Regulation on Enforcement Measures Applied to Banks and Certain Other Financial-Credit Institutions Licensed by the National Bank of the Kyrgyz Republic

LOST ITS FORCE in accordance with Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 15, 2017 No. 2017-P-12/25-4

Registered in the Ministry of Justice of the Kyrgyz Republic on June 24, 2005.

Registration number 78-05

	Approved by Resolution of the Board of the National Bank of the Kyrgyz Republic dated May 19, 2005 No. 16/2

REGULATION on enforcement measures applied to banks and certain other financial-credit institutions licensed by the National Bank of the Kyrgyz Republic

(In the edition of Resolutions of the Board of the National Bank of the Kyrgyz Republic dated September 6, 2006 No. 25/4, November 29, 2006 No. 37/5,March 28, 2007 No. 16/4, December 23, 2008 No. 49/6,March 31, 2010 No. 9/2, December 16, 2010 No. 91/7, April 25, 2012 No. 18/9, November 16, 2012 No. 43/1, December 21, 2012 No. 50/13, September 25, 2013 No. 35/16*,

February 19, 2014 No. 4/5, June 24, 2015 No. 35/7, February 5, 2016 No. 5/1, February 10, 2016 No. 7/2, April 27, 2016 No. 19/5)

General Provisions

This Regulation is developed in accordance with the Laws of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic", "On Banks and Banking Activity in the Kyrgyz Republic", "On Countering the Legalization (Money Laundering) of Criminal Proceeds and Financing of Terrorist or Extremist Activity", "On Protection of Bank Deposits (Deposits)" and other legislative acts of the Kyrgyz Republic.

The purpose of this Regulation is to establish the procedure for the application by the National Bank of the Kyrgyz Republic (hereinafter - the National Bank) of enforcement measures to commercial banks, including those carrying out operations in accordance with Islamic principles of banking and financing, banks having an "Islamic window", the specialized financial-credit institution JSC "Financial Company of Credit Unions" (hereinafter - banks). This Regulation extends to the State Development Bank of the Kyrgyz Republic with due regard for the features provided for by the Law of the Kyrgyz Republic "On the State Development Bank of the Kyrgyz Republic".

The purpose of the National Bank applying enforcement measures to banks is to maintain the stability of the banking system, counter the legalization (money laundering) of criminal proceeds and financing of terrorist or extremist activity, prevent monopolistic activity in the market of banking services, and protect the interests of depositors and rights of consumers of banking services.

Enforcement measures are applied by the National Bank on the grounds and in the manner provided for by the legislation of the Kyrgyz Republic and this Regulation. Enforcement measures by the National Bank may be applied either in a sequential manner or selectively, depending on the nature, type of violation committed and the financial condition of the bank.

Violations of banking activity in the Kyrgyz Republic are considered to be actions of banks and their significant participants that contradict the legislation of the Kyrgyz Republic, including the Laws of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic", "On Banks and Banking Activity in the Kyrgyz Republic", "On Countering the Legalization (Money Laundering) of Criminal Proceeds and Financing of Terrorist or Extremist Activity", "On Protection of Bank Deposits (Deposits)" and normative legal acts of the National Bank, as well as the action or inaction of bank officials leading to violations. The term "bank officials" refers to the term specified in the Law of the Kyrgyz Republic "On Banks and Banking Activity in the Kyrgyz Republic" and normative legal acts of the National Bank.

(Paragraph 6 excluded in accordance with Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 24, 2015 No. 35/7)

(Paragraph 7 excluded in accordance with Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 24, 2015 No. 35/7)

(Paragraph 8 excluded in accordance with Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 24, 2015 No. 35/7)

(Paragraph 9 excluded in accordance with Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 24, 2015 No. 35/7)

(Paragraph 10 excluded in accordance with Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 24, 2015 No. 35/7)

(Paragraph 11 excluded in accordance with Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 24, 2015 No. 35/7)

(Paragraph 12 excluded in accordance with Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 24, 2015 No. 35/7)

Appeal of enforcement measures and fines applied in accordance with this Regulation is carried out according to the procedure established by normative legal acts of the National Bank.

(In the edition of Resolutions of the Board of the National Bank of the Kyrgyz Republic dated September 6, 2006 No. 25/4, November 29, 2006 No. 37/5, December 23, 2008 No. 49/6, March 31, 2010 No. 9/2, April 25, 2012 No. 18/9, November 16, 2012 No. 43/1, February 19, 2014 No. 4/5, June 24, 2015 No. 35/7)

Part I
Methodological foundations of applied enforcement measures

1. Basic provisions on enforcement measures and fines

1.1. The legislation of the Kyrgyz Republic regulating the activity of banks and financial-credit institutions as enforcement measures includes the possibility of a bank taking voluntary commitments to eliminate violations committed and the application of compulsory enforcement measures by the National Bank for the purpose of reducing the risk of depositors and other creditors of the bank.

(In the edition of Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 23, 2008 No. 49/6)

1.1.1. Voluntary commitments of a bank include:

1) elimination of remarks within the framework of preliminary actions of the supervisory authority regarding the bank;

2) sending a letter-commitment of the bank to the National Bank (see subpara. 5.1.2);

3) signing a written agreement (see subparas. 5.1.3 and 5.1.4).

1.1.2. Compulsory enforcement measures include:

1) introduction of higher economic standards (see subpara. 6.5.1);

2) increase in mandatory reserve standards (see subpara.6.5.2);

3) appointment of a qualified consultant and conducting an unscheduled external audit (see para.6.7);

4) introduction of direct banking supervision (see para.6.8);

5) requirement to change bank officials and ban their further participation in the activity of the bank (see para.6.9.);

6) conducting financial rehabilitation measures in accordance with the requirements of the National Bank (see para.6.6);

7) conducting recapitalization or reorganization of the bank in accordance with the requirements of the National Bank (see para.6.6);

8) suspension, restriction of certain types of banking operations, including operations carried out in accordance with Islamic principles of banking and financing (see para.6.10);

9) appointment of temporary management of the bank (see para.6.11.);

10) application of conservatorship procedure (see para.6.12);

11) temporary suspension of the license action (see para.6.13);

12) revocation of the license (see para.6.13);

13) requirement to suspend the voting rights of a significant participant of the bank on shares belonging to him for a period determined by the National Bank (see para.6.9.);

14) imposition of a ban on a significant participant of the bank on further participation in the activity of the bank or its affiliates (see para.6.9.).

(In the edition of Resolutions of the Board of the National Bank of the Kyrgyz Republic dated March 31, 2010 No. 9/2, June 24, 2015 No. 35/7)

1.2. A decision on the application to a bank of a certain enforcement measure is taken taking into account:

1) the rating assigned to the bank in accordance with the CAMELS bank assessment rating system applied by the National Bank ((*) see note, Table 1, section 2);

2) classification of banks by capital adequacy, provided in Table 2 of section 3;

3) as well as the following factors:

a) the nature of the violation and its impact on the bank's activity;

b) the frequency and duration of the violation;

c) the threat to the financial health of the bank;

d) the size of the bank's losses resulting from the violations committed;

e) the awareness of bank officials about the violation committed;

f) the ability of bank officials to resolve emerging problems;

g) the fact of intent in committing the violation, as well as the absence/presence of personal interest (moral, material) of persons associated with the bank (insiders and affiliates) in the violation committed;

h) the significance of problems in operational activity and the internal control system;

i) the presence of the bank's policy on main areas of activity and the effectiveness of internal control activity in preventing violations;

j) compliance with internal procedures and policies approved by the Board of Directors and/or the Board of the bank;

k) whether the bank has been subjected to any enforcement measure previously for the violation committed;

l) the recognition by executive officials of the bank of the existence and significance of the problems arising;

m) whether officials or significant participants of the bank follow the recommendations and/or requirements of the National Bank;

n) other circumstances, depending on and/or not depending on the bank, which served as the main cause of the violation;

o) the nature, frequency and volume of activity or operation(s) falling under the violation of legislation on countering the legalization (money laundering) of criminal proceeds and financing of terrorist or extremist activity".

(In the edition of Resolutions of the Board of the National Bank of the Kyrgyz Republic dated November 29, 2006 No. 37/5, June 24, 2015 No. 35/7)

1.3. Upon detection of violations and deficiencies in a bank, the National Bank has the right to take any actions and enforcement measures provided for by the legislation of the Kyrgyz Republic and this Regulation depending on the type and nature of the violation, the specific situation, the complexity of problems in the bank and regardless of its classification according to this Regulation.

1.4. A written warning is not an enforcement measure of the National Bank, and is sent in case of necessity to inform the bank that it violates certain norms and rules, as well as provisions of legislation and/or normative legal acts on countering the legalization (money laundering) of criminal proceeds and financing of terrorist or extremist activity or is engaged in activity threatening its stability and reliability, and for the purpose of warning that in the future appropriate enforcement measures may be applied to it. A written warning is sent under the signature of the head of the structural unit of the supervisory block of the National Bank that discovered the fact of violation, or the Deputy Chairman/Member of the Board of the National Bank supervising the supervisory block.

(In the edition of Resolutions of the Board of the National Bank of the Kyrgyz Republic dated November 29, 2006 No. 37/5, March 31, 2010 No. 9/2, April 25, 2012 No. 18/9, September 25, 2013 No. 35/16, February 5, 2016 No. 5/1)

1.5. An order is a mandatory requirement for execution within the established term issued by the National Bank regarding a bank, bank officials and significant participants of the bank.

An order must contain the following: the date and place of issuance of the order, the name of the body/full name of the person issuing the order, the fact of violation, the circumstances (description) of the violation established by the National Bank, with a statement of the provisions of the legislation of the Kyrgyz Republic, including normative legal acts of the National Bank, as well as international agreements that were violated by the bank/bank officials/significant participants of the bank, in addition, laws and other normative legal acts by which the National Bank was guided when issuing the order. Also, the order contains the conclusion of the National Bank on establishing the fact of violation, the corresponding measures that must be taken by the bank/bank officials and/or significant participants of the bank and the deadlines for their execution are established.

The order may indicate the full name and position of bank officials, full name and position or name of significant participants of the bank who committed the violation, the consequences of violations (losses and any other damage, including reputational, which the bank has incurred or may incur in the future).

After sending the order, the responsible structural unit of the National Bank ensures control over the execution of the order within the established terms and takes immediate subsequent measures in case of its non-execution.

(In the edition of Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 27, 2016 No. 19/5)

1.6. Fines. In case of non-execution by the bank of the requirements of the legislation of the Kyrgyz Republic, as well as in case of non-execution within the established term of the orders of the National Bank, the National Bank has the right to collect a monetary fine in the amount of not more than one percent of the paid-up capital of the bank for each specific violation committed (see section 7).

2. Classification of banks by the CAMELS system

2.1. Classification of banks is carried out by the Supervisory Department using the CAMELS bank assessment rating system to assign a rating to the bank (Table 1). At the same time, during the supervisory cycle, special attention is paid to capital adequacy standards.

The CAMELS system consists of 6 components reflecting the financial condition of the bank:

Capital adequacy - capital adequacy;
Asset quality - asset quality;
Management quality and performance - management effectiveness and performance; Earnings performance - profitability; Liquidity - liquidity; Sensitivity to market risk - sensitivity to market risk.

(In the edition of Resolutions of the Board of the National Bank of the Kyrgyz Republic dated March 31, 2010 No. 9/2, April 25, 2012 No. 18/9)

2.2. The following types of bank classification by CAMELS rating are applied:

2.2.1. A bank is considered "financially stable", i.e., "well capitalized" or "adequately capitalized", but may have deficiencies that do not cause concern to supervisory authorities. Such banks are assigned a rating of 1 or 2.

2.2.2. A "potentially problematic" bank is a bank with a rating of 3, provided that regulatory capital requirements are not violated. Such banks may have problems causing some concern to the supervisory authority, while capital exceeds mandatory minimum requirements but is insufficient to cover risks arising in the bank's activity. In order to prevent further deterioration of the situation and increase in risks, this bank falls under the control of the supervisory authority.

2.2.3. A "problematic" bank is a "undercapitalized" bank with a rating of 3 or 4. The feature of assigning a particular rating is determined by the degree of deviation from established requirements (see Table 1).

2.2.4. A "significantly undercapitalized" bank is a bank with a rating of 4 or 5. The assigned rating is determined by the degree of probability of the bank's insolvency.

2.2.5. A "critically undercapitalized or insolvent" bank is a bank with a rating of 5.

Table 1

(In the edition of Resolution of the Board of the National Bank of the Kyrgyz Republic dated June 24, 2015 No. 35/7)

Bank Classification
General Condition	Overall CAMELS Rating	Capital Adequacy Group	Risk Management	Possible Other Factors
Financially stable bank	1 or 2	Well capitalized or adequately capitalized	Risk management in the bank is largely carried out effectively, although it may be insufficient to a small extent and in some aspects	Absence of significant problems or issues causing significant concern to the supervisory authority, deficiencies can be corrected in the ordinary course of business
Potentially problematic bank	3, but with a corresponding level of capital	Adequately capitalized	Risk management practice is insufficient in some significant areas and therefore under closer attention of the supervisory authority	Causes some concern of the supervisory authority; capital coefficients exceed minimum levels, but there is a trend towards their decrease. Application of enforcement measures to the bank may be required to prevent deterioration of the financial condition
Problematic bank	3 with capital deficit or 4	Undercapitalized	Risk management practice is insufficient in many significant aspects and requires increased attention of the supervisory authority	Bank reporting indicates poor or deteriorating financial condition
Bank's financial condition - critical, high probability of insolvency	4 or 5	Significantly undercapitalized	Risk management in the bank is largely ineffective and insufficient	The bank is unprofitable (incurs losses before creating reserves to cover losses)
Insolvent bank	5	Critically undercapitalized	The bank does not identify risks, does not conduct monitoring and control of risk exposure in many significant aspects	Any category of capital is less than 25 percent of the capital requirements established by the National Bank. The cost of the bank's assets is less than the cost of its liabilities

3. Classification of banks by capital adequacy

3.1. When making a decision on the application of a certain enforcement measure, the capital adequacy of the bank is the decisive factor for the National Bank. Enforcement measures must correspond to both the level of capital, trends in its change (static, decreasing or increasing), as well as the bank's risk parameters, and also depend on the need for urgent application of enforcement measures.

The following indicators, calculated in accordance with the requirements of the National Bank, are used to determine the bank's entry into a particular capital adequacy group:

• capital adequacy standards (Tier 1 capital, total capital, leverage - the ratio of net total capital to total assets of the bank);
• minimum capital size (own funds).

3.2. The classification of capital adequacy used in the classification of banks includes ranges in capital adequacy coefficients specified in Table 2.

Table 2. Classification of banks by capital adequacy
Capital Adequacy Classification	Capital Adequacy Indicators	Other Factors
Provisions for Loss Coverage	Other Features
Well capitalized	Mandatory fulfillment of the following indicators: Leverage (>=) 10.0%; Tier 1 capital adequacy coefficient (>=) 10.0%; Total capital adequacy coefficient (>=) 15.0%; Size of own funds exceeds the requirements of the National Bank	Adequate and fully formed	No rapid and significant growth of bank assets is observed, and the bank has been operating for at least three years
Adequately capitalized	Mandatory fulfillment of the following indicators: Leverage (>=) 8.0%; Tier 1 capital adequacy coefficient (>=) 6.0%; Total capital adequacy coefficient (>=) 12.0%; Size of own funds corresponds to or exceeds the requirements of the National Bank	Generally adequate and fully formed	No rapid and significant growth of total assets is observed
Undercapitalized	Capital in any category is less than the requirements of the National Bank, but none of the values fall under the definition of "significantly undercapitalized" bank	Inadequate and/or not fully formed	At least one of the established capital requirements of the National Bank is not complied with. Deterioration of financial condition is observed
Significantly undercapitalized	Leverage < 5.0%, but > 2%; Tier 1 capital adequacy coefficient < 4%, but (>=) 1.5%; Total capital adequacy coefficient < 8%, but (>=) 3%; Size of own funds is less than 50% of the established requirements of the National Bank	Inadequate and/or not fully formed	Capital requirements and/or any other requirements of the National Bank are not complied with
Critically undercapitalized	Leverage < 2.0%; Tier 1 capital adequacy coefficient < 1.5%; Total capital adequacy coefficient (<=) 3%; Size of own funds is less than 25% of the established requirements of the National Bank	Extremely inadequate and/or not fully formed	Capital requirements and/or any other requirements of the National Bank are not complied with

4. Quality of Management

4.1. When making a decision on the application of a certain enforcement measure to a bank, the National Bank evaluates the quality of bank management according to the following criteria:

1) adequacy of risk management strategies, policies, and procedures adopted by the Board of Directors and management of the bank;

2) degree of compliance with relevant requirements of legislation, regulatory and legal documents of the National Bank;

3) absence of abuse by insiders, affiliated persons, and officials of the bank;

4) ability of the bank's management to interact with shareholders to obtain financial support in case of problems arising in the bank;

5) quality of the bank's performance indicators;

6) ability to promptly resolve arising problems.

4-1. Recognition of activities, actions (inaction) of the bank relating to unhealthy and unsafe banking practice

(Section in the edition of the Resolution of the Board of the NB KR of * June 24, 2015 No. 35/7)*

4-1.1. Activities of the bank, its actions (inaction), creating a real threat and high probability of losses or damages for depositors of the bank, other its creditors, shareholders or the banking system, are considered unhealthy and unsafe banking practice.

(In the edition of the Resolution of the Board of the NB KR of * June 24, 2015 No. 35/7)*

4-1.2. The National Bank determines unhealthy and unsafe banking practice in each separate case, based on the assessment:

• factors and circumstances accompanying it;
• potential threat to the funds of depositors, stability of the bank and/or the banking system as a whole.

(In the edition of the Resolution of the Board of the NB KR of * June 24, 2015 No. 35/7)*

4-1.3. The presence of one or more signs of activities, actions (inaction) of the bank, which may relate to unhealthy and unsafe banking practice (listed in Appendix 1 to this Regulation, the list of which is not exhaustive), may also serve as a basis for the National Bank in determining unhealthy and unsafe banking practice, taking into account paragraphs 4-1.1 and 4-1.2.

(In the edition of the Resolution of the Board of the NB KR of * June 24, 2015 No. 35/7)*

4-1.4. Banks must not engage in unhealthy and unsafe banking practice.

(In the edition of the Resolution of the Board of the NB KR of * June 24, 2015 No. 35/7)*

4-1.5. The National Bank may apply impact measures to any bank whose activities are recognized as unhealthy and unsafe banking practice, up to the revocation of the license, in accordance with the legislation of the Kyrgyz Republic.

(In the edition of the Resolution of the Board of the NB KR of * June 24, 2015 No. 35/7)*

4-1.6. The Department of Supervision/Inspection/Supervisory and Licensing Department (DS/ID/SLD) within the framework of external supervision, inspection, and licensing of banks, upon detecting signs of activities, actions (inaction) of the bank, which may relate to unhealthy and unsafe banking practice, prepares relevant materials, taking into account paragraphs 4-1.2. and 4-1.3., for consideration and discussion at the Supervisory Committee of the National Bank on the issue of recognizing the activities, actions (inaction) of the bank, relating to unhealthy and unsafe banking practice.

(In the edition of the Resolution of the Board of the NB KR of * June 24, 2015 No. 35/7)*

4-1.7. The Supervisory Committee of the National Bank, based on the information provided by the DS/ID/SLD, recognizes that the actions (inaction) of the bank relate to unhealthy and unsafe banking practice.

(In the edition of the Resolution of the Board of the NB KR of * June 24, 2015 No. 35/7)*

4-1.8. As a result of the consideration by the Supervisory Committee of the National Bank of the information specified in paragraph 4-1.6, the Supervisory Committee of the National Bank, within the competence defined by regulatory legal acts of the National Bank, makes a decision on the application of the corresponding impact measure to the bank and/or the official of the bank, whose actions (inaction) relate to unhealthy and unsafe banking practice.

(In the edition of the Resolution of the Board of the NB KR of * June 24, 2015 No. 35/7)*

4-1.9. In the event that the adoption of the corresponding impact measure to the bank and/or the official of the bank, whose actions (inaction) relate to unhealthy and unsafe banking practice, falls within the competence of the Board of the National Bank, then the DS/ID/SLD prepares the corresponding materials for the Board of the National Bank, taking into account the results of the consideration of this issue by the Supervisory Committee of the National Bank. The Board of the National Bank, within the competence defined by regulatory legal acts of the National Bank, may make a decision on the application of the corresponding impact measure to the bank, whose actions (inaction) relate to unhealthy and unsafe banking practice***.***

(In the edition of the Resolution of the Board of the NB KR of * June 24, 2015 No. 35/7)*

Part II
Description of Impact Measures

5. Voluntary Commitments

5.1. A distinctive feature of voluntary commitments is the demonstration by the bank's management of readiness to cooperate with supervisory authorities in order to ensure the effectiveness of eliminating identified deficiencies, including violations of legislation on combating the legalization (money laundering) of criminal proceeds and financing of terrorist or extremist activities. The following types of voluntary commitments are used:

1) elimination of remarks within the framework of preliminary actions of the supervisory authority regarding the bank;

2) signing a letter of commitment;

3) signing a written agreement.

*(In the edition of the * Resolution of the Board of the NB KR of November 29, 2006 No. 37/5)

5.1.1. Preliminary actions of the supervisory authority are carried out by reaching a consensus and include the following:

1) meetings after the results of supervisory actions (on-site inspections, external supervision) with the management and Board of Directors of the bank;

2) correspondence of the supervisory authority (cover letter to the inspection report and similar correspondence) with the bank;

3) follow-up discussions;

4) monitoring the implementation of recommendations of the supervisory authority and commitments taken by the bank.

5.1.2. A letter of commitment is provided by the bank, in the activities of which there are deficiencies and violations that do not cause significant concern to the supervisory authority. The letter of commitment must contain specific measures to eliminate deficiencies, which will be undertaken by the Board of Directors and management of the bank, with the establishment of deadlines and target indicators. The letter of commitment is prepared by the structural unit of the supervisory block of the National Bank that detected the fact of violation and is signed by the Board of Directors of the bank.

(In the edition of the Resolutions of the Board of the NB KR of * April 25, 2012 No. 18/9, * September 25, 2013 No. 35/16)

5.1.3. A written agreement between the bank and the National Bank is signed only in cases where there are violations in the activities of the bank, but at the same time:

1) the bank is adequately capitalized;

2) the Board of Directors and the Board of the bank understand the problems and are ready to take specific measures to correct existing problems;

3) deficiencies and violations do not entail consequences threatening the financial condition of the bank.

5.1.4. The written agreement specifies the actions and deadlines for their implementation, which the Board of Directors and management of the bank must undertake. The written agreement is prepared by the structural unit of the supervisory block of the National Bank that detected the fact of violation and is signed on the one hand by the Board of Directors of the bank and on the other - by the Deputy Chairman/member of the Board of the National Bank, supervising the supervisory block. The agreement must contain the bank's intention to eliminate deficiencies in the bank's activities and improve its financial condition. By signing the written agreement, the bank undertakes to comply with its terms.

(In the edition of the Resolutions of the Board of the NB KR of * April 25, 2012 No. 18/9, * September 25, 2013 No. 35/16, * February 5, 2016 No. 5/1)*

5.1.5. Non-compliance by the bank with the terms of the written agreement and/or if the measures specified in the agreement did not lead to the expected results, the National Bank applies stricter impact measures. A written agreement is not signed with troubled banks.

6. Compulsory Impact Measures Applied by the National Bank

6.1. Compulsory impact measures of the National Bank are applied to banks depending on the type and nature of the violation and may be оформлены by a resolution of the Board of the National Bank, a decision of the Supervisory Committee, or an order signed by the Deputy Chairman/member of the Board of the National Bank, supervising the supervisory block.

(In the edition of the Resolution of the Board of the NB KR of * February 5, 2016 No. 5/1)*

6.2. The exclusive competence of the Board of the National Bank includes making decisions on the application of the following types of impact measures:

1) temporary suspension of the license;

2) appointment of temporary management;

3) appointment of a conservator;

4) revocation of the bank's license.

6.3. A decision of the Supervisory Committee on sending an order may include one and/or several requirements and impact measures provided for by the Laws "On the National Bank of the Kyrgyz Republic", "On Banks and Banking Activity in the Kyrgyz Republic", with the exception of impact measures specified in subparagraph 6.2 of this Regulation.

6.4. The Deputy Chairman/member of the Board of the National Bank, supervising the supervisory block, has the right to sign an order to the bank without convening the Supervisory Committee, if the National Bank makes a decision not provided for in paragraph 1.1.2 of this Regulation, or if urgent intervention by the National Bank is required.

(In the edition of the Resolution of the Board of the NB KR of * February 5, 2016 No. 5/1)*

6.5. Introduction of Higher Economic Standards

6.5.1. The National Bank (by decision of the Supervisory Committee) may establish new and/or stricter economic standards for a bank in cases where a tendency towards deterioration has emerged in the bank's activities, while the bank may comply with the minimum economic standards and requirements of the National Bank.

The Supervisory Committee has the right:

a) to reduce the size of the standard for the maximum allowable size of credit(2) to a single borrower, if the bank lacks or does not comply with internal credit issuance policy and, as a result, there is an increase in loan defaults;

b) to increase the adequacy of capital coefficients if it is necessary to reduce the share of risky assets to reduce existing risks;

c) to reduce the size of the open foreign exchange position limit in cases where it is necessary to reduce existing risks in conducting foreign currency operations;

d) to establish a standard and value for the maximum size of risk on obligations to individuals (K5).

(In the edition of the Resolutions of the Board of the NB KR of * March 28, 2007 No. 16/4, * March 31, 2010 No. 9/2)

6.5.2. Increasing the mandatory reserve norm and changing other standards (as well as the size of the increase) for banks that do not meet the requirements of the National Bank (except those specified in paragraph 6.5.1 of this Regulation) is adopted by the Board of the National Bank upon submission by the Supervisory Committee.

6.6. Capital Requirements

6.6.1. Capital requirements include:

1) requirement to maintain capital at a certain level;

2) requirement to conduct financial rehabilitation measures;

3) requirement to conduct recapitalization or reorganization.

These requirements are mandatory in cases where the bank does not meet the National Bank's requirement to comply with minimum capital standards and/or is found to be "undercapitalized". In this case, the bank's management must prepare and submit for approval to the National Bank a detailed capital replenishment plan to the required level within 30 days. The plan must detail how the bank plans to replenish capital to the required level, specifying specific implementation deadlines.

6.6.2. The National Bank, represented by the Deputy Chairman/member of the Board of the National Bank, supervising the supervisory block, approves the capital replenishment plan if:

a) the plan contains information required by paragraph 6.6.1 of this regulation;

b) the measures included in the plan are based on real indicators;

c) the risks to which the bank is exposed will not increase (including credit risk, liquidity risk, currency risk, and other types of risk).

(In the edition of the Resolution of the Board of the NB KR of * February 5, 2016 No. 5/1)*

6.6.3. The implementation deadlines necessary to achieve the required level of capital must not exceed one year from the date of introduction of the capital replenishment plan.

6.6.4. The National Bank, represented by the Deputy Chairman/member of the Board of the National Bank, supervising the supervisory block, approves the capital replenishment plan no later than 30 days from the date of its submission. The date of approval of the plan by the National Bank of the KR is the date of its introduction into force.

(In the edition of the Resolution of the Board of the NB KR of * February 5, 2016 No. 5/1)*

6.6.5. A bank implementing the capital replenishment plan must submit monthly reports to the National Bank on the progress of implementing this plan. The National Bank monitors the progress of plan implementation.

6.6.6. In the event of unsatisfactory progress in implementing the plan, as well as non-compliance with its deadlines and other deviations and/or deterioration of the bank's financial condition, the National Bank may introduce additional requirements and/or requirements for plan revision or apply any other impact measures provided for by this Regulation.

6.6.7. If, in the opinion of the National Bank, the capital of a "potentially troubled" bank is insufficient given the circumstances in the bank (even if the bank formally meets the minimum capital adequacy requirements), the payment of dividends, as well as bonuses to management and other specified payments, are prohibited. Additionally, a requirement is issued to increase capital within a specified period to the level required by the National Bank depending on the severity of the capital deficiency.

6.6.8. Depending on the size of the capital deficiency of an "undercapitalized" bank, certain types of activities or operations of the bank may be restricted or suspended, and these restrictions may be extended if the capital replenishment plan is not fulfilled.

6.6.9. In cases where a bank becomes "undercapitalized" ("significantly" or "critically undercapitalized"), the restrictions and impact measures specified in subparagraphs 6.6.10 are mandatory applied to it.

6.6.10. An "undercapitalized" bank is not entitled to:

a) pay any dividends of any type or otherwise distribute its capital to its shareholders (participants);

b) exceed the level of average total assets in any calendar quarter compared to the preceding one, except in cases where:

1) the National Bank has determined that any proposed increase in total assets corresponds to the approved plan;

2) the bank's capital adequacy coefficient increases to a level sufficient for the bank to become "adequately capitalized" within a time specified by the National Bank;

c) open or acquire any new branches;

d) directly or indirectly carry out any new investments, or engage in any new type of activity, except in cases where the National Bank has determined that the proposed actions correspond to the plan and will also help achieve its goals.

6.6.11. The activities of a "significantly undercapitalized" bank are restricted by the prohibitions of paragraph 6.6.10 of this Regulation, and additionally, without prior written approval of the National Bank, the bank cannot carry out the following:

a) pay any bonuses to any of the bank's officials;

b) increase remuneration in any form to anyone;

c) carry out any transactions with insiders and affiliated persons, or transfer any assets to any of the insiders and affiliated persons;

d) set interest rates on deposits(3) exceeding market interest rates on deposits with comparable amounts and maturity dates;

e) accept any new deposits from correspondent banks, except for the parent bank, including the renewal and extension of previous deposits.

*(In the edition of the * Resolution of the Board of the NB KR of March 31, 2010 No. 9/2)

6.6.12. The restrictions of paragraph 6.6.10 also apply to "undercapitalized" banks that have not submitted a capital replenishment plan within the period established by the National Bank, or have failed to implement the plan approved by the Deputy Chairman/member of the Board of the National Bank, supervising the supervisory block. If necessary, the National Bank may apply the restrictions established by paragraph 6.6.11 to an "undercapitalized" bank.

(In the edition of the Resolution of the Board of the NB KR of * February 5, 2016 No. 5/1)*

6.6.13. The National Bank may revoke the bank's license immediately, but no later than 30 days from the date the National Bank determines the bank to be "critically undercapitalized". Until the revocation of the license, the activities of a "critically undercapitalized" bank are limited by the prohibitions that apply to "undercapitalized" and "significantly undercapitalized" banks. In addition, the bank:

a) cannot accept any new deposits;

b) cannot pay interest on existing or renewed deposits at a rate that increases the weighted average cost of the bank's funds and significantly exceeds the prevailing interest rate on deposits in the banking market;

c) cannot make payments of principal or interest on its subordinated debt;

d) cannot carry out any significant operations that are not characteristic of the bank's activities, including carrying out any investments, lending(4), expanding activities, acquisitions, sale of assets, or any other actions without the approval of the National Bank;

e) make any significant changes to accounting policies and methods.

*(In the edition of the * Resolution of the Board of the NB KR of March 31, 2010 No. 9/2)

6.7. Appointment of a Qualified Consultant and Requirement for Unscheduled External Audit

6.7.1. The Supervisory Committee, based on information submitted by the structural unit of the supervisory block of the National Bank that detected the fact of violation, is authorized to appoint a qualified consultant responsible for advising the bank on measures related to correcting the situation in the bank, and/or require an unscheduled external audit of the bank's activities.

(In the edition of the Resolutions of the Board of the NB KR of * April 25, 2012 No. 18/9, * September 25, 2013 No. 35/16)

6.7.2. The Supervisory Committee requires an unscheduled external audit and/or appoints a qualified consultant by issuing an order, which may also contain additional requirements established by this Regulation. The order may also include restrictions on a certain type of bank's activity for the duration of the appointment of the qualified consultant.

6.7.3. The consultant conducts an analysis of identified problems in accordance with the powers established by the Committee. Based on its review and analysis, the consultant formulates recommendations for correcting identified violations and deficiencies.

6.7.4. All expenses related to consulting services and conducting an unscheduled external audit are paid by the bank itself.

6.7.5. If violations or other identified deficiencies are not eliminated within a certain period established by the National Bank, other, stricter impact measures provided for by legislation and this Regulation are applied.

6.8. Appointment of Direct Bank Supervision

6.8.1. A decision to introduce direct bank supervision is made by the Supervisory Committee in cases where, in the opinion of the National Bank, the bank is acting riskily and such its activities may affect the well-being of the bank, but there are not sufficient grounds for appointing temporary management or revoking the license for banking operations.

6.8.2. The grounds for introducing direct bank supervision are:

1) the presence of financial problems not resolved by the bank within the prescribed time;

2) actions of bank officials that are considered risky and may affect the well-being of the bank;

3) potential threat to the interests of depositors and other creditors;

4) detection of facts of violations of legislation and regulatory acts of the National Bank;

5) the presence in the composition of shareholders of the bank, owning or controlling both collectively and individually ten percent or more of the shares of the bank, persons registered in states regarding which decisions (resolutions) of the UN Security Council have been adopted, to which the Kyrgyz Republic has acceded, providing for a ban and/or restrictions on cooperation with physical and legal persons from these states. The authorized state body in the field of foreign affairs and other state bodies of the Kyrgyz Republic provide, upon request of the National Bank, available information on international sanctions;

6) the presence in the composition of the bank's shareholders, owning or controlling both collectively and individually ten percent or more of the bank's shares, of persons registered in the territory of states that do not adopt the FATF Recommendations on the development and implementation of international standards for combating money laundering and terrorist financing and do not participate in international cooperation in the field of counteracting the legalization (money laundering) of criminal proceeds and financing of terrorist or extremist activities, and regarding which the FATF calls on member states to apply countermeasures. The list of such countries is established by the state authorized state body of the Kyrgyz Republic in the field of counteracting the legalization (money laundering) of criminal proceeds and financing of terrorist or extremist activities.

(In the edition of the resolution of the Board of the National Bank of the KR of April 27, 2016 No. 19/5)

6.8.3. Direct bank supervision is also introduced for the purpose of a better study of the financial condition of the bank, the state of accounting, reporting of the bank and for other purposes determined by the National Bank.

6.8.4. Direct bank supervision is appointed to control on-site operations on a continuous basis and regular reporting to the National Bank.

6.8.5. The Supervisory Committee may appoint an authorized employee/authorized employees of the External Supervision Department to carry out direct bank supervision (hereinafter - "Controller/group of controllers"). In the event of sending a group of controllers, their Head is appointed (hereinafter - Head of the group of controllers).

(In the edition of the resolution of the Board of the National Bank of the KR of September 25, 2013 No. 35/16)

6.8.6. When introducing direct bank supervision, the officials of the bank continue to bear responsibility for the financial condition of the bank, however, they manage the affairs of the bank under the supervision of the Controller/Head of the group of controllers in accordance with the regulatory legal acts of the National Bank.

(In the edition of the resolution of the Board of the National Bank of the KR of September 25, 2013 No. 35/16)

6.8.7. Shareholders and officials of the bank are obliged to provide the Controller/Head of the group of controllers with all information related to the activities of the bank.

(In the edition of the resolution of the Board of the National Bank of the KR of September 25, 2013 No. 35/16)

6.9. Measures of impact on officials and/or significant participants of the bank

6.9.1. The National Bank presents a requirement to replace a bank official upon establishment by the corresponding structural units of the supervisory block of the National Bank of the following facts regarding the bank official:

1) violations of banking legislation and/or regulatory legal acts of the National Bank, resulting in significant financial losses and/or reputational risks;

2) creation of a situation or initiation of actions that expose the bank to the risk of losses and threaten the financial stability of the bank and the interests of its depositors;

3) participation in activities (action/inaction), which is characterized as unhealthy and unsafe banking practice;

4) implementation or involvement in activities violating the legislation of the Kyrgyz Republic and/or regulatory legal acts of the Kyrgyz Republic on issues of counteracting the legalization (money laundering) of criminal proceeds and financing of terrorist or extremist activities;

5) abuse of their official position;

6) facts indicating improper business reputation or professional incompetence, which do not inspire the trust necessary for holding their position.

(In the edition of the resolution of the Board of the National Bank of the KR of June 24, 2015 No. 35/7)

6.9.2. The Supervisory Committee, upon the submission of the USD, and/or the UIC, and/or the UMLN, considers and makes a decision on presenting the following mandatory for execution requirements:

• on the temporary suspension of an official from their position in the bank in the event of a criminal case being brought against the bank official;

• on the removal of an official from their position in the bank in the event of the person being found guilty of committing a criminal offense;

• on the replacement of all or some officials and banning their further participation in the activities of the bank;

• on the termination of the powers of an official who involves the bank in activities threatening its reliability and stability, as well as upon discovery of facts of non-compliance by the bank with banking legislation or regulatory acts of the National Bank, resulting or which may result in significant financial losses and/or reputational risks;

• on the annulment of consent previously issued to the person (applicant) to acquire a controlling package of shares, if facts of violation of Article 44 of the Law of the Kyrgyz Republic "On Banks and Banking Activity in the Kyrgyz Republic" become known and confirmed. Any disposal of shares, including their sale, must be carried out within the timeframes specified in the decision of the Supervisory Committee.

(In the edition of the resolution of the Board of the National Bank of the KR of June 24, 2015 No. 35/7)

6.9.3. The National Bank presents a requirement to a significant participant of the bank to suspend the right to vote on the shares of the bank belonging to the significant participant or to impose a ban on the further participation of the significant participant of the bank in its activities, in the event of establishment by the corresponding structural units of the supervisory block of the National Bank of the facts regarding the significant participant of the bank specified in paragraph 6.9.1.

(In the edition of the resolution of the Board of the National Bank of the KR of June 24, 2015 No. 35/7)

See also:

decision of the Constitutional Chamber of the Supreme Court of the KR of October 29, 2013 No. 6-r (On the case of checking the constitutionality of some norms of the provisions of the National Bank of the Kyrgyz Republic in connection with the appeals of citizens Abdrazakov Nurdin Akenovich and Kempirbaeva Chinar Suyunbekovna)

6.9.4. A decision on presenting a requirement to suspend the right to vote on the shares of the bank belonging to a significant participant or to impose a ban on a significant participant of the bank on further participation in the activities of the bank is made by the Supervisory Committee.

Upon detection of facts specified in paragraph 6.9.1 of this Regulation, the Supervisory Committee adopts a resolution/written order containing a requirement to suspend/terminate the direct or indirect influence of the significant participant on the management or policy of the bank (including direct or indirect exercise of the right to vote) and to reduce their participation in the authorized capital of the bank to a level below which significant participation is assumed, within a established period of time. In this case, the significant participant of the bank is obliged to suspend/terminate the direct or indirect influence on the management or policy of the bank (including direct or indirect exercise of the right to vote) and loses the right to vote at the shareholders' meeting on the shares belonging to him. The resolution/written order regarding the deprivation of the significant participant of the bank of the right to vote at the shareholders' meeting may specify separate issues on which he retains the right to vote, in the absence of a quorum (for example, the issue of increasing capital).

The significant participant of the bank is obliged to sell his share within the period of time determined by the National Bank. Otherwise, the National Bank applies to the court for compulsory alienation of the shares of the specified person.

(In the edition of the resolution of the Board of the National Bank of the KR of June 24, 2015 No. 35/7)

See also:

decision of the Constitutional Chamber of the Supreme Court of the KR of October 29, 2013 No. 6-r (On the case of checking the constitutionality of some norms of the provisions of the National Bank of the Kyrgyz Republic in connection with the appeals of citizens Abdrazakov Nurdin Akenovich and Kempirbaeva Chinar Suyunbekovna)

6.9.5. No one may remain in office or participate in the activities of the bank if the decisions specified in paragraphs 6.9.2. and 6.9.4. are made by the National Bank regarding such person.

(In the edition of the resolution of the Board of the National Bank of the KR of June 24, 2015 No. 35/7)

6.9.6. Appeal of measures and sanctions of the National Bank does not suspend their execution.

(In the edition of the resolution of the Board of the National Bank of the KR of June 24, 2015 No. 35/7)

6.10. Suspension, restriction of some types of banking operations

6.10.1. The Supervisory Committee may introduce restrictions or suspend some types of activities and operations specified in the license in the event of detection in the activities of the bank of violations related to:

1) involvement of the bank in unhealthy banking practice;

2) violation of banking legislation, including legislation and/or regulatory legal acts on the protection of bank deposits (deposits), on counteracting the legalization (money laundering) of criminal proceeds and financing of terrorist or extremist activities, on antimonopoly regulation, development of competition and protection of consumer rights of banking services, including non-compliance with economic standards, regulatory acts of the National Bank or its orders, as well as written agreements concluded by the bank with the National Bank.

(In the edition of the resolutions of the Board of the National Bank of the KR of November 29, 2006 No. 37/5, December 23, 2008 No. 49/6, February 19, 2014 No. 4/5)

6.11. Temporary management of the bank

6.11.1. Temporary management of the bank (hereinafter temporary management) is introduced by the resolution of the Board of the National Bank for a period of up to 6 months for the purpose of ensuring the safety of the bank's assets, possible restoration of the bank's solvency in the following cases:

1) establishment of facts of violations in the activities of the bank related to the inability of the bank's administration to ensure the work of the bank in accordance with banking legislation;

2) involvement of the bank in unhealthy banking practice;

3) violation of legislation and/or regulatory legal acts on counteracting the legalization (money laundering) of criminal proceeds and financing of terrorist or extremist activities;

4) unsatisfactory financial condition of the bank;

5) emergence of disagreements between the management bodies of the bank, disrupting its work;

6) loss of management of the bank due to a change in management;

7) violation of legislation by bank officials;

8) initiation of a criminal case against managerial and official persons or commencement of a criminal investigation against them;

9) risk of recognition of the bank as bankrupt;

10) if requirements for the elimination of violations are not carried out within the prescribed period of time.

(In the edition of the resolution of the Board of the National Bank of the KR of November 29, 2006 No. 37/5)

6.11.2. From the moment of appointment of the Temporary Management, all managerial functions in the bank are transferred to it. The Temporary Management must exercise control over all types of activities of the bank, the activities of the Board of Directors, the Board of Directors and other officials of the bank, have full and unrestricted access to all relevant information.

6.11.3. The rights, scope of duties and powers of the temporary management are determined by regulatory legal acts and the decision of the Board of the National Bank.

6.11.4. Immediately after their appointment, the temporary management together with the USD conducts an analysis of the financial condition and forecast of sustainability of this bank. The analysis must include:

1) analysis of the causes of deficiencies in the activities of the bank;

2) assessment of the market value of bank assets;

3) analysis of the possibility of rehabilitation of the bank, the possibility of merging the bank with another bank, the possibility of purchasing its assets and accepting its obligations by another bank, or other solutions to the problems of the bank;

4) the real price of the bank in case of its sale.

(In the edition of the resolution of the Board of the National Bank of the KR of April 25, 2012 No. 18/9)

6.11.5. Within 60 days from the date of appointment, the temporary management must submit a written report to the National Bank. The report must contain: a balance sheet, a report on the total income of the bank as of the date of submission of the report, an analysis, conclusion and recommendations of the temporary management.

(In the edition of the resolution of the Board of the National Bank of the KR of March 31, 2010 No. 9/2)

6.11.6. Within two weeks from the date of receipt of the report specified in paragraph 6.11.5, the National Bank must make a decision on the application of measures to improve the financial position of the bank, including the replacement of the bank's management, restriction of certain types of banking activities or other measures. The National Bank has the right to make a decision on the withdrawal of the banking license in the event of the impossibility of improving the financial position of the bank.

6.12. Conservatorship

6.12.1. Conservatorship of the bank is carried out on the basis and in the manner provided for by the law of the Kyrgyz Republic "On Conservatorship, Liquidation and Bankruptcy of Banks". The procedure for carrying out the conservatorship procedure, the rights and duties of the conservator are determined by the regulatory documents of the National Bank.

6.12.2. The National Bank has the right to introduce conservatorship and appoint a conservator to the bank in cases where:

1) the bank's capital for the preceding 6 months constitutes more than 50, but less than 100 percent of the established level of capital;

2) the bank does not execute orders, instructions, requirements and/or orders of the National Bank;

3) in accordance with the legislation of the Kyrgyz Republic, there are grounds for revocation of the bank's license;

4) the bank violates legislation and/or regulatory legal acts on counteracting the legalization (money laundering) of criminal proceeds and financing of terrorist or extremist activities.

(In the edition of the resolution of the Board of the National Bank of the KR of November 29, 2006 No. 37/5)

6.12.3. The National Bank is obliged to introduce conservatorship and appoint a conservator to the bank in the presence of any of the following grounds:

1) if the bank's capital is less than 50 percent of the capital required in accordance with the regulatory acts of the National Bank;

2) if the bank has ceased to pay its obligations after the due date of payment, even if there are no court disputes on these payments;

3) if a court notification has been received about the acceptance by it of an application to initiate bankruptcy proceedings or liquidation procedures against the bank;

4) if there is a need to complete the voluntary liquidation of the bank by the conservator in accordance with the Law of the Kyrgyz Republic "On Conservatorship, Liquidation and Bankruptcy of Banks";

5) if a criminal case has been initiated against bank officials (on charges of committing economic and official crimes) in connection with the performance of official duties.

6.13. Temporary suspension of the license and withdrawal of the bank's license

6.13.1. The National Bank has the right to temporarily suspend the action of the bank's license for a period of up to six months with the possible appointment of temporary management and restriction of all or individual operations specified in the license.

6.13.2. Withdrawal of the bank's license is carried out on the grounds set out in the Laws of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic", "On Banks and Banking Activity in the Kyrgyz Republic" and "On Conservatorship, Liquidation and Bankruptcy of Banks", as well as in the event of violation of the Laws of the KR "On Counteracting the Legalization (Money Laundering) of Criminal Proceeds and Financing of Terrorist or Extremist Activities", "On Protection of Bank Deposits (Deposits)".

(In the edition of the resolutions of the Board of the National Bank of the KR of November 29, 2006 No. 37/5, December 23, 2008 No. 49/6)

6.13.3. During the interim period specified in subparagraph 6.6.13, conservatorship may be introduced by the resolution of the Board of the National Bank for the purpose of establishing control over the bank and/or ensuring the safety of the bank's assets, accounting books and records.

6.13.4. The resolution of the Board of the National Bank on the suspension of the action or withdrawal of the bank's license may be adopted, bypassing other measures of impact.

6.13.5. Withdrawal of the bank's license entails its liquidation on the grounds and in the manner provided for by the Law of the Kyrgyz Republic "On Conservatorship, Liquidation and Bankruptcy of Banks".

7. Fines imposed by the National Bank

7.1. Fine - is a monetary penalty imposed on the bank, its officials and affiliated persons in accordance with the Laws of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic", "On Banks and Banking Activity in the Kyrgyz Republic", other laws of the Kyrgyz Republic and regulatory legal acts of the National Bank for violations of the requirements of the legislation of the Kyrgyz Republic and the requirements of the National Bank.

7.2. In the presence of violations in the bank, the Supervisory Committee imposes a fine on the bank and its affiliated persons, regardless of the time of discovery of the violation, in accordance with the banking legislation of the Kyrgyz Republic.

(In the edition of the resolution of the Board of the National Bank of the KR of December 21, 2012 No. 50/13)

7.3. A fine on bank officials is imposed in accordance with the legislation on administrative liability.

(In the edition of the resolutions of the Board of the National Bank of the KR of December 23, 2008 No. 49/6, December 21, 2012 No. 50/13)

7.4. A decision on imposing a monetary penalty (fine) on banks is made by the Supervisory Committee of the National Bank. The decision on imposing a fine is оформляется by a resolution of the Supervisory Committee of the National Bank, which specifies the grounds for applying penalty sanctions, the amount of the fine and the deadlines for its payment.

The fine must be paid by the bank within a period of no later than one month from the day of its delivery of the resolution on the imposition of a fine, and in the event of an appeal of the resolution - no later than fifteen days from the day of notification of the rejection of the complaint or leaving the complaint without consideration.

(In the edition of the resolutions of the Board of the National Bank of the KR of December 23, 2008 No. 49/6, September 25, 2013 No. 35/16)

7.5. A fine on the bank is established in an amount of no more than one percent of the paid-up authorized capital of the bank for each specific violation of the requirements of the legislation of the Kyrgyz Republic.

(In the edition of the resolution of the Board of the National Bank of the KR of December 23, 2008 No. 49/6)

7.6. A fine on bank officials is imposed in an amount established by the legislation of the Kyrgyz Republic on administrative liability.

(In the edition of the resolution of the Board of the National Bank of the KR of December 21, 2012 No. 50/13)

7.7. For violation of currency position limits, a fine is imposed in accordance with the Instruction "On the procedure for compliance with open currency position limits by commercial banks in the territory of the Kyrgyz Republic", approved by the resolution of the Board of the National Bank No. 36/13 of December 29, 2004 (registration number of the Ministry of Justice of the KR No. 16-05 of 01.02.05) (5).

(In the edition of the resolutions of the Board of the National Bank of the KR of December 23, 2008 No. 49/6, March 31, 2010 No. 9/2)

7.8. The imposition and collection of fines applied to banks and their officials does not mean that the National Bank will not apply other measures of impact for facts of violation of legislation.

7.9. If the fine is not paid by the bank, then the National Bank has the right to apply to the bank measures of compulsory collection of the fine, as well as other measures of impact provided for by legislation.

7.10. For non-compliance with reserve requirements, a fee is collected from the bank in accordance with the regulatory legal acts of the National Bank.

(In the edition of the resolution of the Board of the National Bank of the KR of June 24, 2015 No. 35/7)

7.11. If the fine is not paid by the bank official, then with respect to him the National Bank has the right to apply measures of compulsory collection of the fine provided for by legislation.

7.12. A fine is, as a rule, not imposed on the bank if the violation of the open currency position limit occurred under conditions of force majeure circumstances that have arisen.

Force majeure circumstances include: natural disasters (floods, earthquakes, fires and other natural or technogenic catastrophes), military conflicts, terrorist acts, civil unrest and riots, as well as the issuance of regulatory legal acts restricting or prohibiting the performance of any actions and affecting the performance by the bank of economic standards established by the National Bank.

(In the edition of the resolution of the Board of the National Bank of the KR of December 16, 2010 No. 91/7)

7.13. During the period of action in the bank of temporary management or conservatorship, the Supervisory Committee has the right to consider the expediency of imposing a monetary fine on the bank for non-compliance with the established limits of the open currency position, taking into account all circumstances that led to the violation of this economic standard.

(In the edition of the resolution of the Board of the National Bank of the KR of December 16, 2010 No. 91/7)

7.14. In the event that the violation of the open currency position limit during the period of action in the bank of temporary management or conservatorship was the result of the activities of the bank before the introduction of temporary management/conservatorship, the Supervisory Committee has the right to consider the issue of imposing a monetary fine on the bank with a deferral of its payment.

(In the edition of the resolution of the Board of the National Bank of the KR of December 16, 2010 No. 91/7)

Part III
Application of impact measures

8. Procedure for applying impact measures

Upon establishment of violations in the activities of banks and/or in the presence of deficiencies, the National Bank has the right to apply any impact measures provided for by the legislation of the Kyrgyz Republic and this Regulation, regardless of the rating and classification of the bank. At the same time, a strict sequence and sequence of application of impact measures is not provided. These measures are applied depending on the situation, the degree of violation and possible consequences for the bank.

8.1. Measures applied to a "financially stable" bank

8.1.1. In the presence of violations in the activities of a "financially stable" bank, any or several of the impact measures described in this Regulation are applied, depending on the existing situation. In order to eliminate deficiencies, the following impact measures are applied to such banks, at a minimum:

a) a letter is sent to the officials of the bank with a request to promptly eliminate violations (p.5.1.1 of this Regulation);

b) a letter is sent to the bank appointing a meeting with the Board of Directors and bank management to discuss problems (para. 5.1.1 of this Regulation);

c) submission of a letter of commitment is required (para. 5.1.2 of this Regulation);

8.2. Enforcement measures applied to a "potentially problematic" bank

8.2.1. In the event of violations in the activities of a "potentially problematic" bank, any or several of the enforcement measures described in this Regulation are applied, depending on the situation. In order to eliminate deficiencies, the following enforcement measures are applied to such banks at a minimum:

a) a meeting with the bank's Board of Directors;

b) a written agreement (para. 5.1.3 of this Regulation);

c) an order to eliminate violations and deficiencies;

d) an order to maintain capital at a certain level.

The decision on the necessity of concluding a written agreement instead of an order is made by the Supervisory Committee. In this case, the Supervisory Committee approves the draft agreement to be signed.

8.3. Enforcement measures applied to a "problematic" bank

8.3.1. To a "problematic" bank, in order to eliminate violations and deficiencies in its activities, any or several of the enforcement measures described in this Regulation are applied, depending on the situation. At the same time, the following enforcement measures are applied to such banks at a minimum:

a) an order to maintain capital (para. 6.6 of this Regulation);

b) an order to appoint a qualified consultant and/or conduct an unscheduled external audit (para. 6.7 of this Regulation);

c) an order to change bank officials (para. 6.9 of this Regulation);

d) an order to suspend, restrict certain types of banking operations (para. 6.8 of this Regulation);

8.4. Enforcement measures applied to a bank with a critical financial state

8.4.1. To a bank whose financial state is recognized as critical, any or several of the enforcement measures described in this Regulation are applied, depending on the situation. At the same time, the following enforcement measures are applied to such banks at a minimum:

a) an order to change bank officials (para. 6.9 of this Regulation);

b) an order to suspend, restrict certain types of banking operations (para. 6.8 of this Regulation);

8.5. Enforcement measures applied to an "insolvent" bank

8.5.1. If a bank is recognized as "insolvent", a decision is made:

a) on the introduction of conservation (para. 6.12 of this Regulation);

b) on the revocation of the license (para. 6.13 of this Regulation).

9. Duration of enforcement measures

9.1. Issues regarding the introduction of changes or cancellation of enforcement measures by the National Bank may be considered only after a supervisory assessment of the improvement of the bank's overall condition and the fulfillment of all measures to eliminate violations and their causes has been provided.

(1) Throughout the text of this Regulation, for Islamic banks - holders of investment accounts.

(2) For Islamic banks - transactions under the terms of which the Islamic bank provides funds.

(3) In the case of an Islamic bank, this provision means a prohibition on paying remuneration exceeding the actual rate of return on client funds placed in the Islamic bank based on mudaraba, karz hasan, and wadi'ah yad daman contracts.

(4) For an Islamic bank - transactions under the terms of which the Islamic bank provides funds.

(5) For Islamic banks - Instruction "On the procedure for compliance with limits of open currency position by banks carrying out operations in accordance with Islamic principles of banking and financing", approved by resolution of the Board of the National Bank of October 14, 2009 No. 41/4.

Note:

(*) S - Applied in accordance with the normative legal acts of the National Bank.

		Appendix 1 to the Regulation on Enforcement Measures Applied to Banks and Certain Other Financial and Credit Institutions Licensed by the National Bank

(In the edition of the resolutions of the Board of the National Bank of the Kyrgyz Republic of June 24, 2015 No. 35/7, February 10, 2016 No. 7/2)

Signs of activities, actions (inaction) of a bank that may relate to unhealthy and unsafe banking practices:

1. Inability of the Board of Directors and the Board of the bank to ensure adequate control and management in order to prevent unhealthy and unsafe banking practices and violation of the legislation of the Kyrgyz Republic.

2. Action (inaction) of officials, including those performing supervisory functions over the bank's activities, which led to a violation of the legislation of the Kyrgyz Republic and normative legal acts of the National Bank, to a significant deterioration of the bank's financial condition.

3. Absence of appropriate actions by the general meeting of shareholders and/or the Board of Directors and/or the Board regarding the change, dismissal, temporary suspension, and termination of powers of bank officials to whom the National Bank has issued appropriate requirements.

4. Creation of an inadequate reserve to cover potential losses and losses on assets and off-balance sheet obligations.

5. Inability to maintain accounting in accordance with IFRS and normative legal acts of the National Bank.

6. Non-compliance with banking legislation norms, as a result of which risks (including reputational risk) arose, affecting or which may affect the stable operation of the bank.

7. Conducting operations falling under the criteria of suspicious operations and/or lacking obvious economic sense (regardless of their quantity) and/or violation of the legislation of the Kyrgyz Republic on combating the legalization (laundering) of criminal proceeds and financing terrorist or extremist activities.

8. Non-compliance of the internal control system, including the activities of the internal audit service and risk manager, with the requirements of normative legal acts of the National Bank.

9. Conducting operations by the bank with insiders and affiliated persons of the bank or making a decision by authorized bodies/persons of the bank to conduct such operations in violation of the requirements of normative legal acts of the National Bank, including the principle of impartiality.

10. Conducting activities for which the bank lacks qualified and experienced staff.

11. Conducting banking activities in the absence of appropriate policies and procedures, or their non-compliance with the requirements of the National Bank, or when the bank's activities do not correspond to policies and procedures, or policies and procedures do not correspond to the scale of activities and the level of risks of the bank.

12. Non-compliance of the operations conducted by the bank with Sharia standards (for a bank carrying out operations in accordance with Islamic principles of banking and financing).

13. Providing loans to clients in violation of the legislation of the Kyrgyz Republic, normative legal acts of the National Bank, as well as internal policies/procedures of the bank, and/or when a client receiving a new loan has unfulfilled obligations to this bank or any other bank, or providing loans to borrowers with repeated extension of loans and unstable financial position.

14. Significant deterioration in the quality of the bank's assets due to an increase in the volume of overdue loans and/or their share in the total volume of the loan portfolio.

15. Credit administration practice, including loan granting procedures and monitoring procedures, has serious and significant deficiencies.

16. Credit documentation is not formed properly, including the absence of important legal, financial, and collateral documentation in credit files.

17. Allowing systematic (2 or more times within 12 consecutive calendar months) violations of banking legislation of the Kyrgyz Republic.

18. Failure to fulfill orders to eliminate violations within the deadlines set by the National Bank.

19. The bank does not comply with economic standards for capital adequacy and does not take measures to bring economic standards for capital adequacy into compliance with the requirements of the National Bank.

20. The bank's capital is insufficient to cover losses associated with risks inherent in the bank. The founders, despite prior warning, do not replenish capital and/or do not take measures to replenish it within the period determined by the National Bank.

21. Capital of any category of the bank is less than 25 percent of regulatory requirements or there is a threat of non-fulfillment of minimum capital requirements established by the National Bank.

22. Payment of dividends in violation of the legislation of the Kyrgyz Republic and/or despite the suspension/restriction on dividend payment.

23. The bank has an insufficient level of liquidity to perform obligations in a timely manner.

24. Untimely, incomplete, or unreliable submission to the National Bank of reports, as well as other officially requested documents and information.

25. Conducting by the bank of operations prohibited by the legislation of the Kyrgyz Republic, or not provided for by the license, but subject to licensing by the National Bank.

		Appendix 2 to the Regulation on Enforcement Measures Applied to Banks and Certain Other Financial and Credit Institutions Licensed by the National Bank

MATRIX application of monetary fines

(Excluded in accordance with resolution of the Board of the National Bank of the Kyrgyz Republic of December 21, 2012 No. 50/13)