Regulation on the Reorganization of Commercial Banks by Merger

Lapsed

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of March 2, 2006 No. 5/7)

Registered in the Ministry of Justice of the Kyrgyz Republic April 11, 2000. Registration number 55

Approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic of March 29, 2000 No. 12/6

REGULATION

on the reorganization of commercial banks by merger

Chapter 1

General Provisions

1.1. This Regulation establishes the procedure for the reorganization of commercial banks (hereinafter referred to as banks) licensed by the National Bank of the Kyrgyz Republic (hereinafter referred to as NBKR) by merger.

1.2. By merger, as one of the forms of bank reorganization, is meant the cessation of activities of 2 (two) or more banks with the transfer of their rights (assets) and obligations (liabilities) in accordance with the transfer act to a new bank created as a result of the merger.

1.3. The reorganization of banks by merger is carried out in accordance with the Civil Code of the Kyrgyz Republic, the laws of the Kyrgyz Republic "On Business Partnerships and Societies", "On the National Bank of the Kyrgyz Republic", "On Banks and Banking Activities in the Kyrgyz Republic", other regulatory acts of the Kyrgyz Republic, this Regulation, and the constituent documents of the banks subject to reorganization.

1.4. Reorganization by merger is carried out on the basis of a voluntary decision of the general meeting of shareholders of the banks subject to reorganization, as well as compulsorily - in cases established by the legislation of the Kyrgyz Republic(*).

1.5. The reorganization of banks by merger cannot be started without prior coordination with the NBKR. At the same time, the reorganization process begins no earlier than 2 (two) months after the publication in press media of republican significance of a notice about the reorganization of banks.

1.6. To conduct the reorganization process by merger, working (initiative) groups are created by the Boards of Directors of the banks subject to reorganization, responsible for contacts with the NBKR on reorganization issues.

1.7. Requirements for the minimum size of charter capital for banks formed as a result of reorganization by merger are analogous to those established for existing banks.

1.8. Accounting during the reorganization of banks by merger is carried out in accordance with the corresponding accounting policy.

Chapter 2

Basic Rules and Procedures

for Reorganization by Merger

2.1. To obtain prior permission to carry out reorganization by merger, banks must submit to the NBKR a petition for obtaining such permission, a draft agreement on reorganization, and a financial-economic justification of the reorganization.

2.2. The petition for obtaining prior permission from the NBKR to carry out reorganization by merger is signed by the chairmen of the Boards of Directors of the banks subject to reorganization.

2.3. The draft agreement on reorganization by merger must be approved by the Boards of Directors of the banks subject to reorganization. The agreement, having the status of a constituent document for the bank created as a result of the merger, must take into account the following issues:

a) procedure and conditions of reorganization;

b) procedure for the conversion of shares of banks subject to reorganization;

c) rights of owners of all types of shares of banks subject to reorganization;

d) list of owners of shares of banks subject to reorganization who have the right to participate in the joint meeting of shareholders and the date of its compilation;

e) provision on the succession of the bank created as a result of the merger regarding all obligations to creditors and claims against debtors of each bank subject to reorganization in accordance with the transfer act.

2.4. The financial-economic justification of reorganization by merger must set out the motives prompting the banks to carry out the merger process, and the goal of the reorganization must be clearly and precisely formulated. In addition, the justification must contain a detailed analysis of the financial condition of the banks subject to reorganization.

The justification must address issues such as the role and place of the banks in the banking sector, their strengths and weaknesses, the main directions of activity of the new bank, planned financial operations, etc. In addition, the following must be presented:

a) accounting balance sheets of the banks as of the 1st day of the current month;

b) financial statements of the banks for the last reporting year with an auditor's report;

c) approximate scheme of the organizational structure of the new bank;

d) approximate structure of assets, liabilities, and capital of the new bank;

e) approximate values of economic standards of the new bank;

f) business plan of the new bank for the next 2 (two) years with a calculation of income and expenses at the end of each year.

2.5. The NBKR, within 1 (one) month from the moment of receiving the petition and documents listed in paragraph 2.1 of this Regulation, considers and makes a decision on prior consent to carry out the reorganization or on rejecting the petition for reorganization, indicating specific reasons for rejection.

2.6. Reasons for which the NBKR may reject the petition for the reorganization of banks may include, in particular, the following:

a) the proposed reorganization of banks by merger may contribute to the emergence of a monopoly position in the banking market by the new bank or may pose a threat to the interests of consumers of financial services;

b) the financial position of the new bank will pose a significant threat to the interests of depositors of the banks subject to merger;

c) unreliable information was identified in the documents submitted to the NBKR to obtain permission to carry out the reorganization();

d) the financial-economic justification of the reorganization is not sufficiently convincing.

2.7. Upon expiration of the term for considering the documents listed in paragraph 2.1 of this Regulation, the NBKR, within 3 (three) days, notifies the working (initiative) group of the decision made.

2.8. After obtaining prior permission from the NBKR to carry out the reorganization, the draft agreement on reorganization is submitted for consideration to the general meeting of shareholders of each bank subject to reorganization for its approval.

2.9. General meetings of shareholders of banks subject to reorganization are conducted in accordance with the legislation and their constituent documents. The minutes of the general meeting of shareholders of each of the banks must determine, at a minimum, the following issues:

a) on the decision to carry out reorganization by merger and approval of the reorganization agreement;

b) on approval of the draft Charter of the bank created as a result of the merger;

c) on approval of the draft transfer act;

d) on approval of the draft regulations and the voting procedure for the joint meeting of shareholders of banks subject to merger.

2.10. The draft agreement on reorganization by merger is considered approved if at least 2/3 of the total number of shareholders entitled to vote of each bank participating in the reorganization process voted in favor of its adoption.

2.11. Within 30 (thirty) days from the date of the decision by the general meeting of shareholders of each bank to carry out the reorganization, the banks notify all their creditors of this decision in writing.

2.12. In the event of the adoption of the draft reorganization agreement by the general meeting of shareholders of each bank participating in the merger process, a joint meeting of shareholders of the banks is held. This meeting is held no earlier than 2 (two) months after the publication in press media of republican significance of a notice about the reorganization of banks. The meeting is conducted in accordance with the legislation and the approved joint general regulations for its conduct.

The minutes of the joint meeting must reflect, at a minimum, the following issues:

a) on approval of the regulations for conducting the joint meeting of banks subject to reorganization;

b) on approval of the Charter of the bank created as a result of the merger;

c) on the election of the Board of Directors of the bank created as a result of the merger;

d) on the election of the executive bodies of the bank created as a result of the merger;

e) on the voting procedure for shareholders of banks subject to merger;

f) on the decision to issue securities (conversion of shares) and on approval of documents necessary for considering the issue of registration of the share issue, on approval of the consolidated balance sheet of the bank created as a result of the merger.

2.13. The initiative (working) group, authorized by the joint meeting of shareholders of the banks, within 1 (one) month from the moment of holding the joint meeting, sends to the NBKR documents provided for by this Regulation and other regulatory acts. In addition to these documents, the following are also submitted:

a) the agreement on reorganization by merger, approved by the general meetings of shareholders of the banks subject to reorganization;

b) minutes of the general meetings of shareholders of the banks subject to reorganization, at which the agreement on reorganization by merger and the transfer act were approved;

c) transfer acts of the banks subject to reorganization;

d) accounting balance sheets of the banks as of the date of the decision to carry out reorganization by merger.

In the event of failure to submit the above documents within the established time limits, the NBKR's decision on prior consent to carry out the merger loses its force.

2.14. The NBKR, within 1 (one) month from the moment of submission of the documents listed in paragraph 2.13 of this Regulation, prepares a conclusion on consent to registration at the Ministry of Justice of the Kyrgyz Republic of the fact of reorganization of banks by merger, or the submitted documents are returned for revision.

2.15. The process of merger of banks is considered completed from the moment of state registration at the Ministry of Justice of the Kyrgyz Republic of the new bank.

2.16. Within 1 (one) day from the moment of registration of the new bank at the Ministry of Justice of the Kyrgyz Republic, the banks participating in the reorganization process submit to the NBKR licenses for conducting banking operations in exchange for the license issued to the new bank. In this case, the licenses on the basis of which the reorganized banks operated are taken into account.

2.17. After state registration of the new bank, the NBKR enters a record in the Registry of licenses issued to banks about the issuance of a license to this bank, indicating the successor and the form of reorganization, as well as a record about the withdrawal of licenses from the banks participating in the reorganization process.

2.18. After entering the record about the issuance of a license to the new bank into the Registry, the correspondent accounts in the NBKR held by the banks participating in the reorganization process are closed, and simultaneously, a correspondent account is opened for the new bank, to which the balances from the closed accounts are transferred. Unpaid settlement documents of the banks participating in the reorganization process as of this date are transferred to the new bank.

2.19. The deposited mandatory reserves of the banks participating in the reorganization process are re-registered to the new bank.

2.20. All legal proceedings initiated against the banks participating in the reorganization process continue with the participation of the new bank.

2.21. The bank created in the merger process, within 7 (seven) days from the moment of opening the correspondent account in the NBKR, informs all its creditors of the new banking details.

2.22. The bank created in the merger process, within 7 (seven) days from the moment of state registration at the Ministry of Justice of the Kyrgyz Republic, publishes in press media of republican significance notices about the merger of banks and the results of this process: the cessation of activities of the banks participating in the merger process and the commencement of activities of the new bank.

2.23. The bank created as a result of the merger must comply with economic standards and other requirements established by the NBKR (including mandatory reserve requirements).

2.24. In the reorganization of banks by merger, the exchange of ordinary and preferred shares, convertible into ordinary ones in accordance with the banks' prospectus, for other property or property rights is not permitted.

Chapter 3

Procedure for Conversion of Shares and Registration

of Share Issue when Carrying Out

Reorganization by Merger

3.1. When carrying out reorganization of banks by merger, the shares of each party to the reorganization agreement are exchanged for shares of the new bank.

3.2. Conversion (exchange) of shares of each party to the reorganization agreement into shares of the new bank is carried out in the manner provided for by the Regulation on the Conversion of Shares upon Reorganization of a Joint Stock Company, approved by the Resolution of the National Commission for the Securities Market under the President of the Kyrgyz Republic No. 13 of March 12, 1999.

3.3. The decision on the first issue of shares of the new bank, into which the shares of the banks participating in the merger process will be converted, is made at the joint meeting of shareholders in accordance with the merger agreement.

3.4. The bank created in the merger process is obliged to register the share issue with the National Commission for the Securities Market under the President of the Kyrgyz Republic.

3.5. Documents for the registration of the first issue of shares of the new bank are prepared in accordance with the requirements of the legislation of the Kyrgyz Republic and regulatory acts of the NBKR.

3.6. Conversion of shares of the banks participating in the merger process into shares of the new bank is considered completed from the moment of state registration at the National Commission for the Securities Market under the President of the Kyrgyz Republic of the report on the results of the share issue.

(*) This Regulation does not consider the procedure for compulsory reorganization of banks.

() In this case, the bank is responsible for providing unreliable information in the established manner.

Department of Supervision Methodology

Banking Supervision Department