Regulation on Certain Transactions/Operations of Commercial Banks and Microfinance Companies of the Kyrgyz Republic with Real Estate

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Creation date: 2025-08-20

Approved

by the resolution of the Board of the National Bank of the Kyrgyz Republic of August 29, 2012 No. 36/2

REGULATION

on certain transactions/operations of commercial banks and microfinance companies of the Kyrgyz Republic with real estate

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of November 16, 2012 No. 43/1, October 23, 2013 No. 39/7, July 31, 2014 No. 34/11, October 28, 2015 No. 64/5, February 22, 2017 No. 6/4, May 17, 2017 No. 19/11, June 15, 2017 No. 2017-P-12/25-12, December 26, 2018 No. 2018-P-12/58-10, April 24, 2019 No. 2019-P-12/22-4, September 25, 2019 No. 2019-P-12/49-4, November 1, 2019 No. 2019-P-33/55-3, December 28, 2020 No. 2020-P-12/75-3, December 21, 2022 No. 2022-P-12/81-8, December 28, 2022 No. 2022-P-12/83-7, August 30, 2023 No. 2023-P-12/55-1, January 17, 2024 No. 2024-P-12/1-3)

1. General Provisions

2. (Lost force in accordance with the resolution of the Board of the National Bank of the Kyrgyz Republic of May 17, 2017 No. 19/11)

3. This Regulation applies to commercial banks and microfinance companies authorized to attract deposits, including those conducting operations in accordance with Islamic principles of banking and financing, including banks and microfinance companies authorized to attract deposits with an "Islamic window," taking into account the specifics of their activities and terminology used by them in carrying out banking operations, JSC "Financial Company of Credit Unions," housing savings credit companies (hereinafter referred to as "banks").

The purpose of this Regulation is to establish requirements for banks when carrying out operations with real estate obtained by the bank in satisfaction of previously issued loans, as well as operations with bank premises intended for sale.

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of September 25, 2019 No. 2019-P-12/49-4, November 1, 2019 No. 2019-P-33/55-3, January 17, 2024 No. 2024-P-12/1-3)

3. For the purposes of this Regulation, the following concepts are used:

"Other real estate" means an asset in the form of:

a) real estate obtained by the bank as a result of purchase, or transferred by the client as repayment of its debt to the bank, in full or in part, for previously issued loans;

b) any real estate of the bank, including unused bank premises, which is not used and will not be used to ensure the activities of the bank, and is intended for sale, provided that depreciation of such assets must be discontinued.

The bank must accept or transfer these assets to the category "Other bank property" - "real estate transferred to the ownership of the bank" from the moment the events specified in paragraph 6 of this Regulation occur.

Valuation is the process of determining (calculating) the cost of real estate as of a specific date based on a valuation report prepared by an appraiser/valuation organization in accordance with the requirements of legislation on valuation activities.

Appraiser (independent specialist appraiser) - a natural person who has a qualification certificate for carrying out valuation activities, issued in the manner determined by the Cabinet of Ministers of the Kyrgyz Republic.

Valuation organization - a legal entity registered in the manner established by legislation, the main type of activity of which is valuation activities, and having at least two appraisers with qualification certificates on its staff.

Fair value - the calculated monetary amount for which property would be exchanged on the valuation date between a willing buyer and a willing seller in an arm's length transaction after appropriate marketing, during which each party acted knowledgeably, prudently, and without coercion. In the event that the property is not realized at auction, the fair value is considered to be the cost established in the manner provided for by the current legislation of the Kyrgyz Republic.

Loan debt is the unpaid balance of the principal loan amount plus all accrued but unpaid interest, fines, and other expenses related to debt repayment (if applicable, the unpaid balance must be adjusted for discounts or premiums).

Major transaction - a transaction or several interrelated transactions with a cost of 10 percent or more of the bank's total net capital as of the date of making the decision to conclude such transactions.

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of October 28, 2015 No. 64/5, May 17, 2017 No. 19/11, June 15, 2017 No. 2017-P-12/25-12, December 28, 2022 No. 2022-P-12/83-7)

4. (Lost force in accordance with the resolution of the Board of the National Bank of the Kyrgyz Republic of May 17, 2017 No. 19/11)

5. Requirements for the term of holding other real estate

6. Other real estate cannot be held by the bank for more than three years from the moment the right of ownership arises, with the exception of agricultural land, recreation objects, tourism infrastructure, the terms and features of which are established by the legislation of the Kyrgyz Republic. At the same time, the bank must initiate an active program to find a buyer.

In the event of a court seizure of other bank property, the above term is suspended until the seizure is lifted by the court.

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of February 22, 2017 No. 6/4, June 15, 2017 No. 2017-P-12/25-12, August 30, 2023 No. 2023-P-12/55-1)

6. The countdown of the term of holding other real estate begins from the date when:

1. the protocol on the results of the auction is registered with the authorized state body, and the pledgee acquires the right of ownership to the pledged item received in satisfaction of previously issued loans/transactions carrying credit risk (including on the basis of civil law transactions).

An agreement on satisfaction of the pledgee's claims out of court must not provide for conditions recognizing this agreement as a title document;

2. the property is accepted onto the bank's balance sheet by agreement without holding auctions, then the countdown begins from the date when the right of ownership to the real estate received by the bank in satisfaction of previously issued loans/transactions carrying credit risk is registered with the authorized registration body;

3. the Board of the Bank makes a decision not to use the acquired real estate for the future expansion of the bank and/or to cease using the premises for banking activities (for example, as a result of the closure of a separate structural unit, relocation, and for other reasons in accordance with an act) and the need to sell it. This decision must be approved by the Board of Directors.

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of December 26, 2018 No. 2018-P-12/58-10)

3. Requirements for operations with other real estate

4. The bank must have a policy for managing other real estate approved by the Board of Directors of the bank (it may be a component of the credit policy). The policy must contain the following minimum information:

a) the procedure for accepting and transferring assets to the category "Other bank property," as well as their sale, including the determination of the body/person authorized to make decisions on accepting, transferring, and selling other real estate;

b) methods used by the bank for the sale of property, including the procedure and methods of sale, sequence of actions and measures for the sale of other real estate;

c) the frequency of determining the fair value of other real estate;

d) the requirement to conduct an appraisal by an appraiser/valuation organization in accordance with this Regulation and the legislation of the Kyrgyz Republic;

e) accounting and reporting, if these issues are not described in other internal documents of the bank;

f) other information reflecting the bank's activities related to other real estate.

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of June 15, 2017 No. 2017-P-12/25-12, December 26, 2018 No. 2018-P-12/58-10, December 21, 2022 No. 2022-P-12/81-8, December 28, 2022 No. 2022-P-12/83-7)

8. The bank must constantly maintain information on each unit of other real estate, including:

a) the decision of the authorized body/person to accept other real estate onto the balance sheet;

b) the date of acceptance onto the balance sheet;

c) actions taken to sell this unit of other real estate;

d) offers from potential buyers, if any;

e) the fair value of the real estate, confirmed by appropriate documents;

f) the date of valuation and the cost of the valuation;

g) other necessary information.

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of October 28, 2015 No. 64/5, June 15, 2017 No. 2017-P-12/25-12)

9. Written reports of the bank on the sale of other real estate must be considered by the Board of the Bank at least once a quarter. The results of the consideration by the Board of the Bank of issues regarding the sale of other real estate must be documented in the minutes of the Board meeting.

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

10. The Board of Directors of the bank must familiarize itself with the results of the consideration by the Board of the Bank of issues regarding the sale of other real estate and written reports of the bank on a quarterly basis.

If the bank has not sold other real estate within the term established by paragraph 5 of this Regulation, the issue of the reasons for the impossibility of realization must be considered by the Board of Directors.

Based on quarterly reports of the Board on the state of other real estate of the bank, the Board of Directors must consider and evaluate the effectiveness of the work of the Board of the Bank in working with other real estate, determining subsequent measures for the realization of other real estate held in the ownership of the bank for more than the term established by paragraph 5 of this Regulation.

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

11. The bank has the right to conclude a lease agreement (the form of the agreement under which other real estate is transferred to temporary possession and/or temporary use) for other real estate to cover expenses related to its maintenance, for a term not exceeding the term specified in paragraph 5 of this Regulation. In the event of a violation of the terms of leasing other real estate, impact measures may be applied to the bank in accordance with the legislation of the Kyrgyz Republic, including normative legal acts of the National Bank of the Kyrgyz Republic (hereinafter referred to as the "National Bank").

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of December 21, 2022 No. 2022-P-12/81-8)

12. Additional expenses for improving the general condition of other real estate, which will lead to the emergence of future economic benefits and an increase in its value, may be approved only if the bank's actions are not aimed at obtaining profit from real estate operations.

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of October 28, 2015 No. 64/5, June 15, 2017 No. 2017-P-12/25-12)

13. The decision to approve additional expenses for improving the general condition of other real estate in accordance with paragraph 12 of this Regulation must be made by the Board of Directors of the bank.

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

14. The decision to approve additional expenses must be supported by reasonable reasons as to how the proposed expenses will benefit the bank. In the event that the bank intends to improve the general condition of other real estate, a report from the authorized structural unit with a confirming and motivated justification must be attached to the decision of the Board of Directors.

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

15. The Board of the Bank may approve additional current expenses for repair and maintenance (daily maintenance of the object) of other real estate.

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

16. If the actions of the bank described in paragraphs 11-15 of this Regulation are related to affiliated/connected persons with the bank, they must be approved by the Board of Directors. In this case, in addition to other documents, the following documentation must be attached to the documents for consideration by the Board of Directors of the bank:

a) a description of the transaction with the affiliated/connected person with the bank;

b) the surname, first name, patronymic of the affiliated/connected person with the bank (name of the legal entity that is an affiliated person) and its relationship to the bank;

c) evidence of the fairness of the terms of the transaction with the affiliated/connected person with the bank (market research, report of an appraiser/valuation organization, and other evidence);

d) an estimate of the bank's expected expenses.

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of December 28, 2022 No. 2022-P-12/83-7)

17. In the minutes of the Board of Directors meeting on the approval of a transaction with an affiliated/connected person with the bank, signed by all members of the Board of Directors, it must be indicated that the affiliated/connected person with the bank did not participate and did not vote in making the decision. A copy of the transcript of the Board of Directors meeting, signed by all members of the Board of Directors who participated in the vote, must be attached to the minutes, confirming that all terms and circumstances of the transaction with the affiliated/connected person with the bank have been studied and that this transaction was concluded at a fair value for the bank and in accordance with the legislation.

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of December 21, 2022 No. 2022-P-12/81-8)

18. Actions of the bank regarding an affiliated/connected person with the bank must comply with the requirements of normative legal acts of the National Bank of the Kyrgyz Republic regulating transactions with affiliated/connected persons with the bank.

19. The bank is obliged to comply with all requirements of this Regulation also when conducting the following transactions/operations with affiliated/connected persons with the bank:

a) sale/purchase of real estate;

b) lease/leasing of real estate;

c) transactions under which income is received by affiliated/connected persons with the bank;

d) any other transactions/operations with other real estate in which an affiliated/connected person with the bank participates.

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

4. Accounting for other real estate

5. Real estate specified in subparagraph a) of paragraph 3 of this Regulation, when accepted into the category "Other property" within the framework of an out-of-court procedure for foreclosure on pledged property, must be recognized on the balance sheet at the fair value of the property (except for the acceptance of real estate onto the balance sheet as a result of failed public auctions) less estimated expenses for the sale of real estate on the date of acceptance into the category "Other property" in accordance with Section 5 of this Regulation.

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of October 28, 2015 No. 64/5, June 15, 2017 No. 2017-P-12/25-12)

21. In this case, any excess of loan debt over the fair value of the real estate must be charged to the reserve for covering potential losses and losses in accordance with the Regulation "On the classification of assets and corresponding allocations to the reserve for covering potential losses and losses," approved by the resolution of the Board of the National Bank of July 21, 2004 No. 18/3 (hereinafter referred to as the "Regulation on the classification of assets and corresponding allocations to the reserve for covering potential losses and losses").

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of December 21, 2022 No. 2022-P-12/81-8)

22. Within the framework of the recovery of pledged property, the excess of the amount at which the real estate is accepted onto the bank's balance sheet over the loan debt is the bank's obligation to return the excess funds to the pledgor.

If the Bank acquires real estate as a result of the first public auctions being declared unsuccessful, within the framework of a judicial recovery procedure, the bank returns to the pledgor the excess of the purchase cost over the loan debt within the terms established by the legislation of the Kyrgyz Republic.

If, as a result of the second public auctions being declared unsuccessful, the bank retains the real estate for itself, the property is accepted onto the bank's balance sheet at a cost not lower than the minimum price established in accordance with the legislation of the Kyrgyz Republic. The excess of the price upon the sale of the property by the bank over the loan debt is an obligation of the bank that is subject to return to the pledgor.

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of December 26, 2018 No. 2018-P-12/58-10)

23. When transferring to the category "Other property" of the real estate specified in subparagraph b) of paragraph 3 of this Regulation, it must be accounted for at the lower of the net book value (cost minus depreciation and impairment loss) and fair value on the date of transfer. Any excess of the net book value over the fair value must be charged to the expenses of the current period.

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of October 28, 2015 No. 64/5, June 15, 2017 No. 2017-P-12/25-12)

24. With any subsequent decrease in the value of other real estate, the bank must recognize an impairment loss up to the fair value less costs to sell or maintain. If after the impairment of the real estate its fair value less costs to sell or maintain increases, the bank must recognize this increase, but only in an amount not exceeding the previously accumulated impairment loss.

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

25. Any current expenses for repair and maintenance of other real estate, as well as costs associated with accepting real estate onto the bank's balance sheet (costs for legal documentation of real estate, organization of auctions, and other costs) must be charged to the expenses of the period in which they were incurred.

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

26. Real estate specified in subparagraph a) of paragraph 3 of this Regulation is classified in accordance with the Regulation on the classification of assets and corresponding allocations to the reserve for covering potential losses and losses.

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

5. Requirements for the valuation of other real estate

6. When accepting within the framework of an out-of-court procedure for foreclosure on pledged property or transferring real estate to the category "Other property," the fair value of the property must be confirmed by an appraiser/valuation organization in accordance with the legislation of the Kyrgyz Republic.

The requirement to evaluate real estate is not mandatory if:

a) the cost of the property when considering a loan application and before applying established coefficients does not exceed 1,000,000 som;

b) the valuation of the real estate was carried out within the last six months prior to the transfer of the real estate to the category "other property";

c) the bank has documentary evidence of the possibility of selling the property in accordance with paragraph 31 of this Regulation within 90 days from the date the bank obtained rights to this property;

d) there are results of failed public auctions.

The acceptance of real estate into the category "Other property" by the bank within the framework of a judicial procedure for foreclosure on pledged property is carried out in accordance with the legislation of the Kyrgyz Republic.

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of October 23, 2013 No. 39/7, October 28, 2015 No. 64/5, December 26, 2018 No. 2018-P-12/58-10, December 28, 2022 No. 2022-P-12/83-7)

28. The bank must periodically carry out work to identify signs of possible impairment of other real estate in order to confirm the value of the property accounted for on the balance sheet, but no less than once a year.

The cost of non-residential objects of other real estate of a specific purpose held by the bank for more than three years must be confirmed by an appraiser/valuation organization every two years.

Exceptions to this requirement are the following real estate objects:

• objects that cannot be realized due to restrictions established by the court;

• objects whose realization cost is determined by a court decision;

• objects for which the bank has concluded financial lease agreements/sales of real estate in installments or other similar agreements.

The primary revaluation of the property must be carried out within 6 (six) months from the date of expiration of the term specified in paragraph 5 of this Regulation.

An appraiser/valuation organization may carry out the valuation of the same other real estate of the bank no more than two times in a row.

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of October 28, 2015 No. 64/5, June 15, 2017 No. 2017-P-12/25-12, December 28, 2020 No. 2020-P-12/75-3, December 28, 2022 No. 2022-P-12/83-7)

29. The bank's assignment for the valuation of other real estate to an appraiser/valuation organization must be drawn up in writing, and the appraiser/valuation organization's report on the valuation must include the assignment for valuation and contain the valuation results for all parameters specified in the bank's assignment for valuation.

For the valuation of other real estate, the bank must conclude a contract for the conduct of valuation with an appraiser/valuation organization in accordance with the requirements of legislation.

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of December 28, 2022 No. 2022-P-12/83-7)

6. Sale of other real estate

7. The bank must sell other real estate no later than the term established by paragraph 5 of this Regulation.

(In the edition of the resolution of the Board of the National Bank of the Kyrgyz Republic of December 21, 2022 No. 2022-P-12/81-8)

31. The bank must account for real estate in the "Other property" category until all of the following conditions are met:

a) receipt from the buyer of a sum of money constituting no less than 15% of the total selling price in the case of selling the property to a person not connected with the bank and no less than 40% - in the case of selling the property to a person falling under the definition of a person connected with the bank or an affiliated person of the bank, if the bank finances the remaining part by providing a loan. In this case, the bank's participation must be limited only to its role as a lender, that is, the terms (interest rates, repayment term, amortization, etc.) must correspond to the terms of credit products provided by the bank for similar purposes. If the sale of the property is financed by a loan at a rate lower than the current market interest rate, the bank must discount the loan and bring the yield on the loan to the market rate in accordance with IFRS;

b) data on the buyer reflect their ability to make subsequent payments and are confirmed by appropriate documentation, including an analysis of solvency;

c) the bank has transferred to the buyer the bulk of the risks and rewards associated with owning the property, that is, transferred the right to use and own the property. The degree of the bank's participation in the ownership of the property is an important factor for the purposes of determining the operation as a "sale".

Upon fulfillment of all the above conditions simultaneously, the bank may account for the asset on the balance sheet as a loan to the client.

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