Instruction on Financing Limits Under Islamic Banking Principles

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Creation date: 2026-04-09

Approved

by the Resolution of the Board

of the National Bank

of the Kyrgyz Republic

of October 12, 2012 No. 40/1

Instruction on Financing Limits Implemented in Accordance with Islamic Principles of Banking and Finance

(Changes and additions approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic No. 2017-P-12/25-5-(NPA) of June 15, 2017, No. 2021-P-12/70-2-(NPA) of December 20, 2021, No. 2023-P-12/80-3-(NPA) of December 20, 2023, No. 2025-P-12/46-1-(NPA) of September 12, 2025, No. 2026-P-12/20-5-(NPA) of April 2, 2026)

GENERAL PROVISIONS

This Instruction applies to Islamic banks and banks having an "Islamic window".

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

The purpose of this Instruction is to establish financing limits implemented in accordance with Islamic principles of banking and finance, as well as requirements and procedures mandatory for execution by Islamic banks and banks having an "Islamic window".

Financing limits are risk restrictions per one client/supplier or group of related clients/suppliers (hereinafter referred to as one client/supplier), established by the National Bank of the Kyrgyz Republic (hereinafter - the National Bank) through the economic indicator "Maximum risk size per one client/supplier or group of related clients/suppliers".

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

2. PROCEDURE FOR CALCULATING THE INDICATOR OF MAXIMUM RISK SIZE PER ONE CLIENT/SUPPLIER

The indicator of maximum risk size per one client/supplier (K1) is calculated using the following formula:

K1 = SZ / NSC * 100%,

where under aggregate debt, or claims –

SZ - is understood as the total debt of one client/supplier on:

financing provided in accordance with Islamic principles of banking and finance (regardless of repayment term),

factoring,

interbank placements,

investments in the form of debt obligations,

markup and other forms of compensation for financing provided in accordance with Islamic principles of banking and finance,

any other type of direct or indirect provision of funds to clients/suppliers, which in essence are financing,

the amount of off-balance sheet obligations (guarantees, letters of credit, obligations to provide financing) issued to this client/supplier,

any risk of the Islamic bank regarding a third party, which is unconditionally guaranteed by this client;

previously written-off financing provided in accordance with Islamic principles of banking and finance, including markup and other forms of compensation. In the dossier of each client/supplier, information on previously written-off financing, markup, and other forms of compensation of this client/supplier and related persons must be attached, which must contain the following information: name of the client/supplier and related persons, amount of written-off financing, markup, and other forms of compensation for provided financing, date of write-off, and the reason why this debt was written off. If such information is absent, the dossier must contain a conclusion from an authorized person of the Islamic bank stating that there are no previously written-off amounts for provided financing for this client/supplier and related persons.

NSC

– net aggregate capital of the Islamic bank.

The maximum risk size per one client/supplier not related to the Islamic bank must not exceed the following values:

for clients/suppliers, other than banks (K1.1) – no more than 20%;

for banks (K1.3) – no more than 30%;

Limits and procedures for financing related to persons of the Islamic bank are determined in accordance with the Instruction on requirements for bank operations with affiliated and related persons, approved by the Resolution of the Board of the National Bank.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

For the purpose of fulfilling the economic indicators and requirements specified in this Instruction, and for additional risk reduction, Islamic banks are recommended to establish internal financing limits, which must be lower than the limits established in paragraph 5 of this Instruction.

3. EXCLUSIONS FROM THE CALCULATION OF THE INDICATOR OF MAXIMUM RISK SIZE PER ONE CLIENT/SUPPLIER

Exclusions not related to collateral:

1. funds in the correspondent account at the National Bank;

2. funds placed in commercial banks having a long-term credit rating not lower than "BBB", assigned by the rating agency Standard & Poor’s, or an equivalent rating assigned by one of the rating agencies Fitch Ratings, Moody’s Investors Service, Japan Credit Rating Agency (JCR), Dominion Bond Rating Service (DBRS), and other rating agencies corresponding to the criteria established by paragraph 3 of the Regulation "On economic indicators and requirements mandatory for commercial banks of the Kyrgyz Republic", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 14, 2022 No. 2022-P-12/78-7-(NPA), as well as loans guaranteed by such banks. In order to fall under this exception, the Islamic bank must have appropriate documentation confirming the assigned rating, specifically the name of the rating agency, dates of initial assignment of the rating and last confirmation of the assigned rating, an acceptable source of information about the rating, as well as the last annual report of the correspondent bank;

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of September 12, 2025 No. 2025-P-12/46-1-(NPA))

3. investments of the Islamic bank by acquiring securities of the Cabinet of Ministers of the Kyrgyz Republic, the National Bank, corresponding to Islamic principles of banking and finance, or securities corresponding to Islamic principles of banking and finance for which there are unconditional guarantees of the Cabinet of Ministers of the Kyrgyz Republic or the National Bank;

4. claims to governments or central banks having a long-term sovereign credit rating not lower than level "A", assigned by the rating agency Standard & Poor's, or an equivalent rating assigned by one of the rating agencies Japan Credit Rating Agency (JCR), Fitch Ratings, Dominion Bond Rating Service (DBRS), Moody’s Investors Service, and other rating agencies corresponding to the criteria established by paragraph 3 of the Regulation "On economic indicators and requirements mandatory for commercial banks of the Kyrgyz Republic", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 14, 2022 No. 2022-P-12/78-7-(NPA).

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA), December 20, 2023 No. 2023-P-12/80-3-(NPA), September 12, 2025 No. 2025-P-12/46-1-(NPA))

Exclusions related to collateral:

1. when calculating the indicator of maximum risk size per one client/supplier, only those claims secured by:

securities of the Cabinet of Ministers of the Kyrgyz Republic and the National Bank, corresponding to Islamic principles of banking and finance;

funds located in a separate bank account in this Islamic bank;

2. Claims or off-balance sheet obligations accepted by the bank, for which there is a state guarantee or surety issued by decision of the Cabinet of Ministers of the Kyrgyz Republic to a subject of the national economy, including for the purpose of facilitating the provision of national and food security of the country.;

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 2, 2026 No. 2026-P-12/20-5-(NPA))

claims secured by securities of the Cabinet of Ministers of the Kyrgyz Republic and the National Bank, corresponding to Islamic principles of banking and finance, or securities corresponding to Islamic principles of banking and finance for which there are unconditional guarantees of the Cabinet of Ministers of the Kyrgyz Republic or the National Bank. At the same time, the market value of such securities must exceed the principal amount of provided financing by at least 20%;

Claims specified in paragraphs 8 and 9 of this Instruction, and guarantees/sureties issued by decision of the Cabinet of Ministers of the Kyrgyz Republic, must be properly documented, including confirmation of their reflection in the budget of the Kyrgyz Republic in accordance with the legislation of the Kyrgyz Republic. At the same time, the total amount of guarantees/sureties issued by decision of the Cabinet of Ministers of the Kyrgyz Republic must not exceed 60% of the size of the net aggregate capital of the bank;

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 2, 2026 No. 2026-P-12/20-5-(NPA))

4. claims secured by funds located in a separate bank account in the Islamic bank itself. By a separate bank account

is meant a segregated account of a physical or legal person. Client settlement accounts and the bank's correspondent account cannot be used as collateral;

At the same time, the following conditions must be met:

documents certifying the amount of deposited funds must be stored in the Islamic bank;

the financing contract and the pledge contract must provide that the Islamic bank has the right to seize funds located in a separate bank account of the client/supplier without acceptance in case of non-fulfillment of their obligations by the latter;

in any case, the Islamic bank must develop appropriate procedures and carry out internal control ensuring the safety of funds in the bank account until the end of the term provided for in the contract;

funds in the bank account securing claims must be in the national currency of the Kyrgyz Republic, or in a currency freely convertible into Kyrgyz som, based on publicly available and reliable currency quotes. At the same time, if the bank account is in the same currency as the claim, it must cover the claim amount by at least 100%, and a bank account in a currency different from the currency of the claim - by at least 120% in som equivalent;

mandatory weekly revaluation of the bank account, in case if funds in a currency different from the currency of the provided financing are provided as collateral;

5. claims guaranteed by governments or central banks having a long-term sovereign credit rating not lower than level "A", assigned by the rating agency Standard & Poor's, or an equivalent rating assigned by one of the rating agencies Japan Credit Rating Agency (JCR), Fitch Ratings, Dominion Bond Rating Service (DBRS), Moody’s Investors Service, and other rating agencies corresponding to the criteria established by paragraph 3 of the Regulation "On economic indicators and requirements mandatory for commercial banks of the Kyrgyz Republic", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 14, 2022 No. 2022-P-12/78-7-(NPA), or guaranteed by international financial institutions (EBRD, ADB, etc.);

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of September 12, 2025 No. 2025-P- 12/46-1-(NPA))

6. off-balance sheet obligations accepted by the Islamic bank, for which the beneficiary is central banks or governments having a long-term sovereign credit rating not lower than level "A", assigned by the rating agency Standard & Poor's, or an equivalent rating assigned by one of the rating agencies Japan Credit Rating Agency (JCR), Fitch Ratings, Dominion Bond Rating Service (DBRS), Moody’s Investors Service, and other rating agencies corresponding to the criteria established by paragraph 3 of the Regulation "On economic indicators and requirements mandatory for commercial banks of the Kyrgyz Republic", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 14, 2022 No. 2022-P-12/78-7-(NPA);

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of September 12, 2025 No. 2025-P- 12/46-1-(NPA))

the amount of the share of participation in provided financing sold by the Islamic bank to another bank without the right of repurchase. This means that the acquiring bank fully assumes the risk of non-repayment of the provided financing on the same conditions on which the acquiring bank usually provides financing. The financing participation agreement must provide that in case of non-fulfillment of obligations, the risk of loss of each bank depends on the percentage ratio of their participation in financing. When acquiring a share of financing, the indicators of the National Bank on limiting the maximum risk size per one client/supplier must be observed.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA), December 20, 2023 No. 2023-P-12/80-3-(NPA))

4. REQUIREMENTS FOR COLLATERAL SECURING THE EXCLUSION FROM THE CALCULATION OF THE INDICATOR OF MAXIMUM RISK SIZE PER ONE CLIENT/SUPPLIER

If the subject of the pledge is securities and/or funds, the pledge is carried out in the form of a deposit in accordance with the legislation of the Kyrgyz Republic.

If the subject of the pledge is dematerialized securities, the Islamic bank must have documentation confirming the registration of this pledge in accordance with the legislation of the Kyrgyz Republic. At the same time, the Islamic bank must provide that the claims of the Islamic bank for collection of the subject of the pledge are of primary importance.

The pledge is documented in accordance with the Civil Code of the Kyrgyz Republic, the Law of the Kyrgyz Republic "On Pledge", and other normative legal acts of the Kyrgyz Republic.

The pledge contract must provide for the prohibition of further re-pledge in accordance with the legislation of the Kyrgyz Republic.

In case of a decrease in the market value of the subject of the pledge, the Islamic bank is obliged to immediately demand an increase in its value in accordance with the requirements of this Instruction and ensure the execution of this requirement within 10 working days.

The Islamic bank is obliged to develop appropriate procedures and carry out internal control to maintain the pledge in accordance with the requirements of sections 3 and 4 of this Instruction.

If the requirements of the legislation of the Kyrgyz Republic and this Instruction regarding the pledge (including the procedure for registration of the pledge, presence of appropriate documentation, dispositive powers regarding the pledge, certified properly, etc.) are not met, then the claim secured by such pledge will not fall under the exclusion from the calculation of the indicator of maximum risk size per one client/supplier.

The share of the amount of provided financing not falling under the requirements of sections 3 and 4 must be considered in accordance with the general rules of this Instruction when calculating the indicator of maximum risk size per one client/supplier.

5. REQUIREMENTS FOR RISK CONCENTRATION LIMITATION

Aggregate debt to one client/supplier exceeding 10% of the size of the net aggregate capital of the Islamic bank is considered a large risk.

The total amount of all large risks of the Islamic bank must not exceed five times the size of the net aggregate capital.

Each claim constituting a large risk must be approved by the Board of Directors of the Islamic bank. The minutes of the Board of Directors meeting must clearly indicate approval for its issuance, as well as the voting results of each member of the Board of Directors.

The condition of paragraph 20 of this Instruction applies to any additional claim to an existing client/supplier if it falls or continues to fall under the definition of a large risk.

The aggregate size of contracts for the provision of unsecured financing must not exceed 50% of the size of the net aggregate capital of the Islamic bank.

6. PROCEDURE FOR CALCULATING THE INDICATOR OF MAXIMUM RISK SIZE PER ONE CLIENT/SUPPLIER FOR A BANK HAVING AN "ISLAMIC WINDOW" AND CALCULATION OF A LARGE RISK OF A BANK HAVING AN "ISLAMIC WINDOW"

For a bank having an "Islamic window", the indicator of maximum risk size per one client/supplier (K1) is calculated in accordance with the Instruction on lending restrictions, approved by the Resolution of the Board of the National Bank, and is determined as the ratio of aggregate debt on traditional banking and Islamic principles of banking and finance to one client/supplier, to the net aggregate capital of the bank.

When calculating large risk by a bank having an "Islamic window", all debt placed both on traditional banking and on Islamic principles of banking and finance must be taken into account.

7. RELATED PERSONS

For the purposes of this Instruction, the term "client/supplier" implies a person/group of persons to whom the bank has provided financing /or provided assets carrying credit risk (in the form of investments, prepayment for goods/services, etc.).

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

25-1. When calculating the indicator of maximum risk size per one client/supplier, debts of various clients/suppliers must be summed up and considered as a single aggregate debt if financial difficulties of one client/supplier can lead to payment problems for other persons.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

25-2. The bank may carry out investments (including providing financing, placing assets carrying credit risk) observing the requirement that related persons are considered as one person.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

25-3. Risk management of concentration in financing must be linked to the identification of potential connections between individual clients/suppliers, since there may be cases where two (or more) clients/suppliers, interacting separately with the bank when receiving financing, represent a single risk due to legal and economic interdependence.

When determining related clients/suppliers, it is not enough to simply consider groups of companies to which consolidated reporting is provided and/or provided. Relatedness/interdependence of clients/suppliers may include, for example, joint ownership, control, or management. Cross-guarantees can also serve as an indicator of interdependence of clients/suppliers.

The bank must practically exercise due diligence and make all necessary and possible efforts to identify distortion of any information and/or non-provision of information (for the purpose of concealing relationships between clients/suppliers) by clients/suppliers to identify risks associated with them.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

In particular, the amounts of contracts of various clients/suppliers for which financing has been provided must be summed up if:

one client/supplier controls another;

financing is provided to both a legal entity and a participant/founder of this legal entity;

they have at least one controlling person or significant participant, except in cases where the controlling person or significant participant is a state body of the Kyrgyz Republic;

risks regarding two or more persons having together at least one controlling person, partner, or participant with unlimited liability (full partner) in each of them (regardless of whether this person is also the person regarding whom the Islamic bank has a separate risk);

there is significant financial interdependence between several clients/suppliers. Significant financial interdependence, including an agreement on mutual cooperation, exists, as a rule, if 50 or more percent of the annual gross income/expense or other receipts or payments of one client/supplier arose from transactions with another client/supplier;

the same source is used for repayment of received financing, including a situation where clients/suppliers use funds received as a result of financing to participate in a joint venture or common activity, or when both use the same secondary source of payment (collateral);

one of the clients/suppliers guaranteed the obligations of the other (cross-guarantees), or when the same third party is a guarantor for both clients/suppliers;

funds received by one or more clients/suppliers are used for the direct benefit of a third party, other than state bodies of the Kyrgyz Republic, (regardless of whether the bank had a claim to this third party or not), or when funds or assets purchased with these received funds are transferred to a third party, except in cases of purchase of goods or services from it in the ordinary course of business;

they have one pledgor, except in cases where the pledgor is a state body of the Kyrgyz Republic.

(Note: lost force in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

8. PROCEDURE FOR APPLYING THIS INSTRUCTION IN CASES OF NON-COMPLIANCE WITH ESTABLISHED LIMITS

The risk management system of the Islamic bank must allow identifying risks associated with violation of the requirements of this Instruction. The Islamic bank cannot accept new risks regarding clients/suppliers if the increase in the existing total risk regarding such clients/suppliers or groups of interrelated persons does not comply with the requirements of this Instruction.

If the maximum risk size per one client/supplier at the moment of the occurrence of the risk by the Islamic bank allowed fulfilling the limits established by this Instruction, but subsequently exceeded them (for example, due to exchange rate changes), then the Islamic bank is obliged to immediately inform the National Bank about this fact. In these cases, the National Bank may, without applying enforcement measures, establish a certain period of time during which this non-compliance must be eliminated.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

9. REPORTING

The Islamic bank is obliged to constantly maintain a database and keep an accounting journal for the group of related clients/suppliers, which must contain information about all claims to each client/supplier and related persons.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-5-(NPA))

The Islamic bank must submit to the National Bank information about all large risks as of the last day of each month, inclusive (Appendix 1).

The Islamic bank must submit to the National Bank information about all correspondent banks having a rating in accordance with subparagraph 2 of paragraph 8 of this Instruction, as of the last day of each quarter, incl