Directive Instruction No. 1 on Enhancing the Liquidity of Commercial Banks

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Date of creation: 2009-08-06

(Ref. No. 033-6/1697 dated 16.12.94)

Directive Instruction No. 1

"On Enhancing

the Liquidity of Commercial Banks"

Complaints continue to reach the National Bank from clients of commercial banks regarding banks delaying payment processing despite clients having sufficient funds in their accounts, as well as failing to fulfill obligations on deposits: not paying declared interest and not returning funds upon maturity.

Such practice is illegal and causes significant harm not only to clients, who are forced to operate via barter and cash (which undermines the economy of the republic), but also exacerbates the financial condition of the banks themselves, disrupting their liquidity planning process.

In the opinion of the National Bank, the liquidity problems of banks arose due to unprofessional liquidity management and either ignorance of risk theory or failure to apply it in practical activities. Recommendations on liquidity management were sent to commercial banks, and a meeting on this issue was held; however, facts indicate that the liquidity of the entire banking system of the republic remains under threat.

Considering this situation unacceptable and aiming to enhance the liquidity of the banking system, the National Bank strongly recommends implementing the following measures:

1. Review the suitability of persons responsible for liquidity management for their positions.

2. Take measures for the immediate training of employees responsible for liquidity management.

3. Increase the accountability of employees accepting payment orders from clients for refusing to accept such documents when sufficient funds are available in the client's account.

4. Obligate employees accepting clients' payment orders to certify the acceptance mark with a signature and stamp.

5. Inform all bank clients that they have the right to submit payment documents to the bank through registration in the general order in case of refusal by operational staff to accept them.

6. To ensure obligations, liquidate all liquid assets.

7. In the event of liquidity problems, immediately inform the National Bank about this.

If the situation with liquidity management does not improve and complaints regarding payment delays or the non-acceptance of clients' payment orders despite sufficient funds in their accounts continue to occur, sanctions provided by legislation will be applied to violating banks in the form of:

• imposition of fines;

• restriction of certain types of activities;

• introduction of direct management of the bank;

• revocation of the license.

Furthermore, taking into account that the crisis of bank solvency is destructive for the economy of the republic, the National Bank reserves the right to submit proposals to the Jogorku Kenesh for additional measures of influence against bank managers who violate the law.

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