On Amendments and Additions to the Procedure for Classifying Asset Quality, Forming and Using Reserves Created by Commercial Banks to Cover Potential Losses Therefrom

Art. 397 — 100 — No. 38 (486)

DECISION
OF THE BOARD OF THE CENTRAL BANK OF THE
REPUBLIC OF UZBEKISTAN

397 On Amendments and Additions to the Procedure for Classifying Asset Quality, Forming and Using Reserves Created by Commercial Banks to Cover Potential Losses Therefrom

Registered by the Ministry of Justice of the Republic of Uzbekistan on September 22, 2011, registration No. 632-2

(Enters into force from October 2, 2011)

In accordance with the laws of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan" (Vedomosti Oliy Majlisi Respubliki Uzbekistan, 1995, No. 12, Art. 247), "On Banks and Banking Activity" (Vedomosti Oliy Majlisi Respubliki Uzbekistan, 1996, No. 5-6, Art. 54) and the Decree of the President of the Republic of Uzbekistan dated November 26, 2010 No. PP-1438 "On Priority Directions for Further Reforming and Increasing the Stability of the Financial and Banking System of the Republic in 2011–2015 and Achieving High International Rating Indicators" (Sobranie Zakonodatelstva Respubliki Uzbekistan, 2010, No. 48, Art. 442), the Board of the Central Bank of the Republic of Uzbekistan decides:

1. Make amendments and additions to the Procedure for Classifying Asset Quality, Forming and Using Reserves Created by Commercial Banks to Cover Potential Losses Therefrom, approved by the Board of the Central Bank of the Republic of Uzbekistan on November 9, 1998 No. 242 (reg. No. 632 of February 11, 1999), according to the Appendix.

2. This decision enters into force upon the expiration of ten days from the day of its state registration in the Ministry of Justice of the Republic of Uzbekistan.

Chairman of the Central Bank
F. MULLAZHANOV

Tashkent,
September 10, 2011,
No. 26/1

---

Collection of Legislation of the Republic of Uzbekistan, 2011 ``` No. 38 (486) — 101 — Art. 397

APPENDIX
to the Decision of the Board of the Central Bank of the Republic of Uzbekistan dated September 10, 2011 No. 26/1

Amendments and Additions Made to the Procedure for Classifying Asset Quality, Forming and Using Reserves Created by Commercial Banks to Cover Potential Losses Therefrom

1. In paragraph 1.7:
   a) supplement sub-paragraph 1.7.4 with a second paragraph of the following content:
   "Payments under the loan are distributed over the entire term of the credit agreement and paid in installments. The amounts and frequency of payments are established by the credit agreement"; b) supplement with sub-paragraph 1.7.10 of the following content:
   "1.7.10. Deposits of mandatory reserves to cover potential losses on banking assets — deposits of commercial banks, reserved at the Central Bank to cover potential losses on banking assets".

2. In paragraph 2.5:
   a) from sub-paragraph 2.5.2, exclude the words "A loan (asset), unpaid interest on which is converted into a new loan (asset) (capitalized), must be classified as at least 'standard'. Loans that have been overdue, but only for a short period of time (up to 30 days), may be considered 'standard'. However, the status of overdue should not be the main factor in assessing the classification of the asset"; b) from the first paragraph of sub-paragraph 2.5.3, exclude the last sentence; c) supplement sub-paragraph 2.5.4 with a fifth paragraph of the following content:
   "c) there are unpaid payments for interest and principal debt according to the repayment schedule"; d) replace the second and third paragraphs of sub-paragraph 2.5.5 with paragraphs second through eighth of the following content:
   "If at least one of the following problems or characteristics is present, the asset is classified as 'non-performing':
   the due date for interim payments according to the contract schedule is overdue by 180 days or more; the asset is unpaid within the term established by the contract; assets that are in the process of court proceedings; extended assets due to the poor financial position and insolvency of the borrower; property recovered from the borrower and lessee has not been realized by the bank within three months from the date of acceptance onto the bank's balance sheet by

Collection of Legislation of the Republic of Uzbekistan, 2011 ``` ``` Art. 397 — 102 — No. 38 (486)

exercising rights to pledged property not used for banking purposes.

If there are facts or signs indicating that the asset will not be returned within the term established by the contract, such asset is also classified as 'non-performing'; paragraph four is to be considered paragraph ninth.

3. Supplement with Section 5-1 of the following content:

"5-1. Transfer of Funds to Mandatory Reserve Deposits to Cover Potential Losses on Banking Assets

5-1.1. Commercial banks must ensure the transfer of funds from the correspondent account to the deposit account of mandatory reserves to cover potential losses on banking assets, opened at the Central Bank (hereinafter — mandatory reserve deposits) in an amount equal to the size of funds formed by special reserves to cover potential losses on banking assets.

5-1.2. The volume of funds mandatory for transfer to mandatory reserve deposits is calculated at the end of the 10th and 20th day of each month and at the end of the month based on the sum of formed reserves to cover potential losses on banking assets.

Based on the results of calculations, within three working days, commercial banks must transfer the missing amount from the size of special reserves to mandatory reserve deposits or, based on their justified appeal, the Central Bank returns excess sums to commercial banks.

5-1.3. The Central Bank, based on the analysis of the credit portfolio, has the right to issue mandatory directives for execution to commercial banks regarding the creation of additional reserves to cover potential losses on banking assets.

5-1.4. In case of non-compliance by commercial banks with the requirements specified in sub-paragraphs 5-1.2 and 5-1.3 of this Regulation, the Central Bank collects the funds necessary for transfer to mandatory reserve deposits from the correspondent accounts of banks at the Central Bank and applies corresponding measures and sanctions to the bank in accordance with Article 53 of the Law of the Republic of Uzbekistan 'On the Central Bank of the Republic of Uzbekistan'.

Collection of Legislation of the Republic of Uzbekistan, 2011 ---