Regulation on Minimum Requirements for the Corporate Governance Code of Commercial Banks of the Kyrgyz Republic

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Creation Date: 2025-01-13

Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 27, 2024 No. 2024-P-12/71-4-(NPA)

REGULATION

"On Minimum Requirements for the Corporate Governance Code of Commercial Banks of the Kyrgyz Republic"

Chapter 1. General Provisions

1. The Regulation "On Minimum Requirements for the Corporate Governance Code of Commercial Banks of the Kyrgyz Republic" (hereinafter referred to as the Regulation) applies to all commercial banks, including commercial banks conducting operations in accordance with Islamic principles of banking and financing, including banks having an "Islamic window," taking into account the special terminology applied by them in conducting banking operations (hereinafter referred to as banks).

Effective corporate governance in banks is one of the most important conditions for ensuring the stable development of banks and the banking system as a whole.

2. The Bank must develop a Corporate Governance Code based on the principles of fairness, honesty, responsibility, transparency, professionalism, and competence, taking into account the requirements established in this Regulation. The Bank's Corporate Governance Code must be approved by the General Meeting of Shareholders.

The purpose of the Corporate Governance Code is to increase the transparency of decision-making and ensure the Bank's compliance with and protection of the legitimate rights and interests of all shareholders, creditors, depositors, and bank clients.

In developing the Code, the Bank may be guided by the Corporate Governance Code of the Kyrgyz Republic, approved by Order No. 263-P of the State Service for Regulation and Supervision of the Financial Market under the Government of the Kyrgyz Republic of December 30, 2020, taking into account the requirements of banking legislation.

The Bank must review its Corporate Governance Code at least once a year for currency, as well as after changes in the legislation of the Kyrgyz Republic that may have a significant impact on corporate governance and/or require amendments to the Corporate Governance Code.

3. Corporate governance is understood as a system of relations between shareholders, the Board of Directors, and the Management Board of the Bank regarding:

• defining the strategic goals of the Bank's activities, the ways to achieve them, and control over the achievement of these goals;
• creating labor incentives that ensure the performance by management bodies and employees of all actions necessary to achieve the strategic goals of the Bank's activities;
• achieving a balance of interests of the Bank's shareholders, its creditors, including depositors, and the stable development of the Bank;
• ensuring compliance with the legislation of the Kyrgyz Republic, as well as internal documents of the Bank.

4. The main components of effective corporate governance in banks are:

1. distribution of powers, competence issues, and accountability among the Bank's management bodies, organization of efficient activities of the Board of Directors and the Management Board of the Bank;
2. definition and approval of the Bank's development strategy and control over its implementation;
3. creation of an effective internal control and risk management system, and prevention of conflicts of interest;
4. approval of internal documents on remuneration of management and key employees of the Bank;
5. definition and compliance with standards of professional ethics;
6. ensuring the transparency of the Bank's activities.

The methodological basis for effective corporate governance in banks and banking groups is the recommendations of the Basel Committee on Banking Supervision.

5. The Board of Directors and the Management Board of the Bank have the right to engage advisors, consultants (specialists, experts, etc.) for the preparation of analytical, reference, informational materials, and recommendations on issues within their competence.

6. The Bank should develop clear criteria for selecting advisors and consultants, including requirements for their qualifications, experience, and reputation.

In this regard, the Bank should strive to minimize the engagement of advisors and consultants and prioritize the use of internal expertise. When engaging advisors and consultants, the Bank must be guided by the principles of efficiency, transparency, and economic feasibility.

7. The activities of advisors and consultants are carried out on the basis of a service agreement concluded in accordance with the legislation of the Kyrgyz Republic.

Advisors and consultants are not officials of the Bank and cannot be involved in the implementation of operational, including lending, activities, but not limited to them.

8. The conclusions of advisors and consultants are of a recommendatory nature, and the responsibility for decisions made by the Board of Directors and the Management Board of the Bank based on the recommendations of advisors and consultants lies with these bodies.

9. When engaging an advisor, the Bank is obliged to follow the following:

1. the need to engage an advisor must be documented and contain an analysis of the necessity of engaging an advisor or consultant, as well as an assessment of the costs and benefits of their engagement. An advisor or consultant may be engaged only for performing highly specialized tasks requiring special knowledge and experience that Bank employees do not possess;
2. remuneration to an advisor or consultant must be established by the Nomination and Remuneration Committee and must not exceed the level of remuneration of members of the executive body;
3. the contract with the advisor or consultant must contain a clear definition of their functions, objectives, and the term of the contract. The term of the contract may not exceed one year, except in cases of engaging an advisor for the implementation of long-term projects, but not longer than the term of the project;
4. the Bank must implement a system of regular monitoring of the activities of advisors and consultants and an assessment of their effectiveness; Specific requirements for the results of their work must be established for the Advisor. The results of the work of advisors and consultants must be presented to the Board of Directors or the Management Board;
5. The Management Board or the Board of Directors is obliged to evaluate the activities of each advisor or consultant at least once a year. Based on the evaluation results, a decision is made on the expediency of extending the contract;
6. the activities of the advisor must not contradict the principles of corporate governance established by this Regulation and the Bank's Corporate Governance Code. The Advisor is obliged to comply with the standards of ethics, transparency, and responsibility enshrined in the Bank's Corporate Governance Code;
7. shareholders are prohibited from directly appointing or sending their representatives as advisors to the Bank. Interaction between shareholders and the Bank on issues of development policy and the Bank's activities is carried out exclusively through the Board of Directors and the Corporate Secretary (if necessary).

Chapter 2. General Meeting of Shareholders

10. The highest management body of the Bank is the General Meeting of Shareholders. Shareholders of the Bank are obliged to exercise their rights and duties in good faith and reasonably for the purpose of safe, healthy, and reliable activities of the Bank.

11. The Bank is not entitled to satisfy the interests of individual shareholders if this leads to a violation of the rights or unlawful infringement of the interests of other shareholders. The Bank is obliged to ensure all shareholders the opportunity to effectively protect their rights and compensation for damages caused by a violation of their rights by the Bank. Compensation for harm is carried out in court in accordance with the legislation of the Kyrgyz Republic.

12. The Bank is obliged to create favorable conditions for shareholders to participate in the General Meeting of Shareholders, including the opportunity to develop their own position, coordinate actions, and express their opinion on all issues put to a vote (both procedural and substantive).

13. The Bank is obliged to establish and comply with the procedure for informing shareholders about the upcoming General Meeting of Shareholders, as well as the procedure and conditions for providing materials on agenda items. The specified procedure must ensure shareholders the opportunity to effectively prepare for participation in the meeting and ask questions to the Bank's management at all stages of preparation. Information about the specified procedure must be publicly available.

14. The Bank is obliged to provide shareholders with timely and complete information about the date, time, and place of holding the General Meeting of Shareholders, as well as its agenda and materials necessary for forming a reasoned opinion on each agenda item. Notification of shareholders about the holding of the General Meeting must be carried out in accordance with the Law of the Kyrgyz Republic "On Joint Stock Companies".

15. The Bank is prohibited from hindering the interaction of shareholders in preparation for the General Meeting of Shareholders.

The procedure for holding the General Meeting of Shareholders must ensure equal opportunities for all present: to express their opinion, ask questions to Bank representatives, and participate in voting (if they have such a right).

16. The Bank is obliged to ensure that each shareholder or their authorized representative, possessing the right to vote, has the opportunity to freely exercise this right. Voting procedures must be effective, convenient for shareholders, and must not create obstacles or additional expenses for participation in voting.

17. The competence of the General Meeting of Shareholders of the Bank is determined by the Laws of the Kyrgyz Republic "On Banks and Banking Activity" and "On Joint Stock Companies".

Issues attributed to the exclusive competence of the General Meeting of Shareholders cannot be transferred to other management bodies.

18. Actions or inaction of shareholders must not lead to a violation of the rights of Bank clients.

Shareholders are prohibited from abusing their rights. In particular, actions aimed at causing harm to other shareholders or the Bank are prohibited.

19. Shareholders have the right to receive dividends in the amounts and terms established by the decision of the General Meeting of Shareholders, in compliance with the requirements of the legislation of the Kyrgyz Republic, including banking legislation.

20. The Bank must develop a dividend policy determining the approaches to the distribution of the Bank's net income (profit), the mechanism for determining the amount of dividends, the procedure and terms of their payment. The dividend policy must be transparent and ensure understanding by all interested parties of the approach adopted by the Bank to the distribution of dividends.

21. The Bank's dividend policy is approved by the Bank's Board of Directors. In the development and approval of the dividend policy, a balanced consideration of the interests of the Bank and its shareholders must be ensured. The dividend policy must be aimed at maintaining stability and achieving the long-term goals of the Bank.

Dividend payments must be economically justified and must not negatively affect the stability and solvency of the Bank.

22. The Bank is obliged to protect the rights of minority shareholders from abuses by holders of the controlling block of shares, acting directly or indirectly. The Bank is obliged to ensure effective means of protecting the rights of minority shareholders.

23. The powers of the General Meeting of Shareholders of the Bank during the period of the Temporary Administration regime are exercised in accordance with the normative legal acts of the National Bank of the Kyrgyz Republic.

Chapter 3. Board of Directors of the Bank

24. The Board of Directors of the Bank is a management body of the Bank exercising general supervision of the Bank during the intervals between General Meetings of Shareholders, in accordance with the internal regulation on the Board of Directors of the Bank. The Regulation on the Board of Directors is approved by the General Meeting of Shareholders.

25. The Board of Directors of the Bank exercises strategic management of the Bank, defines the basic principles and approaches to organizing the risk management and internal control system in the Bank, controls the activities of the executive bodies of the Bank, and also implements other key functions.

26. Issues attributed to the exclusive competence and responsibility of the Board of Directors are defined by the Laws of the Kyrgyz Republic "On Banks and Banking Activity" and "On Joint Stock Companies".

27. In order to ensure effective corporate governance, the Board of Directors is necessary:

1. to establish clear levels of authority, responsibility, and accountability within the organizational structure of the Bank;
2. to form an effective internal control system and ensure its proper functioning, adequate to the size, complexity of activities, structure, and risk profile of the Bank. In this case, the risk profile is a combination of Bank risk indicators based on collected, analyzed, and systematized information that characterizes the Bank's exposure to risks in areas of activity taking into account established priorities;
3. to define principles and approaches to organizing an effective risk management system, corresponding to the requirements established by the National Bank;
4. to take measures to bring information about the strategic goals of the Bank to all levels of the organizational structure of the Bank;
5. periodically (at least once a year) to evaluate the Bank's development strategy, the Bank's business plans, and policies on all main types of Bank activities for the purpose of determining their adequacy to current activities, the financial condition of the Bank, and external economic conditions;
6. periodically (at least once a quarter) to evaluate current banking activities and financial results in terms of achieving the strategic goals of the Bank and forecast indicators of the Bank's business plans;
7. to ensure the compliance of the Bank's activities and its management bodies with the legislation of the Kyrgyz Republic, normative legal acts, and requirements of the National Bank;
8. to consider the results and take measures based on the outcomes of external and internal audits of the Bank's activities.
9. to possess sufficient and reliable information for making objective and competent decisions and to ensure that recommendations and proposals of the Management Board, other management bodies, and officials of the Bank are justified and meet the interests of the Bank;
10. periodically (at least once a year) to determine the degree of effectiveness of work, its compliance with the development needs of the Bank (identification of management inefficiencies and taking corresponding corrective actions) based on the evaluation of the activities of the Board of Directors committees and its members;
11. to ensure the compliance of the rules and procedure for paying remuneration with the long-term tasks and strategy of the Bank, as well as the Bank's corporate culture and control environment;
12. to establish the main directions of the Bank's activities for the long term and their indicators;
13. to elect, control the activities of, and plan the succession of the Bank's Management Board;
14. to control compliance with the requirements of this Regulation and the Bank's corporate standards in the field of business ethics, ensuring an adequate level of corporate governance practice in the Bank.

28. The Board of Directors of the Bank should play a key role in preventing, identifying, and resolving internal conflicts, including between shareholders, executive bodies, and Bank employees. The Board of Directors of the Bank is responsible for organizing a system for identifying and preventing conflicts of interest, ensuring the transparency of the Bank's activities, timeliness and completeness of information disclosure, as well as ensuring unencumbered access of Bank shareholders to Bank documents in accordance with the legislation of the Kyrgyz Republic.

29. Transparency of the Board of Directors' activities must be ensured by full, timely disclosure of information and informing shareholders about the work of the Board of Directors, as well as the availability of the Chairman and members of the Board of Directors for interaction with Bank shareholders.

Information on the composition and members of the Board of Directors and the Management Board, including qualifications, as well as information on whether they are independent or dependent members of the Board of Directors, information on the functioning committees of the Board of Directors of the Bank, and the corporate secretary must be published on the official website of the Bank.

30. The activities of internal and external auditors, corresponding to the legislation of the Kyrgyz Republic, normative legal acts of the National Bank, and international audit standards, are necessary to achieve efficiency of corporate governance in the Bank. Audit functions can be strengthened by:

1. recognition at all levels of the organizational structure of the necessity and importance of auditors' work for the stability of the financial condition and achievement of the strategic goals of the Bank;
2. taking measures strengthening the independence and adequacy of internal audit;
3. increased attention from the Board of Directors to the reports and recommendations of external and internal auditors for the purpose of independent assessment of the Bank's activities;
4. taking timely corrective measures regarding violations and deficiencies identified by auditors.

31. When choosing an external auditor for presentation to the General Meeting of Shareholders, the Board of Directors should take into account the balance between the costs of conducting the audit and the need to ensure adequate quality of external audit, as well as the reputation of the audit organization.

32. To strengthen their supervisory functions, it is advisable for the Board of Directors to hold regular discussions with the external auditor (at least once a year) and the internal auditor (at least once a quarter).

33. The Board of Directors has the right to engage auditors to check the activities of structural subdivisions, committees created, and officials of the Bank.

34. The Board of Directors of the Bank is mandatory to create the following committees:

1. Risk Management Committee;
2. Audit Committee;
3. Nomination and Remuneration Committee.

The Bank may also create a New Products Committee, a Compliance Control Committee, and other committees depending on the level of risk in the Bank's activities.

The Risk Management Committee and the Audit Committee must be headed by independent members of the Board of Directors. A large proportion of the total number of members of these committees is recommended to be formed from independent members of the Board of Directors.

The activities of the Board of Directors committees must comply with the requirements of the National Bank and internal documents of the Bank.

35. Other committees must be created in the Bank, in particular:

1. Credit Committee, making decisions on all issues related to the issuance of loans, guarantees, obligations, sureties, other assets and liabilities that are essentially credit operations and carry the risk of credit loss;
2. Asset and Liability Management Committee of the Bank, carrying out control over the overall structure of the Bank's balance sheet, monitoring the structure of assets and liabilities, and ensuring compliance with the asset and liability management policy approved by the Board of Directors.

The activities of these committees are regulated in accordance with the legislation of the Kyrgyz Republic and corresponding internal regulations on committees, which are approved by the Board of Directors.

All committees in the Bank are headed by the chairmen of the respective committees.

The composition of committees is recommended to be determined in such a way as to allow for a comprehensive consideration of issues taking into account various opinions.

36. In the internal documents of the Bank regulating the activities of all committees created in the Bank, at least the following must be defined:

1. the purpose of creation and activities of the committee;
2. the powers of the committee;
3. the procedure for appointing the chairman of the committee;
4. the procedure for holding meetings, which may take place in person (with the presence of committee members) or in absentia (without the presence of committee members, for example, via video/audio conference, polling, etc.), including the voting procedure of committee members;
5. the reporting procedure;
6. the responsibility of each committee member for decisions made and signed by them.

At the same time, in these documents, at least the following requirements must be established for each committee member participating in the meeting and making decisions:

1. to be aware of the essence of the issue under consideration;
2. to understand the impact of their decisions on the Bank's activities;
3. to assess the possibility of arising risks and consequences from their decisions.

The opinion of a committee member who has comments and proposals on the issue under consideration and disagrees with the adopted decision must be expressed during voting and reflected in the minutes. The minutes must be signed by all committee members present at the meeting and the committee secretary. Committee members who did not participate in the meeting must be familiarized with the minutes and adopted decisions under signature.

37. A high level of responsibility and a wide range of powers of the Board of Directors implies that members of the Board of Directors possess sufficient knowledge of the main types of Bank activities and the ability to express an opinion independent of the opinion of management bodies and officials of the Bank.

When making decisions, each member of the Board of Directors must be objective and guided by the interests of the Bank, not personal interests or the interests of individual shareholders, Bank officials, or third parties. The opinion of a member of the Board of Directors who has comments and proposals on the issue under consideration and disagrees with the adopted decision must be expressed during voting and reflected in the minutes. The minutes and stenographic report (detailed written text of participants' speeches) of the Board of Directors meeting must be signed by the presiding officer and the corporate secretary, after agreement with the members of the Board of Directors present at the meeting. Members of the Board of Directors who did not participate in the meeting must be familiarized with the minutes and adopted decisions under signature.

38. Members of the Board of Directors must meet the minimum qualification requirements established by the National Bank.

39. In order to ensure competence, objectivity, and independence, independent members of the Board of Directors possessing impeccable business reputation and professional experience in economic, financial, banking, and legal issues, as well as in the field of information technology, must be elected to the Board of Directors. At least one member of the Board of Directors of the Bank must be a citizen of the Kyrgyz Republic fluent in the state language.

At least one-third of the composition of the Board of Directors of the Bank must consist of independent members of the Board of Directors. In this case, the Bank may establish a proportionality of independent members of the Board of Directors of more than one-third.

40. Criteria for independent members of the Board of Directors are defined by the Law "On Banks and Banking Activity". Additional requirements for independent members of the Board of Directors of the Bank may be defined in accordance with the requirements of this Regulation and must be established in the internal normative documents of the Bank.

In this case, it is recommended to recognize as an independent member of the Board of Directors a person who possesses sufficient professionalism, experience, and independence to form their own position and who can make objective and conscientious judgments, independent from the influence of the Management Board of the Bank, individual groups of shareholders, or other interested parties.

41. The Board of Directors of the Bank determines the list of key employees of the Bank – Bank employees whose activities are directly related to decision-making and risk control.

Key employees of the Bank include members of the Management Board of the Bank, heads of subdivisions (areas of activity), and other employees of subdivisions determined by the Board of Directors of the Bank, who participate significantly in operations and transactions conducted by the Bank. Appointment of key employees is carried out in accordance with the distribution of powers for decision-making.

42. The Board of Directors of the Bank must act in good faith and reasonably in the best interests of the Bank, which implies compliance with the following fiduciary duties:

1