Regulation on Asset Classification and Corresponding Provisions for Potential Losses and Losses

Return to previous page

Print version

Creation date: 2026-06-08

Approved by the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 18/3 of July 21, 2004

REGULATION

on the classification of assets and corresponding provisions for potential losses and losses

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolutions No. 3/8 of February 24, 2010, No. 36/4 of May 26, 2010, No. 52/4 of June 30, 2010, No. 19/7 of May 18, 2012, No. 40/3 of October 12, 2012, No. 41/10 of October 31, 2012, No. 43/1 of November 16, 2012, No. 24/7 of May 30, 2014, No. 22/6 of April 15, 2015, No. 22/7 of April 15, 2015, No. 31/2 of June 10, 2015, No. 64/5 of October 28, 2015, No. 78/23 of December 23, 2015, No. 4/6 of January 20, 2016, No. 19/6 of April 27, 2016, No. 29/5 of July 14, 2016, No. 6/4 of February 22, 2017, No. 2017-P-12/25-1 of June 15, 2017, No. 2018-P-12/24-1 of June 20, 2018, No. 2018-P-12/58-10 of December 26, 2018, No. 2019-P-12/20-2 of April 15, 2019, No. 2019-P-12/22-4 of April 24, 2019, No. 2019-P-33/47-4 of September 9, 2019, No. 2020-P-12/15-5 of March 24, 2020, No. 2020-P-12/16-3 of March 25, 2020, No. 2020-P-12/73-11 of December 23, 2020, No. 2020-P-12/75-3 of December 28, 2020, No. 2020-P-33/75-5 of December 28, 2020, No. 2021-P-12/25-3 of May 19, 2021, No. 2021-P-12/51-1 of September 15, 2021, No. 2022-P-12/19-4 of March 31, 2022, No. 2022-P-12/81-8 of December 21, 2022, No. 2023-P-12/80-4 of December 20, 2023, No. 2024-P-12/1-3 of January 17, 2024, No. 2024-P-12/17-3 of April 12, 2024, No. 2024-P-12/28-2 of July 5, 2024, No. 2024-P-12/46-3 of September 25, 2024, No. 2024-P-12/64-3-(NPA) of December 4, 2024, No. 2025-P-12/11-7-(NFKU) of March 19, 2025, No. 2025-P-12/28-1-(NPA) of June 18, 2025, No. 2025-P-12/38-3-(NPA) of July 30, 2025, No. 2025-P-12/55-4-(NPA) of October 23, 2025, No. 2025-P-12/60-4-(NPA) of November 12, 2025, No. 2025-P-12/68-2-(NPA) of December 19, 2025, No. 2026-P-12/33-4-(BS) of May 29, 2026)

1. General Provisions

1.1. This Regulation establishes requirements for the classification of assets and off-balance sheet obligations (hereinafter referred to as "assets"), as well as for the creation of corresponding provisions for potential losses and losses (hereinafter referred to as "PPLU") for the purposes of regulation and supervision, and applies to all commercial banks and guarantee funds (hereinafter referred to as "banks").

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 2024-P-12/1-3 of January 17, 2024)

1.2. (Lost force in accordance with the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 2017-P-12/25-1 of June 15, 2017)

1.3. To timely cover potential losses and losses, as well as to determine the real financial condition and efficiency of operations, banks are obliged to constantly assess the quality of their assets and create PPLU.

1.4. Banks must maintain PPLU at a level sufficient to cover possible asset losses. The basis for the correct assessment of the reserve size is the asset classification system, which must be developed by the bank in accordance with this Regulation.

Bank activity that does not ensure an adequate level of PPLU will be considered by the National Bank of the Kyrgyz Republic (hereinafter referred to as the "National Bank") as unreliable and unhealthy banking practice, which puts the interests of depositors at risk.

1.5. Asset classification is an expression of various degrees of credit risk. All assets carry a certain degree of loss risk, which varies depending on various factors.

1.6. Credit risk may be associated with the financial condition of the bank's client (hereinafter referred to as "client"), the quality of collateral, the type of client by ownership form, industry affiliation, the presence and types of guarantees on assets and the reliability of the guarantors themselves, the assessment of the fulfillment of previously given obligations on bank assets, the prospects for further development of the client's business, and other potential factors.

Note: For the purposes of this Regulation, the term "client" of the bank refers to a legal or natural person assuming obligations to repay the bank's assets listed in paragraph 1.7 of this Regulation.

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 2017-P-12/25-1 of June 15, 2017)

1.7. The bank is obliged to periodically classify its credit portfolio and other assets. Such assets include:

• loans;
• assets acquired as a result of leasing;
• debt obligations acquired through factoring;
• investments in securities and/or in the capital of a company (in the form of shares, financial participation in the capital of the invested company);
• interbank placements;
• overdrafts, regardless of the cause of their occurrence;
• off-balance sheet obligations (letters of credit, guarantees, any legalized obligation to issue a loan, and others);
• issuance of a loan subject to a buyback condition;
• other property accepted in repayment of an asset;
• any other assets not listed above that carry the risk of non-repayment.

Taking into account the specifics of some types of assets, for restructured loans, interbank placements, investments in securities and/or capital, off-balance sheet obligations, and other bank property accepted in repayment of an asset, this Regulation defines special requirements for their classification.

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 52/4 of June 30, 2010)

1.8. To carry out asset classification, banks must track and analyze data on cash flows and assess the client's ability to obtain a sufficient volume of funds to repay the asset. Under the terms of the asset provision agreement, the bank has the right to periodically receive information about the client's solvency (information on cash flows), in addition to the mandatory quarterly reports (balance sheets and income statements).

At the same time, the absence of reliable financial information (for example, balance sheets and income statements of clients not verified by an external auditor) and its proper analysis is a serious deficiency. In accordance with the legislation of the Kyrgyz Republic, the client bears responsibility for the completeness and accuracy of the reporting and information provided to the bank. Nevertheless, the bank, assuming the risks associated with providing the asset, must verify the accuracy of these reports, both before the provision of the asset and subsequently - until the full repayment of the bank's funds.

1.9. In the bank's internal documents for each type of asset subject to classification, responsible persons/organs/structural subdivisions and the procedure for making decisions on the size of the corresponding provisions for potential losses must be defined.

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 2020-P-12/75-3 of December 28, 2020)

2. Basic Concepts Used in This Regulation

2.1. Credit risk is the risk of clients failing to fulfill their obligations in accordance with the terms and conditions of the contract.

2.2. Bank's overdue assets refer to those assets for which:

• the principal amount recorded on the balance sheet (including partial scheduled payments) is not paid for 30 days or more;
• interest payments are overdue by 30 days or more;
• loans are issued in the form of overdrafts or, if such financing is carried out without a established repayment schedule, and interest on them is not paid for 30 days or more.

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 6/4 of February 22, 2017)

2.3. (Lost force in accordance with the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 6/4 of February 22, 2017)

2.3-1. Factoring is understood as financing under the assignment of a monetary claim, when one party (financial agent) transfers or undertakes to transfer to the other party (client) monetary funds in account of the client's (creditor's) monetary claim to a third party (debtor), arising from the provision of goods by the client, the performance of work or the provision of services to a third party, and the client assigns or undertakes to assign this monetary claim to the financial agent.

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 52/4 of June 30, 2010)

2.3-2. Contract financing represents a credit product in the form of short-term financing (up to one year) of working capital for the fulfillment of the client's obligations under a contract with counterparties.

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 31/2 of June 10, 2015)

2.4. Bank's investments in securities and/or in capital - the bank's investments in debt securities, as well as the acquisition of shares or financial investment in capital for the purpose of obtaining profit in the form of distribution of the results of the invested company's activities.

Investments of bank funds into working capital of other companies and participation in joint projects are considered loans.

2.5. Non-market investments in securities are investments in such securities that are not quoted on the securities market, or the market of these securities is not developed, efficient, transparent, and does not allow determining the fair value of these securities. At the same time, transactions with securities may be episodic in nature, and there is also no extensive, reliable, and easily accessible information about the security for all persons.

All other investments in securities are market investments.

2.6. For the unified classification of asset quality and the creation of PPLU, the following categories are established:

A. Non-classified assets:

1. normal,
2. satisfactory,
3. assets under observation

B. Classified assets:
4) substandard assets,
5) doubtful assets,
6) assets classified as losses.

3. General Instructions for Asset Classification

3.1. When carrying out asset classification, it is necessary to conduct an analysis of both the client's legal capacity and financial ability to repay the asset, as well as changes in the financial condition of clients, their guarantors, and to analyze the quality of collateral and other factors.

3.2. Correct classification of an asset into one of the categories depends on the completeness of the assessment of the client's financial condition, the purpose and conditions of the asset, and the possibility of its repayment. The longer the client holds the bank's funds or has the right under the contract to receive funds (credit lines, obligations, letters of credit, etc.), the greater the degree of risk of negative trends. When analyzing assets, it should be taken into account that each asset has a primary and secondary source of repayment. The primary source is called those funds necessary for the repayment of the asset, which under normal circumstances are generated in the process of production, provision of services, work, etc. For example, a working capital loan is repaid in the process of turnover of material values, a loan for a harvest or an export loan - from funds received from the sale of goods, a consumer loan - from personal income. In the event that over time the primary source of repayment turns out to be insufficient, or in other words, will not generate the necessary cash flow sufficient to ensure the fulfillment of its obligations, the bank must provide for secondary sources, such as collateral, suretyship, and bank guarantees.

3.3. When using secondary sources, it should be taken into account that this usually entails a delay in payments associated with the difficulty of determining the value of the realization of collateral, with court costs, and delays. These factors usually lead to the fact that the final amount of the debt payment obtained with the involvement of a secondary source does not match expectations.

3.4. If the bank relies entirely on a person acting as a surety or guarantor as a secondary source of repayment, the bank must have complete information about the financial position of this person to assess their ability to repay the debt if necessary. If the specified person has become the only source of repayment of the debt, classification must take into account not only its solvency, but also the desire to repay the guaranteed asset, which must be documented in the appropriate document. If information about the guarantor is unreliable or completely absent, such a guarantee should not be taken into account when classifying the asset.

3.5. A significant deviation from the original source of repayment is a sufficient basis for classification, as are vague repayment conditions or asset overdue. However, not all overdue assets can be subject to classification. An asset may be overdue, but if at the same time it is secured by cash pledged in the bank or state treasury bills that have not yet been repaid, such an asset may be recognized as non-classifiable.

3.6. A written intention and ability of the client to fulfill its obligations under the contract is the primary criterion for assessing the risk of the asset. This implies that the client must have income or liquid assets sufficient to pay interest on the asset and reduce or repay the debt to the bank in accordance with the agreement within reasonable and predictable timeframes.

3.6-1. When classifying assets provided by the bank to the same borrower or a group of related borrowers, it is necessary to take into account the classification carried out for each loan of the borrower or group of related borrowers, and classify these assets according to the classification category assigned to the asset with the largest debt, if this classification is the worst.

A similar approach to classification must be applied by banks that are participants in a banking group, that is, assets of a borrower or a group of related borrowers who are residents of the Kyrgyz Republic must be classified according to the classification category assigned to the asset with the largest debt, if this classification is the worst.

In the event that a borrower (natural or legal person) has several assets in one bank or within a banking group, the bank has the right not to apply the worst classification category to all assets if the worst category is assigned to the borrower's asset due to deterioration of financial flows and the current financial condition of the client due to introduced emergency regimes and/or other force majeure circumstances (circumstances beyond control) and restrictions associated with them, upon documentary confirmation of their influence. In this case, the bank may apply the classification category for each asset separately in accordance with the characteristic features of the category.

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolutions No. 2020-P-12/73-11 of December 23, 2020, No. 2023-P-12/80-4 of December 20, 2023)

3.6-2. When classifying loans by the bank, the current credit discipline of the borrower on any other loan must be taken into account, in case the borrower has an outstanding debt to other financial and credit organizations. In this regard, it is necessary to track the presence of the client's other loans in other financial and credit organizations at the time of consideration of the application, using information obtained from the client/borrower, through the credit information bureau, or in any other available way within the legislation of the Kyrgyz Republic. Further, in the process of monitoring the loan for which the term of the credit contract has not expired, the client is obliged to provide information about the presence of loans in other financial and credit organizations and about compliance with the credit discipline on these loans at least once every six months. At the same time, all financial and credit organizations are obliged to provide information about the receipt of a loan and about the borrower's compliance with credit discipline to provide it to another financial and credit organization no later than the next working day upon the borrower's request. The bank may obtain information about other borrowers' loans and about his credit discipline in any other available way within the legislation of the Kyrgyz Republic.

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolution No. 2017-P-12/25-1 of June 15, 2017)

3.7. When carrying out classification, it is necessary to be guided by the definitions of classification categories (highlighted in bold in the text) and rely on common sense and judgment to refer an asset to a particular classification category, not limiting oneself only to those signs given in this Regulation.

3.8. In connection with possible different interpretations of the definitions of classification categories, quantitative and qualitative characteristics are introduced. The combination of two or more signs determines the classification category, unless otherwise provided by this Regulation.

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolutions No. 41/10 of October 31, 2012, No. 22/6 of April 15, 2015)

3.9. Accounting for PPLU must be carried out in accordance with accounting standards.

3.10. Contractual relations between the bank and its clients, reflected in the corresponding contracts, must be carried out on the basis of the legislation of the Kyrgyz Republic.

3.11. The requirements of this Regulation cover only the necessary minimum of asset classification criteria, as it is impossible to foresee every specific situation. The National Bank and banks have the right, taking as a basis the requirements and criteria of this Regulation, to introduce additional criteria for asset assessment.

4. Non-classified Assets

4.1. Normal Assets

4.1.1. Normal are called those assets, the collateral for which covers in full the principal amount of the asset and the amount of the interest rate, calculated as the product of the principal amount of the asset and the nominal interest rate in annual terms according to the contract (for example, the principal amount of the asset is 100 thousand som, and the interest rate is 10%, accordingly, the coverage must be 110 thousand som). At the same time, this collateral consists of:

• state securities of the Cabinet of Ministers of the Kyrgyz Republic (hereinafter referred to as "GCB") and notes of the National Bank (hereinafter referred to as "notes") (if the maturity date of GCB and notes occurs before the maturity date of the asset, the bank must accept as collateral the funds received from the redemption of GCB and notes, or accept as collateral additionally similar (similar) GCB and notes);
• funds held in a separate deposit account in this bank. A separate deposit account is understood as a segregated deposit account of a natural or legal person. Client's current accounts and the bank's correspondent accounts cannot be used as collateral;
• other securities included in the listings of stock exchanges of the Kyrgyz Republic in the highest and next highest listing category in accordance with the legislation of the Kyrgyz Republic (hereinafter referred to as "other securities") provided that the minimum requirements established by Appendix 1 to this Regulation are met.

Normal are also called those assets that are secured by at least 100% of the amount of the asset by collateral (in the form of a pledge), consisting of gold in the form of refined standard bars issued by the National Bank.

Note: Refined standard bars - manufactured and marked bars of precious metals issued (released) by the National Bank or an refining enterprise certified by the London Bullion Market Association, weighing 1000 grams or less, with a content of chemically pure base metal of not less than 99.95-99.99 percent of the alloy mass of the bar for gold and not less than 99.90 percent of the alloy mass of the bar for silver/platinum.

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

1. the agreement on the provision of the asset and the pledge agreement must indicate that funds in a separate deposit account, GCB, notes, and other securities are collateral for the funds issued by the bank, and the bank has the right to levy execution on them without account in case of non-fulfillment by the client of its obligations;
2. the deposit certificate or deposit book must be stored in the bank;
3. the pledge agreement must provide for the prohibition of further re-pledging of funds in a separate deposit account, GCB, notes, and other securities;
4. in any case, the bank must develop appropriate procedures and carry out internal control ensuring all procedures related to the оформление of collateral, and the safety of funds, GCB, notes, and other securities until the end of the term provided for in the contract;
5. funds in the deposit securing the assets 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;
6. mandatory weekly revaluation of the deposit, in case if monetary funds in a currency other than the currency of the asset are provided as collateral for the asset;
7. if as a result of revaluation the cost of the collateral decreased, the bank is obliged to immediately demand an increase in its cost in accordance with the requirements of this Regulation and ensure the execution of this requirement within 10 working days;
8. in case if the requirements specified in sub-items 1-7 are not met, such an asset will be considered not fully secured, and it must be transferred to another classification category.

Banks may classify loans in the national currency as "normal assets" if they meet the requirements specified in paragraph 4.2 of this Regulation, as well as if they are issued within the framework of the implementation of state programs (housing, social, ensuring national and economic security), approved by the Decree of the President/Cabinet of Ministers of the Kyrgyz Republic.

Banks may classify loans as "normal assets" if they meet the requirements specified in sub-items 4.2.1 and 4.2.2 of this Regulation, as well as if they are secured by guarantees of international financial organizations, banks, and other financial and credit organizations having a long-term sovereign credit rating not lower than level "A", which is assigned by the international 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 Norms and Requirements Mandatory for Compliance by Commercial Banks of the Kyrgyz Republic", approved by the Resolution of the Board of Directors of the National Bank No. 2022-P-12/78-7-(NPA) of December 14, 2022.

Banks may classify newly issued loans in US dollars as "normal assets" if they meet the requirements specified in paragraph 4.2 of this Regulation, with the formation of PPLU in the amount of 0 to 2 percent regardless of the income structure in accordance with the bank's internal policy. At the same time, these requirements apply to preferential loans issued by development funds created within the framework of interstate (intergovernmental) agreements (hereinafter referred to as "Development Fund"), including loans from funds attracted and guaranteed by the Development Fund from other foreign financial institutions, including previously issued loans, the repayment of which will be carried out from the financing of funds of the Development Fund and provides for a change in the initial conditions of the credit agreement.

(In the edition of the Board of Directors of the National Bank of the Kyrgyz Republic Resolutions No. 2018-P-12/58-10 of December 26, 2018, No. 2020-P-12/15-5 of March 24, 2020, No. 2021-P-12/51-1 of September 15, 2021, No. 2022-P-12/19-4 of March 31, 2022, No. 2022-P-12/81-8 of December 21, 2022, No. 2024-P-12/46-3 of September 25, 2024, No. 2025-P-12/28-1-(NPA) of June 18, 2025, No. 2025-P-12/55-4-(NPA) of October 23, 2025)

4.1.2. The bank may classify part of the asset secured by the guarantee of a guarantee fund, licensed and regulated in accordance with the legislation of the Kyrgyz Republic, as a "normal asset", provided that all of the following conditions are met simultaneously:

• more than 50%