on paper.

19. When analyzing the project, the assessment of costs and income is carried out taking into account the distribution of risks between project participants.

20. For the purpose of making a decision on issuing or refusing financing of the project, the bank prepares a conclusion in which the feasibility of providing or reasons for refusing the applicant financing of the project is indicated.

21. The bank has the right to finance projects in the form of credit lines taking into account the fulfillment of conditions and/or implementation of specific stages of the project, which are defined by the contract.

22. The bank has the right to finance projects with insufficient collateral under the following conditions:

• in the presence of the applicant's work experience in the field of the financed project, as well as taking into account the applicant's business reputation in this industry for the implementation of similar projects;
• in the presence of the applicant's initial contribution - not less than 10 percent of the cost of the financed project.

In this case, the bank must assess the prospects of the financed project and possible risks in the implementation of the project. The bank must also establish internal limits for financing projects with insufficient capital in accordance with paragraph 14 of this Regulation.

23. Documentation on project financing includes a contract establishing the main conditions (cost of financing, term of financing, methods of using money, repayment, guarantees, measures in case of non-fulfillment of obligations by the parties, and so on).

24. Monitoring of Project Financing

25. The bank must ensure a comprehensive system of continuous identification, assessment, monitoring, and control of associated risks for the implementation of project financing in accordance with the requirements of regulatory legal acts of the National Bank.

26. The bank must monitor the targeted use of financing funds.

27. The bank conducts monitoring of projects at least once a month, including the financial condition of the financed entity, cash flows within the implementation of the project, project profitability, and other parameters.

28. In the process of monitoring project implementation, the bank must compare financial indicators with planned indicators of the project and, in case of deviation, find out the reason.

29. The bank must conduct risk analysis and sensitivity based on collected information and take measures to optimize/adjust the project's activities.

30. The bank must periodically provide information about projects within the framework of project financing to the Bank's Asset and Liability Management Committee for the purpose of controlling the overall structure of the bank's balance sheet, monitoring the structure of assets and liabilities, as well as for ensuring compliance with the policy on asset and liability management.

31. Independent assessment of the investment portfolio must be conducted by an independent department/department of risk management or a risk manager of the bank, independent of the financing issuance process. The results of the independent assessment and recommendations for risk reduction and formation of a sufficient level of reserves must be provided to the Board of the Bank at least once a month and to the Board of Directors of the Bank at least once a quarter.

32. The Board of Directors periodically, but at least once a quarter, considers projects financed by the bank, financial and economic indicators of project financing participants, and if necessary, makes necessary recommendations and decisions on risk reduction.

33. Classification of Assets Provided within the Framework of Project Financing

34. For timely coverage of potential losses and damages, as well as for the purpose of determining the real financial condition and efficiency of project implementation, banks are obliged to constantly assess the quality of their assets provided within the framework of project financing and create reserves to cover potential losses and damages.

35. In connection with possible different interpretations of definitions, classification categories introduce quantitative and qualitative characteristics. The combination of two or more characteristics determines the classification category, unless otherwise provided by this Regulation.

36. Assessment of asset quality and their classification, according to this Regulation, applies to bank assets provided within the framework of project financing.

37. Banks may classify assets provided within the framework of project financing as "normal assets" in the case:

1. if the asset is secured by at least 50 percent of the size of the issued asset by a surety issued by decision of the Cabinet of Ministers of the Kyrgyz Republic;

2. if the asset is secured by a guarantee of the guarantee fund. In this case, the bank must simultaneously comply with all the following conditions:

• more than 50 percent of the assets of the guarantee fund are risk-free assets on the day of issuance of the guarantee;

• the volume of assets secured by the guarantee of the guarantee fund must not exceed the amount of highly liquid assets of the guarantee fund by more than two times.

For the purposes of this paragraph, "risk-free assets" must mean securities of the Cabinet of Ministers of the Kyrgyz Republic and the National Bank, as well as term deposits placed in banks that meet the following conditions:

• presence of a significant share of state participation and/or share of participation of state authorities of the Kyrgyz Republic with a special status;

• absence of restrictions in the list of permitted banking operations in national and/or foreign currencies;

• compliance with economic standards and requirements;

• absence of introduced special regimes;

3. if the asset is secured by a pledge that covers in full the principal amount of financing and the interest rate amount;

4. if the asset is issued from funds of development funds created within the framework of interstate (intergovernmental) agreements (hereinafter - Development Fund);

5. if the asset is guaranteed by a guarantee issued by the Development Fund, which is secured by monetary funds of the Development Fund placed in a commercial bank, while simultaneously complying with the following conditions:

• the volume of assets guaranteed by the Development Fund must not exceed the balance of monetary funds of the Development Fund placed in a commercial bank by more than two times;

• the guarantee contract between the Development Fund and the bank must provide for the bank's right to debit monetary funds for overdue payments to the bank arising from obligations guaranteed by the guarantees of the Development Fund, from the current accounts of the Development Fund opened and serviced in the bank, within five working days;

• the minimum balance of monetary funds of the Development Fund in current accounts in the bank must be maintained at a level of not less than 50 percent of the book value of the bank's loans issued under the guarantee of the Development Fund until the full implementation of the total volume of financing;

• in the event of debit of monetary funds of the Development Fund for obligations arising to the bank, guaranteed by the guarantees of the Development Fund, the Development Fund must replenish the current account in the bank within three working days by at least the amount of debited funds.

36. In the event of the following signs appearing, banks must classify assets as "assets under observation" with the creation of a reserve in the amount of 15 percent:

• complete absence of asset collateral or asset secured by less than 50 percent of the size of the issued loan;

• overdue repayment of the principal amount and/or interest, for a term of not more than 30 (thirty) days;

• inability to conduct monitoring and control over the targeted use of funds, including analysis of the execution of planned indicators of the project, due to lack of information, or due to lack of assessment experts;

• decrease in liquidity of collateral (decrease in prices, fall in exchange rate) or appearance of a tendency to worsen the financial condition of the guarantor/surety (if the asset is secured by a guarantee/surety);

• manifestation of tendencies to worsen the client's financial condition, deviation of financial indicators from the planned indicators of the project;

• change in market conditions that can affect the return of the asset.

37. In the event of the following signs appearing, banks must classify the asset as "substandard" with the creation of a reserve in the amount of 25 percent:

• overdue debt on planned payments from 30 to 90 days;

• insufficient cash flows to pay off the debt;

• presence of overdue debt of the borrower for more than 30 days on the principal amount and/or interest on any other loan in this bank and/or another financial-credit organization;

• upon repeated restructuring of an asset that had signs of an "asset under observation".

38. An asset fully secured by a surety/guarantee must be classified as "substandard" (with the creation of a reserve in the amount of 25 percent) upon the occurrence of the 60th day of payment overdue.

39. In the event of the following signs appearing, banks must classify the asset as "doubtful" with the creation of a reserve in the amount of 50 percent:

• overdue debt on the principal amount and/or interest is from 90 to 180 days;

• the client's financial condition has seriously deteriorated (or the client is on the verge of bankruptcy), deviation of the implementation of the financed project from the planned schedule;

• deterioration of the financial condition of the surety/guarantor and/or the client's counterparty who received a loan within the framework of the financed project;

• dependence of debt repayment mainly on the realization of the pledge or from the funds of the surety/guarantor;

• repeated restructuring of an asset that had signs of a "substandard asset".

40. An asset fully secured by a surety/guarantee must be classified as "doubtful" (with the creation of a reserve in the amount of 50 percent) upon the occurrence of the 90th day of payment overdue.

41. An asset must be classified as "losses" with overdue debt of more than 180 days, in which case the qualitative characteristics of such asset in its classification are not applied.

42. Classification of Equity Investments in Project Financing

43. Investments in the equity of a company are classified as at least "substandard" with the creation of a reserve in the amount of 25 percent.

44. Banks may classify investments in project financing as a "normal" asset in the event of fulfillment of the following requirements:

• the company conducts activities for at least 4 (four) years;

• has a stable financial condition (break-even), confirmed by financial reporting for the last 3 (three) years, certified by an independent audit organization (if the applicant is required to undergo annual audit in accordance with the legislation of the Kyrgyz Republic) and interim financial reporting (if the applicant is required to provide in accordance with the legislation of the Kyrgyz Republic) and positive financial long-term development prospects;

• has sufficient experience in the implementation of projects and information about their full positive implementation, confirmed by the results of a thorough analysis of project profitability/income;

• comprehensive monitoring and control over the targeted use of funds, including control over the conduct of purchases and supplies on a monthly basis;

• analysis of the implementation of the investment project, including profitability, self-payback, and other parameters;

• participation in the management of the investment project;

• analysis of financial indicators with indicators provided for by the investment project.

44. In the event of a company being declared insolvent, in the equity of which banks have invested assets, such investments must be classified as "losses".

45. RPPU by