Resolution of the Board of the National Bank

of the Kyrgyz Republic

of 25 September 2019
No. 2019-П-12\49-4-(НПА)

On introducing amendments and additions to certain regulatory legal acts

of the National Bank of the Kyrgyz Republic

In accordance with Articles 20 and 68 of the Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic, Banks and Banking Activities", the Board of the National Bank of the Kyrgyz Republic resolves:

• 1. To introduce amendments and additions to the following regulatory legal acts of the National Bank of the Kyrgyz Republic (attached):

  • Resolution of the Board of the National Bank of the Kyrgyz Republic

  • "On approval of the Regulation 'On certain transactions/operations of commercial banks and microfinance companies of the Kyrgyz Republic with immovable property' of 29 August 2012 No. 36/2";

  • Resolution of the Board of the National Bank of the Kyrgyz Republic

  • "On certain regulatory legal acts of the National Bank of the Kyrgyz Republic" of 25 August 2005 No. 26/5;

  • Resolution of the Board of the National Bank of the Kyrgyz Republic "On approval of the Regulation 'On periodic regulatory reporting of banks carrying out operations in accordance with Islamic principles of banking and financing' of 30 March 2011 No. 20/4".

• 2. This resolution enters into force upon expiry of fifteen days from the day of official publication.

• 3. To the Legal Department:

  • to publish this resolution on the official website of the National Bank of the Kyrgyz Republic;

  • after official publication, to send this resolution to the Ministry of Justice of the Kyrgyz Republic for inclusion in the State Register of Regulatory Legal Acts of the Kyrgyz Republic.

• 4. To the Supervision Methodology and Banking Licensing Department to bring this resolution to the attention of commercial banks, the Legal Entity Union "Union of Banks of Kyrgyzstan", the Legal Entity Union "Association of Islamic Finance", OJSC "Financial Company of Credit Unions", the relevant structural subdivisions, regional departments and the representative office of the National Bank of the Kyrgyz Republic in Batken Region.

• 5. To entrust control over the execution of this resolution to the member of the Board of the National Bank of the Kyrgyz Republic supervising the Supervision Methodology and Banking Licensing Department.

Chairman T. Abdygulov

Annex
to the Resolution of the Board of the National Bank of the Kyrgyz Republic of 25 September 2019

No. 2019-П-12\49-4-(НПА)

Amendments and additions to

certain regulatory legal acts

of the National Bank of the Kyrgyz Republic

• 1. To introduce to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On approval of the Regulation 'On certain transactions/operations of commercial banks and microfinance companies of the Kyrgyz Republic with immovable property' of 29 August 2012 No. 36/2 the following amendment and additions:

in the Regulation "On certain transactions/operations of commercial banks and microfinance companies of the Kyrgyz Republic with immovable property", approved by the above-mentioned resolution:

• to restate paragraph 2 as follows:

"2. This Regulation applies to commercial banks and microfinance companies entitled to attract deposits, including those carrying out operations in accordance with Islamic principles of banking and financing, including banks and microfinance companies entitled to attract deposits with an "Islamic window", taking into account the specifics of their activities and the terminology used by them in carrying out banking operations, the State Development Bank of the Kyrgyz Republic, OJSC "Financial Company of Credit Unions" (hereinafter referred to as banks). The purpose of this Regulation is to establish requirements for banks when carrying out operations with immovable property received by the bank against repayment of previously issued loans, as well as operations with bank premises intended for sale.";

• to supplement paragraph 31 with the sixth paragraph of the following content:

"Specifics of transferring other immovable property to the status of financing under Islamic principles of financing are provided for in paragraph 34-3 of this Regulation.";

• to supplement the Regulation with Chapter 6-1 of the following content:

"6-1. Additional requirements for banks and microfinance companies entitled to attract deposits carrying out operations in accordance with Islamic principles of banking and financing, including banks and microfinance companies entitled to attract deposits with an "Islamic window", when carrying out operations with other immovable property

34-1. For the purposes of this Chapter:

    - an ijarah muntahiya bittamlik contract is a contract for the provision to the client of property for hire (lease) for temporary possession and use for an agreed term, on a paid basis, with the right to purchase the property (asset) specially acquired by the bank into ownership upon the client's application, or property (asset) owned by the bank at the time the client applies to the bank;

    - a musharakah contract is a form of partnership based on a sharikah contract in which one of the partners undertakes to gradually buy out the share of the other partner until the ownership right to that share passes fully to him. This operation begins with the formation of a partnership, after which the purchase and sale of shares between the two partners begins.

34-2. "Other immovable property", in addition to the assets specified in paragraph 3 of this Regulation, means immovable property - the subject of an ijarah muntahiya bittamlik or musharakah contract, which has passed into the status of other property of the bank due to the client's non-fulfillment (full or partial) of contractual obligations with the bank.

The bank must duly inform the client 30 (thirty) days before termination of the contract with the client.

The asset must be recognized on the balance sheet as other immovable property from the date of termination of the ijarah muntahiya bittamlik or musharakah contract with the client. The retention period for other immovable property begins on the date of termination of the ijara muntahiya bittamlik or musharaqa agreement with the client.

An asset that is the subject of an ijara muntahiya bittamlik agreement and has been transferred to the category "other immovable property" must be recognized at book value. The book value of the asset must be equal to its original cost less accumulated depreciation for the period during which the ijara muntahiya bittamlik agreement was in effect.

The sale of other immovable property and payment to the client of the proceeds from the sale equal to the amount of payments made by the client toward the purchase of the immovable property is an obligation of the bank.

The bank has the right to collect outstanding periodic rental payments in respect of the period during which the client was actually the lessee of the immovable property – the subject of the ijara muntahiya bittamlik agreement.

An asset that is the subject of a musharaqa agreement and has been transferred to the category "other immovable property" must be valued and recognized on the bank's balance sheet in accordance with Chapter 5 of this Regulation.

The sale of other immovable property and payment to the client of the proceeds from the sale exceeding the bank's share in the joint asset is an obligation of the bank.

The bank has the right to collect outstanding periodic rental payments in respect of the period for which the client was actually the lessee of the joint immovable property – the subject of the musharaqa agreement.

34-3. The bank may account for other immovable property as financing provided under an ijara muntahiya bittamlik or musharaqa agreement subject to the following requirements:

    - 1) other immovable property has been transferred to the category "assets for subsequent transfer under an ijara muntahiya bittamlik agreement" or "assets for subsequent transfer under a musharaqa agreement" in connection with a received application from the client/partner for the acquisition of other immovable property under an ijara muntahiya bittamlik or musharaqa agreement, taking into account that:

      - a) the solvency analysis reflects the client's/partner's ability to make payments;

      - b) the data on the client's/partner's solvency are confirmed by relevant documents;

      - c) the client/partner deposits with the bank an amount of funds constituting not less than 15% of the total sale price in the case of sale of the property to a person not related to that bank, and not less than 40% – in the case of sale of the property to a person falling under the definition of a person related to the bank or an affiliate of the bank;

    - 2) upon conclusion of an ijara muntahiya bittamlik or musharaqa agreement with the client, the bank transfers the asset to the category "financing provided under an ijara muntahiya bittamlik agreement" or "financing provided under a musharaqa agreement";

    - 3) the amortization period of assets transferred under an ijara muntahiya bittamlik agreement must not exceed the term of the agreement itself.

34-4. Other immovable property described in this chapter is classified in accordance with the Regulation "On the Classification of Assets and Corresponding Deductions to the Reserve for Potential Losses and Losses in Conducting Operations in Accordance with Islamic Principles of Banking and Financing", approved by resolution of the Board of the National Bank of the Kyrgyz Republic of 28 December 2009 No. 51/6.".

• 2. To introduce the following amendments and additions to the resolution of the Board of the National Bank of the Kyrgyz Republic "On Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic" of 25 August 2005 No. 26/5:

in the Regulation "On Periodic Regulatory Bank Reporting", approved by the above-mentioned resolution:

• in Appendix 2:

  • 1) in subsection 1 Z. "Report on operations conducted by the bank within the framework of the "Islamic window" of section 1 "Balance Sheet":

    • subparagraphs "c" and "d" of paragraph 7 "Financing provided to banks and financial-credit organizations, including:" shall be set out in the following wording:

"

c) under a sharika agreement

d) under a musharaqa agreement

";

      - subparagraphs "c" and "d" of paragraph 8 "Financing provided to other clients, including:" shall be set out in the following wording:

"

c) under a sharika agreement

d) under a musharaqa agreement

";

      - paragraph 11 "Assets for subsequent transfer to clients" shall be supplemented with lines of the following content:

"

including:

a) immovable property

b) movable property

";

      - the subsection shall be supplemented with paragraph 12-1 of the following content:

"

12-1. Assets for subsequent transfer to clients under a musharaqa agreement

including:

a) immovable property

b) movable property

";

    - 2) in subsection 2A. "Report on profit and loss on operations conducted by the bank within the framework of the "Islamic window" of section 2 "Profit and Loss Report":

      - subparagraphs "b" and "c" of paragraph 5 "Income received from financing provided to financial-credit organizations, including:" shall be set out in the following wording:

"

b) under a sharika agreement

c) under a musharaqa agreement

";

      - subparagraphs "b" and "c" of paragraph 6 "Income received from financing provided to other clients, including:" shall be set out in the following wording:

"

b) under a sharika agreement

c) under a musharaqa agreement

";

      - subparagraphs "b" and "c" of paragraph 18 "Expenses incurred on financing operations, including:" shall be set out in the following wording:

"

b) under the sharika contract

c) under the musharaka contract

».

• 3. To introduce the following amendments and additions to the resolution of the Board of the National Bank of the Kyrgyz Republic "On approval of the Regulation "On periodic regulatory reporting of banks carrying out operations in accordance with Islamic principles of banking and financing" of 30 March 2011 No. 20/4:

in the Regulation "On periodic regulatory reporting of banks carrying out operations in accordance with Islamic principles of banking and financing", approved by the above-mentioned resolution:

• in Appendix 2:

  • 1) in section 1.A. "Balance sheet":

    • subparagraphs "c" and "d" of paragraph 8 "Financing provided to banks and financial-credit organizations, including:" shall be set out in the following wording:

"

c) under the sharika contract

d) under the musharaka contract

";

      - subparagraphs "c" and "d" of paragraph 9 "Financing provided to other clients, including:" shall be set out in the following wording:

"

c) under the sharika contract

d) under the musharaka contract

";

      - paragraph 12 "Assets for subsequent transfer to clients" shall be supplemented with lines of the following content:

"

including:

a) immovable property

b) movable property

";

      - the section shall be supplemented with paragraph 13-1 of the following content:

"

13-1. Assets for subsequent transfer to clients under the musharaka contract, including:

a) immovable property

b) movable property

";

2) in section 2. "Statement of profit and loss and comprehensive income":

• subparagraphs "b" and "c" of paragraph 7 "Income received from financing provided to financial-credit organizations, including:" shall be set out in the following wording:

"

b) under the sharika contract

c) under the musharaka contract

";

• subparagraphs "b" and "c" of paragraph 8 "Income received from financing provided to other clients, including:" shall be set out in the following wording:

"

b) under the sharika contract

c) under the musharaka contract

";

• subparagraphs "b" and "c" of paragraph 20 "Expenses incurred on financing operations, including:" shall be set out in the following wording:

"

b) under the sharika contract

c) under the musharaka contract

".