Instruction on Determining Capital Adequacy Standards for Commercial Banks of the Kyrgyz Republic

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Date of creation: 2026-06-08

Appendix to the Resolution of the Board of Directors

of the National Bank of the Kyrgyz Republic

of October 12, 2022 No. 2022-P-12/63-1-(NPA)

INSTRUCTION

on determining capital adequacy standards for commercial banks of the Kyrgyz Republic

(As amended by the Resolutions of the Board of Directors of the NB KR of November 16, 2022 No. 2022-P-12/70-1, December 14, 2022 No. 2022-P-12/78-8, January 17, 2024 No. 2024-P-12/1-3, April 12, 2024 No. 2024-P-12/17-3, July 5, 2024 No. 2024-P-12/28-2, June 18, 2025 No. 2025-P-12/28-1-(NPA), June 27, 2025 No. 2025-P-12/31-2-(NPA), July 30, 2025 No. 2025-P-12/38-3-(NPA), November 12, 2025 No. 2025-P-12/60-4-(NPA), May 29, 2026 No. 2026-P-12/33-4-(BS))

Chapter 1. General Provisions

1. This Instruction establishes capital adequacy standards for commercial banks and defines their structure. This Instruction applies to commercial banks, including those having an "Islamic window," as well as to JSC "Financial Company of Credit Unions" regarding the determination of capital structure, the procedure for calculating the minimum size of own (regulatory) capital and capital adequacy ratios, as well as the assessment of balance sheet assets and off-balance sheet obligations by risk degree (hereinafter - banks).

(As amended by the Resolution of the Board of Directors of the NB KR of January 17, 2024 No. 2024-P-12/1-3)

2. Bank capital is the guarantee of profitable and sustainable growth, a guarantor of client confidence in the bank, and serves to cover potential losses inherent in banking.

3. For banking supervisory authorities, capital is a means of protecting against the consequences of excessive risk situations and financial insolvency (insolvency). For this reason, banking supervisory authorities are interested in banks having adequate capital capable of covering possible losses and deficits without the threat of insolvency.

4. The term "capital adequacy" reflects a general assessment of the bank's reliability and its degree of risk exposure. The interpretation of capital as a means of protection against losses and insolvency establishes a direct dependence between the amount of capital and the bank's risk exposure, i.e., the amount of capital must be adequate to the increasing volume of banking operations associated with a high degree of risk.

Chapter 2. Capital Adequacy Standards

5. Minimum capital size:

1. minimum size of the authorized capital of banks (including branches of foreign banks);

2. own (regulatory) capital is Tier 1 capital.

6. Capital adequacy ratios based on weighting balance sheet assets and off-balance sheet obligations by risk degree:

a) the total capital adequacy ratio (K2.1) is determined by the formula:

K2.1 = (NCT / (NBA + P * Kor)) * 100%,

where:

NCT - Net Total Capital, which is determined as the sum of Tier 1 capital and Tier 2 capital;

NBA - sum of balance sheet assets and off-balance sheet obligations, weighted by risk degree, minus special reserves for covering potential losses and deficits;

P - established indicator (number, inverse of the total capital adequacy ratio) for commercial banks - 8.33 (100% : 12%), for systemically important banks:

• 8.00 (100% : 12.5%) from January 1, 2023;

• 7.14 (100% : 14%) from July 1, 2024;

Kor - amount of capital reserved to cover operational risks. Calculation of capital reserved to cover operational risks using the Basic Indicator Approach is carried out in accordance with the Procedure for determining the level of capital required to cover banks' operational risks, approved by the Resolution of the Board of Directors of the National Bank of the Kyrgyz Republic of December 27, 2019 No. 2019-P-12/68-1-(NPA);

b) the Tier 1 capital adequacy ratio (K2.2) is determined by the formula:

K2.2 = (T1C / NBA) * 100%,

where:

T1C - Tier 1 capital, which is determined according to paragraph 15 of this Instruction;

c) the Common Equity Tier 1 capital adequacy ratio (K2.3) is determined by the formula:

K2.3 = (CET1 / NBA) * 100%,

where:

CET1 - Common Equity Tier 1 capital.

The National Bank of the Kyrgyz Republic (hereinafter - National Bank) has the right to increase the minimum size of capital adequacy ratios based on an assessment of risks and the systemic importance of banks.

(As amended by the Resolution of the Board of Directors of the NB KR of July 5, 2024 No. 2024-P-12/28-2)

7. Leverage (K2.4) is determined by the formula:

K2.4 = (T1C / (TA + LO) * 100%,

where:

TA - total assets of the bank minus intangible assets and special reserves for covering potential losses and deficits;

LO - off-balance sheet obligations taking into account credit conversion factors defined by this Instruction, as well as those obligations for which the bank has the right to unconditional withdrawal/cancellation at any time without prior notice to the client, to which a credit conversion factor of 10% of the total amount of such off-balance sheet obligations may be applied. At the same time, the sum of reserves for covering potential losses and deficits is subtracted from off-balance sheet obligations (after applying credit conversion factors) within the amount of weighted off-balance sheet obligations.

8. In order to maintain the bank's financial stability and the stability of its activities, a requirement is established for supporting the "additional bank capital buffer" ("capital buffer" index) for dividend payments. The "capital buffer" index is determined as the ratio of Net Total Capital to the sum of balance sheet assets and off-balance sheet obligations, weighted by risk degree, minus special reserves for covering potential losses and deficits. The value of the "capital buffer" index for banks is established by the Supervisory Committee of the National Bank.

9. A bank has no right to make a decision on dividend payment if the "capital buffer" index, calculated taking into account the deduction of the dividend amount planned for payment, will be below the value established by the National Bank.

After dividend payment, the "capital buffer" index must be at a value not lower than established by the National Bank.

In case of compliance with the value of the "capital buffer" index, calculated taking into account the deduction of the dividend amount planned for payment, the bank must obtain permission from the National Bank for payment, except in cases where the bank increases its authorized capital at the expense of undistributed profit.

Chapter 3. Capital Structure

10. The basis of capital is the fully paid authorized capital of the bank. According to the standards of the Basel Committee on Banking Supervision, authorized capital is "a key element of capital, common to banking systems in all countries; it is clearly visible in the reporting published by banks and is the basis on which the market assessment of capital adequacy is based; it is crucial for determining the bank's profitability and competitiveness indicators."

11. Only such authorized capital (ordinary and preferred shares) is included in capital for which there are no obligations to return funds invested by the bank's shareholders. These funds can be obtained by shareholders only through transfer or sale of shares to third parties.

Formation of authorized capital, acquisition of bank shares, as well as acquisition of threshold participation in the bank's capital at the expense of borrowed funds is prohibited.

(As amended by the Resolution of the Board of Directors of the NB KR of December 14, 2022 No. 2022-P-12/78-8)

12. A bank has no right to accept its own shares as collateral and acquire them.

(As amended by the Resolution of the Board of Directors of the NB KR of December 14, 2022 No. 2022-P-12/78-8)

13. For the purposes of banking supervision, a distinguishing feature of capital components is its ability to cover losses that may arise in the course of the bank's activities. For this reason, when assessing capital adequacy, some "non-capital" accounting accounts are included in capital (for example, "General Reserve for Covering Potential Losses and Deficits" or "Subordinated Bonds and Other Debt Obligations").

14. For the purposes of calculating capital adequacy ratios, bank capital is divided into Tier 1 capital and Tier 2 capital.

15. Tier 1 capital is necessary to ensure the absorption of losses during the bank's current activities.

Tier 1 capital consists of the following elements:

• Common Equity Tier 1 capital;
• Additional Tier 1 capital.

16. The structure of Common Equity Tier 1 capital consists of the following elements:

1. "ordinary shares" - issued and fully paid ordinary shares of the bank meeting the conditions established by legislation;

2. "non-cumulative preferred shares" - issued and fully paid preferred shares of the bank meeting the conditions established by legislation and not requiring the bank to distribute dividends.

In the presence of circumstances/conditions where dividend distribution is mandatory, such preferred shares and capital contributed above par on these shares must be accounted for in Additional Tier 1 capital or in Tier 2 capital;

3. "share premium" - the difference between the selling price of ordinary and preferred shares included in Common Equity Tier 1 capital and their par value as a result of issuance.

Share premium is not subject to distribution to shareholders as dividends and remains in the bank.

With the written consent of the National Bank, share premium may be used to increase authorized capital only for the purpose of complying with the requirement for the minimum size of authorized capital;

4. "reserves for future needs of the bank" - reserves created from profit after taxation for future and/or unforeseen events;

5. "undistributed profit (deficits) of previous years" - the balance of net profit (deficits) after taxation of previous years after deducting declared dividends and distribution to other capital accounts.

17. The structure of Additional Tier 1 capital includes the following elements:

1. "additional capital contributed by individuals and legal entities" - funds contributed by individuals and legal entities in excess of the paid authorized capital. The need to contribute these funds arises in case of the bank's failure to meet the National Bank's requirements for the minimum size of own (regulatory) capital (Tier 1 capital) and/or economic standards, and/or in the presence of risk of their non-compliance, including at the request of the National Bank, and/or the need to increase authorized capital by the date determined by the National Bank. These funds are credited only if the bank has a contract with individuals and legal entities on contributing funds towards the acquisition of the bank's shares with the condition of irrevocability (under any circumstances), permanence of the contributed funds, as well as with the condition that in case of the bank's bankruptcy, claims on these funds will be satisfied in the same queue as claims of the bank's shareholders. The amount of additional capital must be sufficient for the bank to meet the minimum values of these requirements and standards. Subsequently, additional funds contributed by individuals and legal entities must be converted into ordinary and/or preferred shares, and these persons must be endowed with an indisputable right to acquire issued shares for the amount of these provided funds;

2. "preferred shares that meet the criteria of Additional Tier 1 capital but are not acceptable for Common Equity Tier 1 capital". Preferred shares in this item are indicated taking into account the amount contributed above their par value;

3. "other capital instruments" - instruments possessing features of both capital and debt obligation, which includes perpetual subordinated debt.

Subordinated debt is understood as an unsecured obligation that must not be repaid early at the request of creditors and claims on which in case of the bank's liquidation are satisfied last after satisfying all claims of creditors and depositors, but before settlements with the bank's shareholders.

Additional Tier 1 capital instruments issued by the bank must meet the criteria established for them.

18. Additional Tier 1 capital must meet the following criteria for capital elements:

1. must be issued and paid;

2. must be subordinated, i.e., claims on these instruments are satisfied last after satisfying all claims of depositors, main creditors, and the bank's subordinated debt.

At the same time, a part of capital instruments and debt instruments may be included in the composition of Additional Tier 1 capital with the permission of the National Bank upon written application of the Bank's Board of Directors;

3. the instrument must not be collateral or guarantee for the bank's/related parties' obligations, nor must it fall under any requirements/conditions that could oblige the bank in a legal or economic sense to prioritize satisfaction of claims;

4. must be perpetual, i.e., have no maturity dates;

5. may be repurchased by the issuer or redeemed at its initiative only after a minimum period of not less than five years. At the same time:

a) the bank must not take any actions upon issuance of the instrument, expecting that this instrument will be repurchased;

b) repurchase/redemption is allowed only in case:

• replacement of the instrument with an instrument of the same kind or highest quality, if the replacement of the specified instrument is carried out on terms that are reliable for the bank's capital;

• minimum National Bank capital requirements are not violated;

• obtaining prior permission from the National Bank;

6. any payment of principal (e.g., by repurchase or payment) must be carried out with the prior consent of the National Bank, and banks must not assume or create expectations that consent from the National Bank will be obtained;

7. right to choose regarding dividends/interest payments:

a) the bank must at all times have the full right to cancel dividend/payment;

b) the decision to cancel dividend and payment must not be considered as a case of default or insolvency of the bank;

c) possibility of fulfilling other obligations as they fall due at the expense of unpaid dividends;

d) cancellation of dividend/payment must not impose restrictions on the bank. At the same time, restrictions on dividend payment for ordinary shares may also be established;

8. the instrument cannot be included in liabilities to the extent exceeding assets, if such excess is a sign of insolvency according to legislation;

9. if the bank's Common Equity Tier 1 ratio drops to 5.125%, the bank must have the right to convert these instruments into ordinary shares or write off these instruments by distributing losses on them.

At the same time, write-off must lead to the following results:

a) reduction of claims on the instrument in case of bank liquidation;

b) reduction of the amount paid upon repurchase of the instrument;

c) partial or full reduction of interest/dividend payments;

10. neither the bank nor a related party over which the bank exercises control or has significant influence has the right to repurchase the instrument, including the bank has no right to directly or indirectly participate (including by allocating funds in the form of loans, prepayments, etc. and/or providing other services) in the purchase of the instrument.

(As amended by the Resolution of the Board of Directors of the NB KR of November 12, 2025 No. 2025-P-12/60-4-(NPA))

19. Tier 2 capital is necessary to ensure the absorption of losses in case of bank liquidation.

The structure of Tier 2 capital consists of the following elements:

1. "current year profit" - profit after taxation received in the current year;

2. "general reserves":

a) "general" reserves for covering potential losses and deficits;

b) "general" reserves for covering potential losses and deficits from other assets, except loans.

These reserves, which have the right to be included in Tier 2 Capital, will be limited to a maximum of 1.25 percent of the value of assets and off-balance sheet obligations weighted by credit risk;

3. "reserves for revaluation of securities" - unrealized profit (losses) from the revaluation of securities available for sale;

4. "reserves for foreign currency translation upon consolidation" - unrealized income (losses) arising from changes in exchange rates when translating the reporting of foreign subsidiary financial institutions of the bank;

5. a part of capital instruments and debt instruments that may be included in the composition of Tier 2 Capital with the permission of the National Bank upon written application of the Bank's Board of Directors;

6. the difference between the selling price of shares included in Tier 2 Capital (not included in Tier 1 Capital) and their par value as a result of issuance.

20. Instruments included in the structure of Tier 2 capital must meet the following criteria:

1. be issued and paid;

2. must be subordinated, i.e., claims on these instruments are satisfied last after satisfying all claims of depositors, main creditors, and the bank's subordinated debt;

3. the instrument must not be collateral or guarantee for the bank's/related parties' obligations, nor must it fall under any requirements/conditions that could oblige the bank in a legal or economic sense to prioritize satisfaction of claims;

4. maturity term:

a) the minimum maturity term must be not less than 5 (five) years;

b) amortization of capital instruments is carried out based on the straight-line method over the remaining five years until maturity;

c) must not provide any incentives for repurchase;

5. may be repurchased by the issuer or redeemed at its initiative only after a minimum period of 5 (five) years, and only after prior approval of the National Bank. At the same time:

a) the bank must not take any actions upon issuance of the instrument, expecting that this instrument will be repurchased;

b) repurchase/redemption is allowed only in case:

• replacement of the instrument with an instrument of the same kind or highest quality, if the replacement of the specified instrument is carried out on terms that are reliable for the bank's capital;

• if minimum National Bank capital requirements are not violated;

• obtaining prior permission from the National Bank;

6. the investor/creditor has no rights to early repayment of future planned payments (interest income or principal of the instrument), except in cases of bankruptcy and liquidation;

7. neither the bank nor a related party over which the bank exercises control or has significant influence has the right to repurchase the instrument, including the bank has no right to directly or indirectly participate (including by allocating funds in the form of loans, prepayments, etc. and/or providing other services) in the purchase of the instrument.

21. Before calculating adequacy ratios, Net Total Capital, Tier 1 capital, Common Equity Tier 1 capital, and Leverage ratio, the following elements are deducted from Common Equity Tier 1 capital:

1. losses for the current year;

2. intangible assets, except:

a) intangible assets representing software solutions aimed at combating fraud (anti-fraud systems) and meeting the National Bank's requirements, with prior notification to the National Bank providing supporting documents;

b) intangible assets intended for opening and functioning of branches abroad, to which only software solutions arising from the acquisition or development of identifiable intangible assets recognized in accordance with International Financial Reporting Standards (hereinafter - IFRS) are attributed, provided that the following conditions are simultaneously met:

• such assets are used exclusively to ensure the activities of the corresponding branch and are not used by other subdivisions of the bank, except for intangible assets intended for collecting, structuring, processing, storing data, including data of the branch abroad, as well as for forming consolidated reporting;

• costs are one-time and do not include expenses related to technical support, updates and operation, as well as staff training;

• assets are amortized in accordance with IFRS, with an amortization period not exceeding 5 (five) years;

• there are no signs of impairment for these assets;

• the bank ensures separate accounting for such assets;

• with prior notification to the National Bank providing supporting documents.

In case of non-compliance with these conditions, such assets are subject to deduction in accordance with this paragraph;

(As amended by the Resolution of the Board of Directors of the NB KR of May 29, 2026 No. 2026-P-12/33-4-(BS))

3. investments (in the form of shares or equity participation in capital) in other non-consolidated banks and financial-credit organizations, as well as non-financial organizations, including investments in subsidiary companies. If the bank invests Additional Tier 1 capital or Tier 2 Capital into these organizations, these investments must be deducted from the corresponding capital;

4. all deferred tax assets that depend on future profitability, calculated based on IFRS 12, except for deferred tax assets related to temporary differences. Deferred tax assets may be offset against deferred tax liabilities if IFRS 12 conditions are met;

5. (Paragraph lost force in accordance with the Resolution of the Board of Directors of the NB KR of December 14, 2022 No. 2022-P-12/78-8)

(Paragraph lost force in accordance with the Resolution of the Board of Directors of the NB KR of December 14, 2022 No. 2022-P-12/78-8)

Mutual cross-holdings of capital, which lead to artificial increase in the bank's capital position, must be deducted in full. Banks must apply the "appropriate deduction approach" for such investments in capital of other banks, other financial and insurance organizations. This means that the deduction must be applied to the same component of capital for which the capital would be qualified as, if it were issued by the bank itself.

(As amended by the Resolutions of the Board of Directors of the NB KR of December 14, 2022 No. 2022-P-12/78-8, June 27, 2025 No. 2025-P-12/31-2-(NPA))

22. Values of Tier 1 capital and Net Total Capital as of the 1st day of the month following the reporting period are used to calculate capital adequacy standards and other economic standards and requirements established by the National Bank. When calculating economic standards, the values of which are determined on a daily or weekly basis during the reporting month, the total value of the bank's Net Total Capital as of the 1st day of the reporting month and additional capital, in case it is contributed by legal or physical persons in the established order, is used.