Regulation on the Criteria for Systemicity of Commercial Banks and Non-Bank Financial Credit Organizations

Back Print Version Date of Creation: 2025-01-27

Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 8, 2017 No. 2017-P-12/23-9-(NPA)

REGULATION on the Criteria for Systemicity of Commercial Banks and Non-Bank Financial Credit Organizations (As amended by Resolutions of the Board of the National Bank of the Kyrgyz Republic dated December 23, 2020 No. 2020-P-12/73-10, April 12, 2024 No. 2024-P-12/17-2, January 22, 2025 No. 2025-P-12/2-3-(NF KU))

Chapter 1. General Provisions

1. The Regulation "On the Criteria for Systemicity of Commercial Banks and Non-Bank Financial Credit Organizations" (hereinafter - the Regulation) aims to ensure adequate banking supervision, prevent changes in the banking system, protect the interests of depositors and creditors, and defines approaches and criteria for the systemic significance of commercial banks (hereinafter - bank) and non-bank financial credit organizations (hereinafter - NBFCO).
2. For the purposes of this Regulation, the following terms are used: Systemic/Systemically Significant Bank - a bank meeting the systemic criteria for the banking and payment systems, whose insolvency may lead to serious consequences for the financial system and economy of the Kyrgyz Republic, negative impact on other participants in the banking and payment systems, outflow of deposits, weakening or crisis of the banking system, deterioration of macroeconomic conditions. Systemic/Systemically Significant NBFCO - an NBFCO meeting the systemic significance criteria for the banking system and the non-bank financial credit organizations system (systemic NBFCO), whose insolvency (bankruptcy) and/or deterioration of financial indicators may lead to a failure or crisis in the banking system and the NBFCO system. Potential adverse consequences include not only direct financial loss for bank depositors, but also potential indirect loss for the banking system, as well as the financial system and economy of the Kyrgyz Republic. Systemic risk - the risk of disruption in the provision of financial services, caused by damage to all or part of the banking system and posing a threat of negative consequences for the real sector of the economy, due in part to interbank interconnectedness (contagion risk); SPK - Package Clearing System; GSRVW - Gross Settlement System in Real Time.
3. Systemic significance rating of banks/NBFCOs - a descriptive assessment of potential adverse consequences resulting from the insolvency/bankruptcy of a bank/NBFCO, which is not subject to public disclosure.
4. The insolvency of a systemically significant bank may have the following negative consequences:

1. problems faced by systemically significant banks may negatively affect other participants in the republic's banking system and the financial system as a whole, as they are connected to systemically significant banks (through interaction with them via payment systems, etc.);
2. undermine public confidence in the domestic banking system and lead to deposit outflows, and ultimately possibly a banking crisis;
3. combined with the weakening or crisis of the banking system or financial system as a whole, will have negative consequences for the national economy due to a sharp reduction in lending volumes and suspension/reduction of other financial services (such as payment and settlement services);
4. deterioration of macroeconomic conditions, in turn, may negatively affect the stability of the financial system.

5. The systemic significance of a bank/NBFCO is determined taking into account the consequences that may affect the banking and/or financial system of the Kyrgyz Republic and the economy as a whole, rather than the risk (probability) that such insolvency may occur.
6. The consequences of insolvency of systemic banks/NBFCOs for the national economy are assessed taking into account the specifics of each bank/NBFCO separately and considering the following criteria:

1. sizes of certain indicators;
2. interconnectedness with participants in the financial system of the Kyrgyz Republic;
3. level of substitutability.

7. In classifying banks/NBFCOs, in addition to the criteria listed in paragraph 6 of this Regulation, information on qualitative and quantitative indicators may additionally be taken into account.
8. The determination of systemic significance for banks/NBFCOs is classified into three categories:

1. Systemically Significant - consequences of bank/NBFCO insolvency will be significant;
2. Significant - consequences of bank/NBFCO insolvency will be moderate;
3. Limitedly Significant - consequences of bank/NBFCO insolvency will be limited.

9. The National Bank of the Kyrgyz Republic (hereinafter - National Bank) determines the compliance of a systemically significant bank/NBFCO based on quantitative and qualitative indicators. The assessment of systemic significance for a bank/NBFCO is conducted annually by the National Bank, and upon changes in the banking system or in the activities of a specific bank/NBFCO. The list of systemically significant banks/NBFCOs is not subject to official publication. At the same time, the National Bank individually notifies each systemically significant bank/NBFCO determined by quantitative indicators in accordance with this Regulation. (As amended by Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 23, 2020 No. 2020-P-12/73-10)

Chapter 2. Criteria for Systemicity of Banks 10