Procedure for Commercial Banks and Other Financial and Credit Organizations Regulated by the National Bank of the Kyrgyz Republic Regarding Collateral Property

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Creation date: 2026-01-28

Approved

by the Resolution of the Board of the National Bank of the Kyrgyz Republic of July 4, 2012 No. 28/7

PROCEDURE

for the work of commercial banks and other financial and credit organizations licensed and regulated by the National Bank of the Kyrgyz Republic with collateral property

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of November 16, 2012 No. 43/1, October 28, 2015 No. 64/5, December 21, 2016 No. 49/7, May 17, 2017 No. 19/11, December 26, 2018 No. 2018-P-12/58-10, March 25, 2020 No. 2020-P-12/16-3, December 28, 2020 No. 2020-P-12/75-3, September 15, 2021 No. 2021-P-12/51-1, December 21, 2022 No. 2022-P-12/81-8, December 28, 2022 No. 2022-P-12/83-7, April 5, 2023 No. 2023-P-12/22-3, January 17, 2024 No. 2024-P-12/1-3, July 5, 2024 No. 2024-P-12/28-2, October 23, 2025 No. 2025-P-12/55-4-(NPA), December 19, 2025 No. 2025-P-12/68-2-(NPA))

1. General Provisions

2. (Lost force in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic of May 17, 2017 No. 19/11)

3. The purpose of this Procedure is to fulfill the minimum requirements for commercial banks and other financial and credit organizations (hereinafter - banks/FKO) to strengthen credit discipline and real security for the repayment of issued loans.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of January 17, 2024 No. 2024-P-12/1-3)

3. Carrying out credit activities that ensure the profitability of the bank/FKO requires the development of a specific bank policy on collateral, which serves as a secondary source for loan repayment. Collateral policy must be part of the bank's/FKO's overall credit policy.

4. The main concepts used in this document are defined in the Law of the Kyrgyz Republic "On Pledge" and the Standard of Basic Concepts and Principles of Valuation, approved by the Resolution of the Government of the Kyrgyz Republic of April 3, 2006 No. 217.

In this regard, within the framework of this Procedure:

Pledge is a method of securing the performance of a monetary or monetary-denominated obligation under the pledge of ownership rights or other property rights to property.

Fair value is the estimated monetary amount for which property would be exchanged on the valuation date between a willing buyer and a willing seller in an arm's length transaction after proper marketing, during which each party acted knowledgeably, prudently, and without compulsion.

Liquidation value is the value of an asset that can be realistically obtained upon the sale of the asset in a short period, without proper marketing and advertising.

Precious metals are gold, silver, platinum, and platinum group metals (palladium, iridium, rhodium, ruthenium, osmium) in any form and condition: in raw materials, alloys, semi-finished products, industrial products, chemical compounds, items, scrap, and waste.

Collateral coverage ratio is the ratio of the collateral value of the property (taking into account the collateral coefficient) to the loan amount.

Collateral coefficient is a coefficient reducing the market value of the collateral accepted as security for a loan, taking into account possible bank costs for enforcement and realization of the property, as well as its forecasted value.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of December 21, 2016 No. 49/7, December 28, 2020 No. 2020-P-12/75-3)

2. Requirements for Collateral Items

3. In carrying out operations related to lending, issuing guarantees, and letters of credit, one of the methods of securing the performance of borrowers' obligations to the bank/FKO is a pledge. In addition to a pledge, the performance of obligations may be secured by suretyship, guarantee, and other methods provided for by the legislation of the Kyrgyz Republic.

4. The subject of the pledge must meet the requirements of the legislation of the Kyrgyz Republic.

5. Banks/FKO must mandatorily have internal regulatory documents regulating the main principles of work with various types of collateral security for loans, as well as disclosing the main risks associated with the corresponding types of loan security.

The bank/FKO is prohibited from accepting as collateral security:

• goods in circulation located outside the Kyrgyz Republic as the sole collateral security;

• documentary and non-documentary securities, including simple and promissory notes, issued by non-resident issuers of the Kyrgyz Republic and held by individuals and/or stored in depositories that do not have a high rating, with the exception of high-rated, highly liquid securities included in the listings of stock exchanges, including international ones, and traded on the securities markets of developed countries, as well as order securities that are part of a dual warehouse receipt;

• assets registered and/or located in offshore zones, the list of which is determined by the authorized state body of the Kyrgyz Republic in the field of combating the financing of criminal activity and legalization (money laundering) of criminal proceeds.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of March 25, 2020 No. 2020-P-12/16-3, September 15, 2021 No. 2021-P-12/51-1, December 19, 2025 No. 2025-P-12/68-2-(NPA))

8. If the credit policy provides for the acceptance of collateral property located (registered) outside the Kyrgyz Republic, in this case, the board of directors of the bank/FKO bears responsibility for ensuring the recoverability of loans in accordance with the legislation of the Kyrgyz Republic.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 28, 2022 No. 2022-P-12/83-7)

9. When accepting as collateral property located (registered) outside the Kyrgyz Republic, the bank/FKO, when assessing the risk associated with collateral security, relies on information about the market for movable and immovable property at its location, taking into account the influence of country risk.

10. The bank/FKO must analyze the state of the relevant market (movable/immovable property, etc.) and determine the criteria by which a particular property is accepted as collateral. Quality criteria depending on the type of collateral may vary but must at least take into account the following:

• stability of fair price;

• durability of storage;

• liquidity (possibility of realization in the short term);

• possibility to identify the goods and preserve consumer properties;

• other criteria.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 28, 2022 No. 2022-P-12/83-7)

11. The bank/FKO must verify the presence of collateral property by visiting its location and check its quality. Based on the inspection results, a report is drawn up, which must be signed by the head of the credit/collateral property structural department and must include at least the following information:

• location of the collateral;

• storage conditions of the collateral;

• qualitative and quantitative parameters of the collateral;

• fair value based on internal assessment or assessment by an appraiser/valuation organization;

• approaches and/or methodology used for collateral valuation;

• other.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 28, 2022 No. 2022-P-12/83-7)

12. The data from this report are used in determining the possible amount of the issued loan. The amount of the issued loan must be determined taking into account the size of the collateral coverage ratio and the collateral coefficient, regulated in the bank's internal documents.

In this regard, the collateral coefficient for immovable property must be no more than 50 percent of the value of the collateral security at the time of loan issuance.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of December 28, 2020 No. 2020-P-12/75-3, July 5, 2024 No. 2024-P-12/28-2)

13. Replacement of the collateral subject by the pledgor is allowed only with the written consent of the bank/FKO.

14. If goods in circulation, warehouse receipts, and precious metals are accepted as collateral property, then when concluding a pledge agreement, it should be specified that the pledgor may change the composition and natural form of the collateral property provided that:

a) it is liquid, and if the total value of the pledged property is not less than the value specified in the pledge agreement;

b) securing loans only with goods in circulation, warehouse receipts, and precious metals must be no less than 150% of the loan amount, with the exception of gold refined standard bars issued by the National Bank of the Kyrgyz Republic.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of December 21, 2016 No. 49/7, December 26, 2018 No. 2018-P-12/58-10, March 25, 2020 No. 2020-P-12/16-3, December 21, 2022 No. 2022-P-12/81-8)

14-1. If the subject of the pledge agreement is things or rights that will arise in the future, including future stocks of the pledgor's produced products, such collateral security must constitute no more than 20% in the structure of security for the obligation. The subject of the agreement is determined according to the requirements of legislation individually for each object upon compliance with the requirement established in this paragraph. In this regard, the pledge agreement for the above-mentioned collateral securities must provide for a period during which the pledgor must transfer ownership rights to the collateral security specified in the pledge agreement. Such a period must not exceed 3 (three) months.

(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)

14-2. In the event that collateral/security, including claims, are accepted as security, for which there is no developed market for conducting assessments or which require special knowledge/competencies for their assessment (precious stones, precious metals, specialized equipment, etc.), the borrower must mandatorily confirm the value of the security, and an assessment of this security by an appraiser (valuation organization) must be conducted. Additionally, the borrower must provide documents on the quality and characteristic properties of the accepted security, which must be confirmed by a corresponding expert conclusion.

In the absence of the above documents, the bank cannot accept this collateral subject as security. The bank must assess the risks of such security, including issues of its subsequent realization, in accordance with the legislation of the Kyrgyz Republic.

(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)

15. If the goods in circulation, precious metals, as well as goods accepted for storage by a commodity warehouse with the issuance of a dual warehouse receipt, offered as collateral are the subject of purchase and sale (not produced by the pledgor themselves), the presence of contracts (purchase and sale agreements) for the acquisition of goods and other documents (waybills, invoices, certificates, payment documents, endorsements) or other documents confirming the pledgor's ownership rights is required.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of March 25, 2020 No. 2020-P-12/16-3)

16. The bank's/FKO's internal documents on collateral security must meet the requirements of the Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial and Credit Organizations Licensed by the National Bank of the Kyrgyz Republic and must at least contain the following:

• conditions and requirements for accepting collateral as loan security;

• types of collateral and restrictions on types of collateral taking into account the requirements of paragraph 12 of this Procedure;

• methods of collateral valuation;

• involvement of an appraiser/valuation organization;

• quantitative ratio of the loan amount and the fair value of the collateral;

• value of the collateral coverage ratio taking into account the requirements of paragraph 12 of this Procedure;

• criteria for applying the collateral coefficient depending on the type of collateral, its liquidity, and other characteristics of the collateral;

• procedure and conditions for replacing collateral property;

• monitoring of collateral;

• procedure for seizure and realization of collateral property, taking into account the requirements of legislation on enforcement against collateral items having significant historical, artistic, or other cultural value for society, as well as being the only housing owned by an individual.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of May 17, 2017 No. 19/11, December 28, 2020 No. 2020-P-12/75-3, December 28, 2022 No. 2022-P-12/83-7, July 5, 2024 No. 2024-P-12/28-2)

3. Collateral Valuation

4. When valuing collateral, banks/FKO may be guided by the Property Valuation Standards, mandatory for application by all subjects of valuation activity in the Kyrgyz Republic, approved by the Resolution of the Government of the Kyrgyz Republic No. 217 of April 3, 2006:

• standard of basic concepts and principles of valuation;

• business valuation standard;

• movable property valuation standard;

• immovable property valuation standard;

• standard for the content and formatting of valuation reports.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 21, 2016 No. 49/7)

18. Valuation of property provided as collateral is a mandatory condition for lending and is necessary to determine the sufficiency of the collateral value to cover the corresponding borrower's obligation to the bank/FKO.

19. Valuation of movable property in the form of monetary funds (in national and foreign currencies) and precious metals deposited in separate bank accounts is carried out at nominal value.

When assessing the value of security in the form of precious metals, artistic value, the presence of precious, semi-precious, and other stones are not taken into account; only the precious metal is subject to assessment.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 21, 2016 No. 49/7)

20. When considering the collateral subject as security for a loan, the bank/FKO should take into account the following characteristics of the collateral:

• fair value of the collateral subject;

• degree of liquidity at the current moment (possibility of quick realization);

• significance (substantiality) of the property transferred as collateral to the owner;

• forecast of changes in the value of the collateral subject over time and information about sales of this type of collateral made during the previous few years depending on the type of collateral at least once a year;

• determination of the size of costs associated with the process of enforcement against the collateral subject in accordance with the current legislation of the Kyrgyz Republic;

• description of current economic conditions and market situation affecting the fair value of the collateral at its location;

• other necessary information to ensure quality analysis.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 28, 2022 No. 2022-P-12/83-7)

21. In the bank's/FKO's documents regulating the main principles of work with collateral property, it must be provided that if the bank/FKO is unable to independently and professionally conduct the valuation of collateral property, the bank/FKO must conclude a contract with an appraiser/valuation organization.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 28, 2022 No. 2022-P-12/83-7)

21-1. The bank's internal documents must contain provisions ensuring that the bank will not allow actions that endanger the independence of the property valuation function when accepting it as collateral, both by a bank employee conducting the valuation (internal valuation) and when involving an appraiser/valuation organization, including the following:

• informing the internal appraiser/appraiser/valuation organization of the expected or established preliminary market value of the property, or the loan amount, or the collateral coverage ratio that must be established taking into account the requirements of paragraph 12 of this Procedure;

• specifying the requirement for the minimum market value of property for loan approval or conducting valuation;

• refusal to pay the appraiser/valuation organization remuneration because the property was not valued at a certain amount;

• allowing that the current or future use of the services of the internal appraiser/appraiser/valuation organization depends on the amount at which the internal appraiser/appraiser/valuation organization values the property;

• applying disciplinary sanctions to the employee conducting the property valuation, up to termination of the employment contract with them, or excluding the appraiser/valuation organization from future cooperation because the market value of the property determined by them does not meet the established threshold value necessary for the bank to accept the property as collateral in accordance with the bank's internal documents.

In cases where the market value of the property determined by an authorized bank employee/appraiser/valuation organization for acceptance as collateral was sent for re-evaluation under the consideration of the Credit Committee or any other authorized body, the bank must have written exhaustive explanations regarding the necessity of re-evaluation with a clear indication of the person(s) who made such a decision, followed by review by the higher management body.

Any exceptions from the rules and procedures determining the procedure for valuing collateral property and determining its market and collateral value must be properly documented and presented to the heads of bank departments responsible for conducting the valuation of collateral property.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of December 28, 2020 No. 2020-P-12/75-3, December 28, 2022 No. 2022-P-12/83-7, July 5, 2024 No. 2024-P-12/28-2)

22. When making a decision on issuing a loan, it must be taken into account that the value of the collateral must cover the borrower's obligations to the bank/FKO.

Given that the real estate market is subject to various fluctuations that may negatively affect the bank's/FKO's ability to realize the collateral, it is important to consider not only the fair value but also the liquidation value of the collateral.

In this regard, the collateral coefficient must be assessed and established by the bank taking into account the possible depreciation of the collateral in the future. The collateral coefficient and the collateral coverage ratio must also be established at a level comparable to the speed of realizing the collateral. Thus, the realization speed of non-residential real estate of specific purpose (factories, workshops, property complexes, structures of industrial or agricultural purpose, and other objects) is lower than, for example, non-residential office premises or residential property.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 28, 2020 No. 2020-P-12/75-3)

4. Documentation of Loan Collateral Security

5. Relations between the bank/FKO (pledgee) and the borrower (pledgor) are documented by a pledge agreement, and if necessary:

• a pledge agreement or agreement containing conditions on the procedure for out-of-court enforcement against the collateral subject regarding movable property;

• a notarized agreement on the procedure for out-of-court enforcement against the collateral subject regarding immovable property, if the legislation of the Kyrgyz Republic and the legislation of another country at the location of the collateral property provides for an out-of-court procedure for enforcement against the collateral subject.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of October 28, 2015 No. 64/5)

23-1. The pledge agreement must contain a provision on conducting an assessment of the collateral property at the time of enforcement (upon the occurrence of events for enforcement of the property), which is determined by the agreement of the pledgee with the pledgor, and regarding immovable property - determined by an additional agreement of the pledgee with the pledgor involving an appraiser in accordance with the requirements of the legislation of the Kyrgyz Republic.

In this regard, after making a decision to conduct auctions for the realization of real estate accepted in repayment of the borrower's debt, but before the start of the aforementioned auctions, its fair value must be determined in accordance with the requirements of the Regulation "On Certain Transactions/Operations of Commercial Banks and Microfinance Companies of the Kyrgyz Republic with Immovable Property, approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic.

(In the edition of the Resolutions of the Board of the National Bank of the Kyrgyz Republic of December 26, 2018 No. 2018-P-12/58-10, December 28, 2022 No. 2022-P-12/83-7)

24. In the event that the subject of the pledge remains in the possession of the pledgor, the bank/FKO has the right to demand that they insure the collateral property. If the legislation of the Kyrgyz Republic in the field of mandatory insurance or the pledge agreement imposes on the pledgor the obligation to insure the collateral property, then the subject of the pledge must be insured by the pledgor for an amount not lower than the size of the claim. The term of insurance of the collateral property must be established taking into account the time required for the possible enforcement by the bank/FKO against the collateral subject and its realization and the capabilities of insurance companies.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of October 23, 2025 No. 2025-P-12/55-4-(NPA))

5. Control of Collateral Preservation

6. The bank/FKO must mandatorily have the opportunity to exercise control over the presence and preservation of collateral property throughout the entire term of the credit agreement.

7. Control over collateral property must be motivated by the bank's/FKO's desire to protect itself from possible losses associated with market changes, falling demand and prices, as well as possible abuses by the borrower.

8. During the term of the credit agreement, regular monitoring of the collateral property must be carried out, which consists of conducting inspections, physical presence, quality, storage conditions, and compliance of the current value of the collateral property with the borrower's obligations to the bank.

If the bank discovers circumstances reducing the current value of the collateral property, the bank must reflect this fact in an inspection act of the collateral.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 28, 2020 No. 2020-P-12/75-3)

28. In the event of a change in market conditions or non-compliance with storage conditions of the collateral, which may lead to a significant decrease in value and deterioration of the condition of the collateral items, or if there is a threat of their loss, the bank/FKO must demand that the borrower take measures to bring storage conditions into compliance or replace the collateral with a more liquid one or provide additional security.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 28, 2020 No. 2020-P-12/75-3)

29. If it is established that there are tendencies towards a deterioration in the borrower's financial condition, the bank/FKO should conduct a meeting with the borrower to prevent the possible risk of non-performance of obligations to the bank.

30. Realization of Collateral

31. To avoid possible claims from the borrower, the bank/FKO may provide the borrower with the opportunity to independently search for a buyer for the collateral property (immovable property) after the expiration of the term for voluntary performance of obligations specified in the notice in accordance with the legislation of the Kyrgyz Republic.

30-1. If before the date of sale of the collateral subject at auctions or its acquisition by the pledgee, the borrower (pledgor) offers the pledgee a candidate for a buyer who can offer a price covering the amount of debt, then this person has the right of first refusal. In this case, the pledgee must not refuse to realize the collateral subject. An agreement restricting the right specified in this paragraph is invalid.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 26, 2018 No. 2018-P-12/58-10)

31. If the above actions of the bank/FKO do not lead to a positive result, the process of realizing the collateral should be started, based on the pledge agreement in accordance with...