Regulation on Internal Procedures for Assessing Capital Adequacy of Commercial Banks of the Kyrgyz Republic

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Creation date: 2026-10-07

Appendix

to the resolution of the Board of the National Bank of the Kyrgyz Republic

of December 27, 2024 No. 2024-P-12/71-3-(BS)

REGULATION

on internal procedures for assessing capital adequacy of commercial banks of the Kyrgyz Republic

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of September 24, 2026 No. 2026-P-12/47-5-(BS))

Chapter 1. General Provisions

1. This Regulation defines the grounds, procedures, and processes for the development of internal procedures for assessing capital adequacy by commercial banks of the Kyrgyz Republic (hereinafter - banks).

The action of this Regulation extends to banks, including banks conducting operations in accordance with Islamic principles of banking and financing, including banks having an "Islamic window," taking into account the special terminology applied by them in conducting banking operations.

2. Internal procedures for assessing capital adequacy (hereinafter - ICAAP) will enable banks to implement reliable, effective, and comprehensive strategies and processes for the ongoing assessment and maintenance of amounts, types, and distribution of capital that is sufficient to cover the level of risks to which banks are or may be exposed. These strategies and processes are subject to regular internal assessment to ensure their completeness and proportionality to the nature, volume, and complexity of the bank's activities.

3. This Regulation provides a description of the main aspects that banks must take into account when developing a reliable, effective, and comprehensive ICAAP process, as well as its content, which the National Bank of the Kyrgyz Republic (hereinafter - National Bank) will assess as part of the annual supervisory assessment of ICAAP for each bank.

4. In addition to the provisions of this Regulation, banks are also recommended to take into account other ICAAP-related publications of such international institutions as the Basel Committee on Banking Supervision.

Furthermore, banks must take into account all recommendations addressed to them related to ICAAP, for example, recommendations arising from the National Bank's supervisory assessment process, as well as recommendations regarding risk management and control.

Chapter 2. Terms and Definitions Used

5. This Regulation uses definitions provided in the following regulatory legal acts of the Kyrgyz Republic:

1. Law of the Kyrgyz Republic "On Banks and Banking Activity" dated August 11, 2022 No. 93 (hereinafter - Banking Law);

2. Instruction on Determining Capital Adequacy Standards for Commercial Banks of the Kyrgyz Republic, approved by the resolution of the Board of the National Bank dated October 12, 2022 No. 2022-P-12/63-1-(NPA) (hereinafter - Capital Adequacy Instruction);

3. Regulation "On Minimum Requirements for Risk Management in Banks of the Kyrgyz Republic," approved by the resolution of the Board of the National Bank dated June 15, 2017 No. 2017-P-12/25-8-(NPA) (hereinafter - Risk Management Regulation).

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

1. Additional Capital - Additional Tier 1 Capital, specified in paragraph 17 of the Capital Adequacy Instruction;

2. Internal Risk Appetite Statement is understood in the meaning specified in the Risk Management Regulation;

3. Core Capital - Core Tier 1 Capital, provided for in paragraph 16 of the Capital Adequacy Instruction;

4. Business Plans - plans concerning the bank's strategy and scope of activity in accordance with Article 25 of the Banking Law;

5. Capital Allocation - the process of allocating a certain amount of capital to a specific type of risk (for example, credit, operational, etc.) taking into account the level of specific risk faced by the bank.

Capital allocation includes risks specified in the Capital Adequacy Instruction (credit risk and operational risk) and other risks not provided for in the Capital Adequacy Instruction (market risk, credit concentration risk, and other risks);

6. Tier 1 Capital or Equity Capital - Tier 1 Capital, specified in paragraph 15 of the Capital Adequacy Instruction;

7. Capital Planning - forecasting the bank's capital adequacy ratios for a certain period (usually for 3 years) through forward-looking assessment of the bank's capital and capital requirements, ensuring its full compliance with the bank's business plan;

8. Capital Targets - various limits (such as a target, early warning indicator, or limit) established by the bank within its internal risk appetite statement regarding indicators related to its capital adequacy (Core Tier 1 Capital adequacy ratios, Total Capital adequacy ratios, etc.);

9. Key Business Lines - business lines that represent significant sources of the bank's income, profit, or franchise value, usually associated with segments used by the bank to inform the market, investors, etc.;

10. Internal Capital Models - methodologies developed within the bank and used to quantify risks for which requirements are established in accordance with the Capital Adequacy Instruction, and other risks not provided for in the Capital Adequacy Instruction;

11. Inherent Risk - the level of risk inherent in the bank's activities, products, or services, i.e., the probability that the bank will incur significant losses due to risk exposure and uncertainty arising from current and future events. In this context, the term "significant losses" refers to the amount of losses exceeding 5% of the value of the bank's Tier 1 Capital;

12. Internal Capital Requirements - internally calculated capital limits by the bank to cover risks for which requirements are provided in the Capital Adequacy Instruction (credit risk and operational risk), and risks for which the Capital Adequacy Instruction does not establish requirements (for example, credit concentration risk, market risk, etc.);

13. Additional Buffer Reserve - this is the amount of capital that the bank is willing to hold in excess of minimum capital requirements and the "capital buffer" index. The amount of the "additional buffer reserve" must be determined by the bank taking into account such factors as: (a) risk profile; (b) risk appetite; (c) minimum capital requirements; (d) the bank's dividend policy, etc.;

14. Material Risks - risks to which the bank's exposure is serious enough to potentially cause significant losses that could reduce the bank's capital. For the purpose of establishing materiality, banks must consider a risk to be material if their exposure to such risk is equal to or exceeds 5% of the value of the bank's Tier 1 Capital;

15. Minimum Capital Requirements - the minimum size of equity capital and capital adequacy ratios that a bank must comply with in accordance with the regulatory legal acts of the National Bank;

16. The Principle of Proportionality refers to the main principles by which one can be guided in implementing this Regulation, including the systemic significance of the bank, the complexity of its activities, business model, and size;

17. Risk Appetite is understood in the meaning defined in the Risk Management Regulation;

18. Risk Assessment - a process by which the bank measures the inherent risk of all its material risks and individually classifies each of these risks based on the level of risk to which it is exposed, as well as the adequacy of corresponding risk management and control systems;

19. Risk Factors - factors that can affect the materiality of risks to which the bank is or may be exposed. Risk factors can be quantitative or qualitative;

20. Risk Rating - the result of a four-point scale assessment conducted by the bank regarding its risks based on the aggregate of the bank's exposure to its material risks and the adequacy of corresponding risk management and control systems;

21. Risk Identification - a regular process during which the bank identifies all material risks it faces in conducting its activities;

22. Risk Limits are understood in the meaning defined in the Risk Management Regulation;

23. Net Risk - a comprehensive assessment by the bank of its material risks taking into account the level of inherent risk and the quality of risk management and control (QRM&C);

24. Tier 2 Capital - Tier 2 Capital, provided for in paragraph 19 of the Capital Adequacy Instruction;

25. Net Total Capital - the sum of Tier 1 Capital and Tier 2 Capital in accordance with sub-paragraph (a) of paragraph 6 of the Capital Adequacy Instruction;

26. Interest Rate Risk in the Banking Book - risk arising from conducting banking operations with the banking book;

27. CRA - the sum of balance sheet assets and off-balance sheet liabilities, weighted by risk degree, minus special reserves for potential losses and losses.

Chapter 3. ICAAP Requirements

7. Banks must annually develop a reliable, effective, and comprehensive ICAAP report in accordance with the following criteria:

1. the report must be updated annually by banks and submitted to the National Bank by May 31;

2. the report must relate to data as of December 31 of the previous year;

3. the report must contain information required in paragraph 1 of Chapter 4 of this Regulation;

4. the report must be assessed and approved by the bank's board of directors before its submission to the National Bank.

8. The bank is independently responsible for implementing ICAAP in its activities, which must correspond to the specific circumstances (i.e., the bank's business model, material risks, capital requirements, potential vulnerabilities of the bank in determining stress-testing scenarios, etc.) of the bank.

When assessing ICAAP, the National Bank will take into account the individual circumstances of each bank.

9. The bank must ensure that its ICAAP remains comprehensive, covering all material risks to which the bank is exposed, and corresponds to the nature, scale, and complexity of its activities.

10. The bank's internal audit service must include the review of the ICAAP report in its annual audit plan. Such review must be conducted before its approval by the bank's board of directors.

11. The National Bank assesses the ICAAP report submitted by the bank as an integral part of risk-oriented supervision of banks.

Chapter 4. Requirements for the Internal Capital Adequacy Assessment Process Report

§ 1. Content of the ICAAP Report

12. The ICAAP report that banks must prepare in accordance with paragraph 11 of this Regulation must include at least the following chapters:

1. Executive Summary;

2. General Information;

3. Business Model and Strategy;

4. Risk Management Organization within ICAAP;

5. Risk Identification;

6. Risk Assessment;

7. Risk Appetite;

8. Internal Capital Requirements;

9. Capital Planning;

10. Stress Testing;

11. Other Provisions.

13. When filling out the chapters listed in the previous paragraph, banks must indicate information provided for in paragraphs 15-36 of this Regulation.

14. Banks must adhere to the ICAAP reporting form provided in Appendix 1 to this Regulation.

§ 2. Executive Summary

15. The bank must ensure that the executive summary provides a detailed explanation of the main elements of the ICAAP report in an easily readable and understandable manner. In the executive summary, the bank must indicate:

1. the bank's capital targets for the next 12 months. The bank must indicate at least its capital targets in terms of Core Tier 1 Capital and Net Total Capital;

2. the bank's business model and current financial condition;

3. the organization of the risk management system, including the strategic level and macro level defined in the Risk Management Regulation;

4. the bank's material risks and the net risk assessment based on self-assessment results;

5. the bank's risk appetite, including the bank's key indicators and risk limits;

6. the bank's internal capital requirements;

7. forecasted capital adequacy ratios in capital planning. Forecasts for December 31 for each of the covered three years;

8. the results of the bank's internal stress testing conducted within the ICAAP;

9. capital decisions made by the bank based on the ICAAP process;

10. a brief description of the self-assessment of the ICAAP report adequacy, including weaknesses and shortcomings, as well as the ICAAP improvement plan and the implementation schedule for this plan.

§ 3. General Information

16. The bank must present basic and general information about the bank and the ICAAP report, including the following information:

1. Full name, organizational unit or department, and position of the person or persons responsible for preparing the ICAAP report or the person responsible for submitting the ICAAP report information to the National Bank;

2. contact details (i.e., phone, fax, email address, etc.);

3. data related to the ICAAP report (reporting period, report preparation date, last update date, date of consideration and approval by the board of directors, whether information is presented on an individual or consolidated basis);

4. signature of the person and/or persons responsible for preparing the ICAAP report.

§ 4. Business Model and Strategy

17. The bank must ensure that the ICAAP report includes the following aspects:

1. description of the bank's current business model, including the definition of key business lines, markets, geographic zones, and products;

2. a brief summary of the current business plan approved by the board of directors as of the reporting date;

3. any significant changes expected in the current business model or underlying activities (including information on operational changes (for example, in IT infrastructure) or risk management organization issues);

4. forecasts of key financial parameters for key business lines and markets: it is necessary to include a description of main sources of income and costs, distributed by key business lines, markets, and subsidiaries.

18. The bank may include the information specified in paragraph 17 of this Regulation by cross-referencing its current business plans submitted to the National Bank in accordance with Article 25 of the Banking Law.

§ 5. Risk Management Organization within ICAAP

19. The bank's board of directors:

1. bears overall responsibility for the implementation of ICAAP. For these purposes, the board of directors assesses and approves the ICAAP report in accordance with sub-paragraph 4 of paragraph 7 of this Regulation;

2. is responsible for organizing risk management within ICAAP, in which functions and responsibilities for preparing the ICAAP report are clearly distributed. The bank's board of directors approves a separate internal document regulating the procedure for preparation, methodology, and distributing functions and responsibilities of bank subdivisions in preparing the ICAAP report;

3. must have a deep understanding of the bank's capital adequacy, its main strengths and weaknesses, main inputs and outputs of ICAAP, parameters and processes underlying ICAAP, and the consistency of ICAAP with the bank's business plan (reserves, dividends, profit, assets, risk-weighted, etc.).

20. The bank's management board aligns and implements ICAAP, effectively integrating it into the bank's risk management system.

21. In connection with the fact that ICAAP are an integral part of the bank's risk management system and decision-making, the bank must:

a) integrate results related to ICAAP (such as significant risk developments, key indicators, etc.) into internal management reporting with the appropriate frequency;

b) use ICAAP results in the decision-making process, including in:

• establishing the bank's capital targets;
• making decisions regarding the bank's capital, such as dividend payments, increasing the loan portfolio, or attracting new capital;
• making a decision on capital allocation by business lines, products, or customers, to ensure risk-adjusted profit.

22. ICAAP undergo regular internal verification. The bank's internal audit service conducts ICAAP verification in accordance with paragraph 10 of this Regulation.

§ 6. Risk Identification

23. The bank must continuously identify all material risks to which it is exposed in conducting its activities. For this purpose, the ICAAP must contain the following elements:

1. when determining the risks to which the bank is exposed in conducting activities, banks proceed from the list and definitions of risks provided in the Risk Management Regulation, namely:

a) credit risk;

b) liquidity risk;

c) market risk, which also includes:

• price risk;

• interest rate risk;

• currency risk;

d) country risk, including transfer risk and sovereign risk;

e) operational risk;

f) reputational risk;

g) compliance risk;

2. risk classification must cover all types of risks to which the bank is exposed in its daily activities, including those that are harder to quantify (reputational, compliance risk, etc.). In addition to its current risks, the bank must take into account in its forward-looking capital adequacy assessments any risks that may arise as a result of implementing its strategies or corresponding changes in its operating environment (for example, risks related to climate change; risks related to cryptocurrency assets; risks related to the activities of the bank's branch in a foreign state, etc.). The bank has the right to identify and assess these risks not as separate categories, but as part of the main types of banking risks (credit, market, operational, country, compliance risk, and other material risks).

At the same time, the methodology for assessing these risks is determined by the bank's internal regulatory documents;

3. the bank must provide a detailed justification indicating the reasons why it does not consider a particular risk to be material (for example, possible losses do not exceed 5% of the bank's Tier 1 Capital, etc.).

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of September 24, 2026 No. 2026-P-12/47-5-(BS))

§ 7. Risk Assessment

24. After the bank has determined the material risks to which it is exposed, it must assess these risks. In conducting such an assessment, the bank must meet the following requirements:

1. assess the inherent risk of all material risks to which the bank is exposed, using four possible levels (1 (low), 2 (acceptable), 3 (significant), and 4 (high)). The "Inherent Risk" level should be considered as risk exposure in the absence of any control means and methods:

a) high (4): the probability that the bank's losses arising from the impact and uncertainty related to current and potential future events will not be covered by the bank's capital (bankruptcy of the bank) is high;

b) significant (3): the probability that the bank's losses arising from the impact and uncertainty related to current and potential future events will not be covered by the bank's capital (bankruptcy of the bank) is significant;

c) acceptable (2): the probability that the bank's losses arising from the impact and uncertainty related to current and potential future events will not be covered by the bank's capital (bankruptcy of the bank) is acceptable;

d) low (1): the probability that the bank's losses arising from the impact and uncertainty related to current and potential future events will not be covered by the bank's capital (bankruptcy of the bank) is low;

2. the bank must justify the assessment of its material risks based on quantitative and qualitative criteria. Quantitative criteria may include financial indicators, the bank's capital distribution, results of internal stress tests, or other relevant information where applicable. Qualitative information may include a detailed explanation of the main factors determining the bank's risk rating;

3. the bank must determine the trend (direction) of its material risks, indicating whether the risk is increasing, stable, or decreasing;

4. the bank must determine its net risk. Net risk is the result of aggregating the bank's inherent risk associated with its material risks, using the risk rating and the quality of risk management and control (QRM&C).

25. The assessment of the quality of management and control (QRM&C) of a material risk by the bank must be classified as: weak (4), inadequate (3), adequate (2), and strong (1) management quality, as presented below:

1. weak: QRM&C characteristics significantly do not correspond to what is considered necessary, taking into account the nature, volume, complexity, and risk profile of the bank. QRM&C needs radical and immediate improvement;

2. inadequate: QRM&C characteristics in some significant aspects do not correspond to what is considered necessary, taking into account the nature, volume, complexity, and risk profile of the bank. QRM&C mechanisms' characteristics and/or performance do not correspond to proper industry practice, however, areas needing improvement are not serious enough to cause prudential concerns if timely measures are taken;

3. adequate: QRM&C characteristics correspond to what is considered necessary, taking into account the nature, volume, complexity, and risk profile of the bank. QRM&C has proven its effectiveness and compliance with requirements, with minor shortcomings. QRM&C mechanisms' characteristics and implementation results correspond to leading industry practice;

4. strong: QRM&C characteristics (policies and strategies, processes and procedures, control means, and personnel) exceed indicators considered necessary, taking into account the nature, volume, complexity, and risk profile of the bank. QRM&C consistently demonstrates high effectiveness. QRM&C mechanisms' characteristics and implementation results exceed proven industry standards.

§ 8. Risk Appetite

26. The bank must establish its risk appetite through an internal risk appetite statement, which must be closely interconnected with ICAAP. Within the framework of ICAAP, the bank must:

1. determine the levels of capital that the bank considers sufficient for its activities, taking into account at least the following aspects:

a) the bank's net risk;

b) minimum capital requirements;

c) "capital buffer" index;

d) internal capital requirements calculated in accordance with the ICAAP document;

e) additional buffer reserve that the bank is willing to maintain in excess of its minimum capital requirements and the "capital buffer" index;

f) available measures by which the bank can form capital in accordance with the financial recovery plan;

g) results of bank stress tests conducted in accordance with ICAAP;

h) potential capital needs determined in the bank's capital plans;

i) dividend policy;

2. a description of the level of risk appetite and limits established for identified material risks, as well as time horizons and the process used to keep such limits up-to-date. The bank must provide justification for the definition of its internal risk appetite document. The bank is expected to provide sufficient explanation (presenting its own past experience, current level of the banking sector, goals provided in its business strategy, etc.) so that supervisory authorities can understand the thresholds set by the bank itself;

3. risk appetite must cover the bank's risks if they are recognized as material (operational risk, reputational risk, etc.).

27. A bank may make cross-references to risk appetite in business plans. In this case, the bank will need to confirm how much its material risks were covered by the risk appetite.

§ 9. Internal Capital Requirements

28. Taking into account the requirements of the Instruction on Capital Adequacy, an internal approach must be provided in the bank, according to which the bank must identify and quantitatively assess all material risks that may lead to losses and affect the reduction of the bank's capital size.

29. Banks must determine their internal capital requirements regarding risks included in the capital adequacy calculation in accordance with the Instruction on Capital Adequacy (credit risk and operational risk), and for those material risks for which the Instruction on Capital Adequacy does not provide requirements (for example, credit concentration risk, interest rate risk in the banking book, compliance risk, etc.). At the same time, the bank is obliged:

1. use any of the following risk approaches:

a) requirements provided in the Instruction on Capital Adequacy, while supplementing risks that may be insufficiently covered by such requirements;

b) its own managerial approach using its own internal models to assess internal capital requirements. At the same time, this approach must be integrated into the bank's internal capital management processes (i.e., capital allocation, pricing, underwriting of credit risk, etc.);

2. for risks for which the Instruction on Capital Adequacy does not provide requirements, the bank must at least:

a) assess and allocate capital taking into account credit concentration risk. The bank must cover at least individual and industry concentration risk. Appendix 2 to this Regulation offers standardized approaches that banks may follow when allocating capital to cover credit concentration risk;

b) assess its exposure to interest rate risk in the banking book and allocate capital to cover this risk;

c) assess its exposure to business risk and allocate capital to cover this risk;

d) assess its exposure to compliance risk and allocate capital to cover this risk;

e) assess its exposure to market risk and allocate capital to cover this risk;

f) assess its exposure to other material risks, including risks associated with the activities of the bank's branch in a foreign state, and allocate capital to cover them (it is allowed to determine the need to allocate capital to cover these risks as part of other types of banking risks);

g) in cases where the bank is unable to quantitatively assess its internal capital to cover other material risks, it must allocate from 5 to 15% of its capital provided for risks calculated in accordance with the Instruction on Capital Adequacy.

(In the edition of the Resolution of the Board of the National Bank of the KR dated September 24, 2026 No. 2026-P-12/47-5-(BS))

30. When calculating internal capital requirements, the bank must not:

1. quantitatively determine any internal capital requirements for liquidity risks, since these risks should not be covered by capital;

2. set internal capital requirements below the minimum capital requirements calculated in accordance with the Instruction on Capital Adequacy;

3. implement complex risk quantification methodologies that the bank does not fully understand and which, therefore, are not used for its own internal risk management and decision-making.

The bank must demonstrate the adequacy of methodologies taking into account the assessment of net risk.

31. In the ICAAP report, banks must include a chapter provided in this paragraph, including the following:

1. comparison or correspondence between:

a) identification of material risks in accordance with paragraph 23 of this Regulation;

b) assessment of these material risks in accordance with paragraphs 24 and 25 of this Regulation; and

c) capital requirements that have been allocated to cover risks;

2. use of results and indicators of internal capital adequacy assessment in strategic and operational planning, as well as in establishing risk appetite.

§ 10. Capital Planning

32. The bank must develop its capital plan by forecasting its capital adequacy ratios, prospective assessment of the bank's capital and capital requirements, as well as ensuring its full compliance with the bank's business plans and informing about the bank's target capital indicators.

33. When developing capital plans mentioned in the previous paragraph of this Regulation, the bank must:

1. take as a basis the same macroeconomic scenario as in the bank's business plan in accordance with paragraph 1 of part 4 of Article 25 of the Law on Banks, including calculations and forecasts made taking into account real economic conditions of the market segment in which the bank will operate;

2. use financial forecasts in accordance with the business plan, adjusting them where applicable by applying prudential rules (for example, reserve requirements);

3. assess the expected change in the bank's capital, risk-weighted assets, and capital adequacy requirements over a three-year period;

4. assess and quantify capital-related actions that the bank plans to undertake during the forecast period, including:

a) retained earnings and dividend payments;

b) increase in equity through the attraction of subordinated debt, issuance of shares or Tier 1 capital instruments;

c) sale of assets or financial stakes;

d) impact of upcoming changes in the regulatory framework and accounting system, when appropriate;

5. ensure that the capital plan is reliable, up-to-date, and fully complies with the bank's business plan and strategic plan, risk appetite, and capital resources.

§ 11. Stress Testing

34. Banks must conduct stress tests as part of their ICAAP reports to identify events or changes in market circumstances that may adversely affect the bank's capital adequacy in the future. For this, banks must:

1. conduct an in-depth analysis of their vulnerabilities, identifying all material risks on a bank-wide scale, and based on this analysis, determine one stress scenario;

2. adapt the level of stress tests in the scenario to specific key vulnerabilities of the bank arising from its business model and operating environment in the context of stressful macroeconomic and financial circumstances.

Stress scenarios must be sufficiently intense and cover situations that occurred in the relevant operating environment of the bank over a sufficiently long period, and may provide for active management strategies to mitigate their consequences. For this purpose, the bank may consider the economic and financial situation in the Kyrgyz Republic and neighboring countries that occurred during recent banking crises.

Application of strict but plausible macro assumptions, as well as focusing attention on key vulnerabilities, will allow assessing the significance of the impact on the bank's capital adequacy;

3. for material risks, banks must:

a) explain how the bank's material risks were taken into account in stress testing;

b) compare them with the main risk factors used in the stress test;

4. calculate capital adequacy ratios in the stress scenario;

5. explain the methodologies the bank used to prepare scenario analyses, including how it predicted its problem loans and credit losses;

6. provide an interpretation or description of the quantitative result of the scenario.

35. To determine stress testing, the bank must conduct and reflect in its ICAAP report a macro-stress test, which considers a scenario of general deterioration resulting from a significant drop in the indicator of economic activity (recession). This scenario must reflect sufficiently unfavorable conditions and may include deterioration of the macroeconomic situation in the Kyrgyz Republic, including a corresponding drop in gross domestic product, growth in unemployment, inflation, and interest rates, deterioration of the country's external conjuncture. Stress financial forecasts of the scenario must cover a three-year period.

§ 12. Other Provisions

36. In addition to the information described above in paragraphs 2-11 of this chapter, banks must include the following information in their ICAAP report:

1. a brief description of identified gaps and shortcomings in the ICAAP;

2. an action plan developed to eliminate significant gaps and shortcomings identified in accordance with subparagraph 1 of this paragraph. The action plan may include among other things the following measures:

a) improvement of the bank's net risk, including reduction or cessation of risky activities or business lines, implementation of risk reduction methods, etc.;

b) improvement of the quality of the bank's risk management and control; and

c) change in the target capital indicator.

Chapter 5. Assessment of the ICAAP Report

37. Within 2 (two) months from the date of submission of each ICAAP report by the bank, the National Bank reviews it and assesses whether it sufficiently covers all information that should be included in it.

38. The National Bank evaluates ICAAP reports taking into account the requirements of this Regulation, as well as internal methodologies developed for evaluating and comparing ICAAP reports submitted by banks.

39. When assessing the validity, effectiveness, and completeness of the ICAAP report, the National Bank takes into account the correspondence of the bank's capital structure to the level of complexity of the organizational structure and the bank's net risk.

40. If the National Bank considers that there are significant deficiencies in the ICAAP report, it notifies the bank of its assessment and requires the bank to submit a revised report within 2 (two) months, taking into account the comments of the National Bank, demonstrating their elimination.

41. If the National Bank does not consider that deficiencies in the revised report have been properly eliminated, it informs the bank of the need to make appropriate changes to the report.

42. In case of failure by the bank to submit a revised ICAAP report, or if the National Bank establishes that the revised ICAAP report does not properly eliminate deficiencies identified in its initial assessment, then the National Bank may apply enforcement measures to the bank in accordance with the legislation of the Kyrgyz Republic.

Appendix 1

to the Regulation "On Internal Procedures for the Assessment of Capital Adequacy of Commercial Banks of the Kyrgyz Republic"

REPORT FORM

on ICAAP

Executive Summary

(see paragraph 2 of Chapter 4 of this Regulation)

1. Target Capital Indicators

[The bank determines its target capital indicators and determines whether the bank's capital is currently adequate, taking into account (a) the bank's net risk, (b) minimum capital requirements, (c) when applicable, the "capital buffer" index, (d) internal capital requirements, (e) additional buffer reserve that the bank is willing to maintain above minimum capital requirements, (f) available measures by which the bank can generate capital in accordance with the financial recovery plan, (g) results of stress tests conducted by banks in accordance with ICAAP, (h) potential capital needs defined in the bank's capital plans (i) dividend payment policy. It is expected that the bank will express its target capital adequacy indicators, at least in terms of Core Capital and Total Capital.]

2. Business Model

[Briefly describe the business model and the current financial condition of the bank, indicating the amount of total assets and the most important asset items, income, expenses, and profit. Identify the main areas of activity. Indicate any expected changes in the current business model, expected future business environment, business plans, and projected financial condition for the next year. The bank may make cross-reference to this part in business plans.]

3. Organization of Risk Management System

Briefly describe the risk management system for preparing, approving, monitoring, and verifying the ICAAP report, including detailed indication of involved departments and the approval process, as well as whether the document was verified by the internal audit service.

4. Identification and Assessment of Risks

[The bank provides a list of material risks]

[Material risks of the bank and their assessment, consisting of the bank's self-assessment of its own net risk]

Table 1. List of material risks to which the bank is exposed or may be exposed

Risk Classification (determined by the bank)

Material Risk (yes/no)

Categories of Main Risks

Definition of Main Risk

Sub-risks Included in this Category

Credit Risk

Without breakdown into subcategories

Operational Risk

Without breakdown into subcategories

Market Risk

Without breakdown into subcategories

Compliance Risk

Without breakdown into subcategories

Credit Concentration Risk

Without breakdown into subcategories

…

Without breakdown into subcategories

…

Table 2. Material Risks within ICAAP

Material Risk (main risk of material sub-risk)

Degree of Risk (1-4)

Internal Capital Requirements

Included in Stress Testing (yes/no)

Qualitative (yes/no)

Quantitative (yes/no)

Credit Risk

High

no

yes

yes

Table 3. Self-Assessment of Net Risk by the Bank

Material Risk (main risk of material sub-risk)

Degree of Risk (1-4)

ICR of Material Risk

Trend

Credit Risk

High

Adequate

Growing

Aggregation (Net Risk)

5. Risk Appetite and Target Capital Indicators

[Bank's risk appetite, including main indicators and risk thresholds. The bank must describe its risk appetite regarding all risks to which it is exposed and which have been identified as material.]

[Bank's target capital indicators. At a minimum, it is expected that the bank will provide its target capital indicators in terms of Core Capital and Total Capital.]

Table 4. Internal Document on Risk Appetite Level Indicators and Target Capital Indicators

Coefficients

Target Value - %

Early Warning Indicator - %

Limit - %

Core Capital

Total Capital

…

6. Internal Capital Requirements

[General internal capital requirements are determined by summing up internal capital requirements for all material risks]

Table 5. Capital Requirements by Material Risk

in thousand som

Material Risk (main risk of material sub-risk)

Minimum Capital Size

Internal Capital Requirements

Credit Risk

Total

7. Capital Planning and Decision Making

[The bank provides a brief overview of capital planning results and describes how the bank plans to manage capital]

Table 6. Capital Planning

in thousand som

Positions

Baseline

Forecast

Year 1

Year 2

Year 3

Capital Raising Instruments

Core Capital

• deductions

Additional Capital

• deductions

Total Capital

• deductions

RWA

Risks related to RWA in accordance with the Instruction on Capital Adequacy

• Credit Risk

• Correspondent Accounts

• Interbank Deposits

• REPO Operations

• Securities Issued by the Cabinet of Ministers of the Kyrgyz Republic and Local Authorities

• Debt Securities of Kyrgyz and Foreign Companies

• Capital Raising Instruments of Kyrgyz and Foreign Companies

• Loans to Banks of the Kyrgyz Republic and Foreign Banks and Financial Organizations

• Loans to the State Sector

• Mortgage Loans to the Private Sector (including Individuals)

• Fixed Assets

• Off-Balance Sheet Positions

• Other

• Operational Risk

…

RWA of Additional Risks (Risks for which no requirements are established by the Instruction on Capital Adequacy)

Coefficients

Core Capital

Tier 1 Capital

Total Capital

…

8. Stress Testing

[Results of the bank's internal stress testing conducted within the framework of ICAAP]

Table 7. Capital Planning in Stressful Situations

in thousand som

Positions

Baseline

Forecast

Year 1

Year 2

Year 3

Capital Raising Instruments

Core Capital

• deductions

Additional Capital

• deductions

Total Capital

• deductions

RWA

Risks related to RWA in accordance with the Instruction on Capital Adequacy

• Credit Risk

• Correspondent Accounts

• Interbank Deposits

• REPO Operations

• Securities Issued by the Cabinet of Ministers of the Kyrgyz Republic and Local Authorities

• Debt Securities of Kyrgyz and Foreign Companies

• Capital Raising Instruments of Kyrgyz and Foreign Companies

• Loans to Banks of the Kyrgyz Republic and Foreign Banks and Financial Organizations

• Loans to the State Sector

• Mortgage Loans to the Private Sector (including Individuals)

• Fixed Assets

• Off-Balance Sheet Positions

• Other

• Operational Risk

…

RWA of Additional Risks (Risks for which no requirements are established by the Instruction on Capital Adequacy)

Coefficients

Core Capital

Tier 1 Capital

Total Capital

…

9. Capital Decision Making

[Decisions on capital taken by the bank in connection with ICAAP]

10. Own Assessment of ICAAP Adequacy

[The bank provides a brief description of the self-assessment of ICAAP adequacy, a description of weaknesses and shortcomings, as well as an improvement plan for ICAAP and the implementation schedule of this plan.]

3. General Information

(see paragraph 3 of Chapter 4 of this Regulation)

1. General Information

Full name of the bank

Period to which the report relates

Date of report preparation

Person(s) responsible for coordinating the report

Position of contact person(s) who approved the report

Organizational Department

Phone and email address of contact persons

Date of the last internal auditor's ICAAP report

Date of approval by the Board of Directors and signature

Scope of ICAAP application in the bank

Indicate whether ICAAP is implemented on an individual or consolidated basis. If ICAAP is applied on a consolidated basis, indicate the legal entities included in the report, direct and indirect % participation, as well as the methodology for integrating their assets and liabilities into the consolidated perimeter (full consolidation or proportional consolidation)

4. Business Model and Strategy

(see paragraph 4 of Chapter 4 of this Regulation)

1. Business Model and Strategy

[Describe the business model, indicating main areas of activity, geographic location concentration, subsidiaries, and main products offered by the bank, as well as main sources of income and expenses by main areas of activity, markets, and subsidiaries. Indicate any expected changes in the current business model, expected business environment, business plan, and projected financial condition for the next year by main areas of activity, markets, and subsidiaries. Describe in more detail whether the bank intends to make operational changes to its business (for example, in IT infrastructure). This chapter may be filled by cross-referencing business plans. The bank may include this information by cross-referencing its current business plans submitted to the National Bank in accordance with Article 25 of the Law on Banks.]

5. Risk Management Organization within ICAAP

(see paragraph 5 of Chapter 4 of this Regulation)

1. Organizational Structure

[In the appendix to this report, the bank provides a detailed organizational chart, as well as indicates positions, corresponding duties, and scope of responsibility of members of the bank's governing bodies and board. A block diagram of the accountability system in terms of risk management and ICAAP is presented in this part or attached to the organizational chart (this chapter may be filled by cross-referencing other documents of the bank that have already been submitted to the National Bank.)]

[The bank describes how the ICAAP report was compiled. The bank lists factors that were taken into account in creating ICAAP. Indicates how often ICAAP is applied. Provides a list of reports related to ICAAP and indicates how often they are prepared and to whom they are submitted. The bank identifies and explains internal policies and procedures defining the procedure for preparing the ICAAP report, including roles and responsibilities related to ICAAP.]

2. Role of the Board of Directors

[Describe the role of the Board of Directors in preparing, approving, monitoring, and reviewing ICAAP. Describe the role of Board committees in ICAAP, especially the Audit Committee. List decisions that the Board of Directors has made based on the analysis of reports concerning ICAAP.]

3. Role of the Board of Management

[Describe the role of the Board of Management in ICAAP.]

4. Strategy, Risk Management, and Risk Control

[The bank lists the most significant principles of risk acceptance and management, as well as a list of internal regulatory acts in which they are provided. The bank describes how often risk management strategy alignment with the business plan is conducted.]

[The bank provides a description of the risk acceptance strategy and lists those responsible for implementing this strategy. The bank approves the risk appetite and expresses it in quantitative form, similar to how limits are defined in the bank's internal regulatory acts. The bank lists internal acts defining the risk acceptance strategy.]

[The bank provides the results of self-assessment of the adequacy of the internal control system and risk management system.]

5. Supervision and Own Assessment of ICAAP

[The bank provides a description of the method of assessing the adequacy of ICAAP carried out by internal audit and other independent control functions within the bank, such as the risk control function and compliance monitoring function.]

[The bank provides a list of internal audit reports and provides a brief overview of the most significant findings identified during the period to which this report relates. The bank lists measures that were taken based on the findings of internal audit.]

[The bank describes how self-assessment is organized and who carries it out, i.e., verification and re-checking of the ICAAP report, as well as describes the results and method by which adjustment and refinement of the procedure were or should be performed.]

6. Risk Identification

(see paragraph 6 of Chapter 4 of this Regulation)

1. Risks to Which the Bank is Exposed or May Be Exposed

[The bank lists the risks to which it is exposed and explains whether the corresponding risk also includes specific sub-risks.]

[The bank describes the method and pace of identifying risks and determining their significance. The bank lists and explains the factors considered during this procedure. At the first stage, the bank must determine whether it has identified a risk as significant based on quantitative criteria (e.g., assessment of exposure level, quality of exposure/counterparties, risk coverage level, etc.) or based on qualitative criteria (e.g., reputational risk, environmental risk, etc.). At the second stage, the bank must detail the criteria applied to identify each risk as significant (qualitative or quantitative).]

[The bank must provide clear arguments for why a risk is not considered significant.]

Table 8. List of significant risks to which the bank is or may be exposed

Main Risk Category

Definition of Main Risk

Sub-risks included in this category

Credit Risk

Operational Risk

Market Risk

Compliance Risk

Credit Concentration Risk

…

Table 9. Identification of Significant Risks

Significant Risk (main risk of a significant sub-risk)

Criterion

Detailed Information

Qualitative (yes/no)

Quantitative (yes/no)

Qualitative

Quantitative

Table 10. Insignificant Risks

Insignificant Risks/Sub-risks

Explanation of reasons why the bank considers its exposure to these risks insignificant

7. Risk Assessment - see paragraph 7 of Chapter 4 of this Regulation

8. Inherent Risk

[For each significant risk, the assigned degree of inherent risk must be specified (1 (low), 2 (acceptable), 3 (significant) and 4 (high)), including an explanation for this level, and indicate how this risk is considered in the ICAAP.]

[Specify whether this is a qualitative and/or quantitative risk factor within the ICAAP.]

[It is expected that the bank will determine whether significant risks have been properly accounted for during stress testing.]

1.1. Credit Risk

When assessing inherent credit risk, banks must analyze related indicators (e.g., non-performing loan ratio, specific reserve level, growth rates of both non-performing and regular loans, etc.), as well as conduct an assessment of some or all of the following aspects: 1) trends and quality, composition and level of bank assets and off-balance sheet items related to credit risk - identify the nature of changes and their causes; 2) major changes between asset classes - determine their causes; 3) classification and provisioning for loans, debt securities and other credit risks associated with both balance sheet and off-balance sheet items; 4) asset structure by maturity - determine the direction of change in this structure: towards increase or decrease, and determine the consequences for inherent credit risk; 5) growth rates of the credit portfolio and sub-portfolios, changes and trends in the level and weight in total assets and the credit portfolio; 6) structure of the bank's current and non-performing loans and changes in this structure; 7) features of loans provided by the bank: e.g., type of loans, whether these loans are new to the market, maturity, interest rate, client base (market segment), currency, sensitivity (e.g., results of the bank's stress test), etc.; 8) current state and prospects of economic sectors in which the bank has credit positions, as well as the general macroeconomic and political situation in the country; general macroeconomic and political situation in major partner countries; 9) level and volume of refinancing of the bank's loans, change in level and volume and reasons for changes; 10) level and volume of lending to related parties, lending to employees, change in level and volume and reasons for changes; 11) credit risk of the credit portfolio caused by exchange rate instability; 12) the bank's own historical data on losses related to the sub-portfolio, historical data on non-performing loans, recovery ratios, etc.; 13) impact of any potential legislative, regulatory, accounting and technological changes on the risk profile of the bank's credit sub-portfolios.

1.2. Operational Risk

When assessing inherent operational risk, banks must consider some or all of the following aspects: 1) (historical) operational losses of the bank according to NBKR data and their main causes; 2) operational loss indicator: as a ratio of operational losses for one year to the sum (annual gross income for three years/3 years); 3) amount of losses broken down by types of events and processes with inherent risk (internal fraud, external fraud, employment practices and workplace safety, clients and business practices, damage to physical assets, business disruption and system failures, execution, delivery and process management), and by banking activity directions (retail banking services, corporate banking services, payment and settlement operations, corporate operations, securities operations, agency services, brokerage services, consulting services, other banking services); 4) degree of accounting and analysis by the bank of all events and losses related to the manifestation of operational loss; 5) nature and complexity of operations conducted by the bank; 6) influence of the bank's geographical location on its operational risk profile (e.g., power outages, internet connection interruptions, criminal acts, earthquakes, etc.); 7) novelty of products and their complexity.

1.3. Interest Rate Risk in the Banking Book

When assessing the bank's inherent interest rate risk in the banking book, the bank must analyze relevant indicators (e.g., net interest margin, etc.) and conduct an assessment of some or all of the listed aspects: Bank balance sheet structure, off-balance sheet activities and trends in its balance sheet composition to identify main sources of interest rate risk in the banking book and assess its impact on the bank's capital and profit, which includes: - net interest margin in general and broken down by instruments; - maturity and revaluation structure of the bank's loans, investments, liabilities and off-balance sheet items; dynamics of the bank's interest rate risk profile in the banking book; - share of balance sheet assets and off-balance sheet liabilities sensitive to interest rate changes; - whether the bank has significant inventories of products with explicit or embedded options: early repayment options, restrictions or minimum levels, or products - rates that will significantly lag behind market interest rates; - various indices used by the bank to assess its variable rate products (e.g., prime, Libor, Treasury), as well as the level or set of products linked to these indices; - use and nature of derivative products; - other off-balance sheet items (e.g., letters of credit, loan commitments); - dynamics of non-interest income; - dynamics of funding source costs; - speed of interest rate change on assets compared to the speed of change in cost of liabilities; - impact of interest rate changes on asset maturity and liability withdrawal; - implementation of plans to increase non-interest income.

1.4. Credit Concentration Risk

When assessing the bank's inherent credit concentration risk, the bank must analyze relevant indicators (e.g., concentration in major counterparties relative to total risk amount, credit concentration [Herfindahl index], etc.), and conduct an assessment of some of the following parameters or all of the listed aspects: 1) concentration of assets and off-balance sheet items by type (e.g., cash, loans, tangible assets, intangible assets, securities, derivative instruments, etc.), determination of reasons for such concentration and its possible consequences; 2) degree of concentration in the bank's credit portfolio from the point of view of geography, economic sector, loan type, collateral, borrower, etc. - determine the reasons for such concentration and its changes, possible problems and risks.

Table 11. Consideration of Significant Risks within the ICAAP

Significant Risk (main risk of a significant sub-risk)

Inherent Risk (1-4)

Internal Capital Requirements (yes/no)

Included in Stress Testing (yes/no)

Qualitative

Quantitative

Credit Risk

High

no

yes

Credit Risk

2. ICR

[For each significant risk, specify the assigned ICR class (1 (strong), 2 (adequate), 3 (inadequate) and 4 (weak)), providing explanations for the chosen class]

2.1. Credit Risk

When assessing the ICR of credit risk, banks must include their standard loans in the assessment, as well as various portfolios in which they operate (e.g., agricultural lending, card lending, lending to related parties, etc.), and include some or all of the following aspects in the assessment: 1. Strategies and policies, including: - credit strategy; - strategy planning process; - credit policy; - risk/credit limits; - chain of command and responsibility; - control by the board and management. 2. Processes and procedures: programs and practices that organize the achievement of the bank's goals. Processes define how daily actions are performed. Effective processes correspond to fundamental policies and are regulated by appropriate systems of checks and balances (such as internal control): - loan origination; - credit administration and monitoring; - non-performing loan management; - adequacy of classification and collateral. 3. Control mechanisms, including: - management information systems (MIS); - internal control and audits; - internal audit. 4. Personnel who perform or control processes: bank employees and management. It is assessed how qualified and competent the employees are, how well they understand the bank's mission, strategy, policy and processes. In addition, it is necessary to assess how well remuneration programs are integrated with credit risk management.

2.2. Operational Risk

When assessing the ICR of operational risk, banks must include some or all of the following aspects in their assessment: 1. Strategy, understood as a plan clearly defining how the bank intends to achieve its goals in terms of resources and technology. Policies are statements of actions taken by the bank to achieve certain goals. Policy often sets a standard (e.g., regarding acceptable risk) and must correspond to the bank's main mission, goal and strategy. 2. Processes and procedures: programs and practices that organize the achievement of the bank's goals. Processes define how daily actions are performed. Effective processes correspond to fundamental policies and are regulated by appropriate systems of checks and balances (such as internal control). 3. Control mechanisms: functions (internal and external audit, risk analysis and quality assurance) and information systems that bank management uses to measure performance, to make decisions regarding risks and to assess the effectiveness of processes. Control functions must provide a clear chain of command, have adequate resources and appropriate authority. 4. Personnel who perform or control processes: bank employees and management. It is assessed how qualified and competent the employees are, how well they understand the bank's mission, strategy, policy and processes.

2.3. Interest Rate Risk in the Banking Book

When assessing the quality of management and control of interest rate risk in the banking book, banks must include some or all of the following aspects in their assessment: 1. Strategies and policies, including: - risk strategy; - strategy planning process; - risk limits; - risk management process; - roles and responsibilities; - control by the bank's board. 2. Processes and procedures: programs and practices that organize the achievement of the bank's goals. Processes define how daily actions are performed. Effective processes correspond to fundamental policies and are regulated by appropriate systems of checks and balances (such as internal control): - general aspects; - risk management process; - risk limits. 3. Control mechanisms, including: - management information systems (MIS); - internal control; - internal audit. 4. Personnel who perform or control processes: bank employees and management. It is assessed how qualified and competent the employees are, how well they understand the bank's mission, strategy, policy and processes. In addition, it is necessary to assess how well remuneration programs are integrated with interest rate risk management in the banking book.

2.4. Credit Concentration Risk

When assessing the ICR of credit concentration, banks must include in their assessment the previously developed credit risk assessment, the main focus of which is linked to the management of credit concentration risk.

Table 12. Significant Risks within the ICAAP

Significant Risks (main risks of significant sub-risks)

ICR (1-4)

Credit Risk

High

3. Net Risk

[It is expected that the bank will determine its net risk. It is expected that net risk represents a combination of the bank's inherent risk and ICR and its significant risks]

[In addition to a static assessment, its "trend" for the foreseeable future is determined. Thus, it is expected that the bank will provide its conclusion on the current and forecasted risk trend]

Table 13. Bank's Self-Assessment of Its Own Net Risk

Significant Risks (main risks of significant sub-risks)

Risk Degree (1-4)

ICR of Significant Risk

Net Risk

Trend

Credit Risk

High

Adequate

High

Growing

Inadequate

Significant

Stable

High

Acceptable

Decreasing

Low

High

Overall Net Risk

8. Risk Appetite

(see paragraph 8 of Chapter 4 of this Regulation)

1. Risk Taking and Risk Appetite

[Describe target capital indicators and how the internal risk appetite level document is linked to the business plan, capital planning, risk management, etc.]

[Description of the risk appetite level and limits established for identified significant risks, as well as time horizons and the process applied to keep such limits up to date.]

[The bank may include this information by cross-referencing either its current business plans submitted to the National Bank in accordance with Article 25 of the Banks Law, or its internal risk appetite level document.]

Table 14. Internal Document on Risk Appetite Level Indicators and Target Capital Indicators

Coefficients

Target Value - %

Early Warning Indicator - %

Limit - %

Tier 1 Capital

Tier 1 Capital

Total Capital

…

9. Internal Capital Requirements

(see paragraph 9 of Chapter 4 of this Regulation)

1. Risk Taking and Risk Appetite

[It is expected that banks will determine their internal capital requirements for risks in accordance with the Capital Adequacy Instruction (credit and operational risks), as well as for those significant risks not provided for in the Capital Adequacy Instruction (e.g., credit concentration risk, interest rate risk in the banking book, compliance risk, etc.).]

[For risks not provided for in the Capital Adequacy Instruction, it is expected that the bank should either use the approach described in the Capital Adequacy Instruction, supplemented by relevant risks, or use its own managerial approach, when the bank confirms that it uses this approach in internal capital management (i.e., capital allocation, pricing, credit risk underwriting, etc.)]

[Regarding risks for which no requirements are imposed in accordance with the Capital Adequacy Instruction, it is expected that the bank must at least assess and allocate capital taking into account credit concentration risk. The bank must cover at least individual risk and industry concentration risk; assess its exposure to interest rate risk in the banking book and allocate capital to cover these risks, as well as assess its exposure to business risk, market risk and compliance risk. If the bank is unable to quantitatively assess its internal capital to cover other significant risks, it must allocate from 5 to 15% of applicable capital requirements calculated in accordance with the Capital Adequacy Instruction.]

[The bank must not consider any benefits from diversification between risks.]

[It is expected that the bank will ensure a clear match between the significant risks identified by it, the assessment of these risks and the internal capital that was allocated to them.]

9.1. Internal Capital Broken Down by Risks

1. Methodology for Assessing Internal Capital Requirements to Cover Credit Risk

Internal Capital Requirements to Cover Credit Risk

Amount: (in thousand som)

The Bank applies the Capital Adequacy Instruction to calculate capital requirements for credit risk

[The Bank provides reasons for deciding to use for calculating internal capital requirements the approach that it already uses for calculating minimum capital requirements for credit risk in accordance with the Capital Adequacy Instruction.]

[If applicable, the Bank explains the potential underestimation of credit risk due to the application of the Capital Adequacy Instruction.]

The Bank adjusted the approach within the Capital Adequacy Instruction to calculate capital requirements to cover credit risk or uses its own approaches.

[The Bank describes the approach it uses and explains the reasons for choosing this approach.]

[The Bank explains the methodology and assumptions on which the methodology for calculating internal capital requirements is based. In the case of using an adjusted approach to the Capital Adequacy Instruction to calculate internal capital requirements, emphasis is placed on describing the differences compared to the approach prescribed in the Capital Adequacy Instruction.]

[The Bank clarifies the analysis of the bank's exposure to risks associated with credit risk (e.g., residual risk, country risk, etc.), and, if applicable, separately specifies the corresponding amount of internal capital required to cover each of the risks included in the total amount of internal capital required to cover credit risk.]

[The Bank lists in detail the internal policies that prescribe the methodology for assessing internal capital requirements to cover credit risk.]

[When the bank uses this approach, it is expected that the bank will provide a clear and sufficient explanation of how it uses this approach in managing internal risks and capital (i.e., capital allocation, pricing, credit risk underwriting, risk-adjusted profitability, etc.). The Board of Directors and the Management Board of the bank must confirm sufficient understanding of the methodologies used in calculating internal capital requirements to cover credit risk in the ICAAP.]

2. Methodology for Assessing Internal Capital Requirements to Cover Operational Risk

Internal Capital Requirements to Cover Operational Risk

Amount: (in thousand som)

The Bank applies the approach to calculating capital requirements to cover operational risk set out in the Capital Adequacy Instruction

[The Bank specifies the reasons for deciding to calculate internal capital requirements using the approach that it already uses for calculating minimum capital requirements to cover operational risk in accordance with the provisions of the Capital Adequacy Instruction.]

[If applicable, the Bank explains the assessment of potential underestimation of operational risk due to the application of the regulatory approach and describes in detail their impact on the estimated internal capital requirements to cover operational risk.]

The Bank adjusted the approach to calculating capital requirements to cover operational risk or uses its own approach

[The Bank describes the approach it uses and explains the reasons for choosing this approach.]

[The Bank explains the methodology and assumptions on which the methodology for calculating internal capital requirements is based. In the case of using an adjusted approach compared to the Capital Adequacy Instruction, emphasis is placed on describing the differences between them.]

[The Bank lists internal regulations in which the methodology for assessing internal capital requirements to cover operational risk is described in detail.]

[When the bank uses this approach, it is expected that the bank will provide a clear and sufficient explanation of how the bank uses this approach in its internal risk and capital management (pricing models, capital allocation, remuneration practices, etc.). The Board of Directors and the Management Board of the bank must confirm sufficient understanding of the methodologies used in calculating internal capital requirements to cover operational risk within the ICAAP.]

3. Methodology for Assessing Internal Capital Requirements to Cover Market Risk

Internal Capital Requirements to Cover Market Risk

Amount: (in thousand som)

[The Bank describes the approach it uses and explains the reasons for choosing this approach.]

[The Bank explains the methodology and assumptions on which the methodology for calculating internal capital requirements is based, including, among other things, currency risk.]

[The Bank may also determine internal capital requirements for other significant risks (general and specific equity risk, general and specific debt instrument risk, commodity risk, etc.)]

[The Bank lists internal regulations in which the methodology for assessing internal capital requirements to cover market risk is described in detail.]

[It is expected that the bank will provide a clear and sufficient explanation of how the bank uses this approach in its internal risk and capital management (setting limits, capital allocation between various trading operations, remuneration practices, etc.). The Board of Directors and the Management Board of the bank must confirm sufficient understanding of the methodologies used in calculating internal capital requirements to cover market risk within the ICAAP.]

4. Methodology for Assessing Internal Capital Requirements to Cover Interest Rate Risk in the Banking Book

Internal Capital Requirements to Cover Interest Rate Risk in the Banking Book

Amount: (in thousand som)

[The Bank explains the methodology and assumptions on which the methodology for calculating internal capital requirements is based.]

[The Bank lists internal regulatory acts detailing the methodology for assessing internal capital requirements to cover interest rate risk in the banking book.]

5. Methodology for Assessing Internal Capital Requirements to Cover Compliance Risk

Internal Capital Requirements to Cover Compliance Risk

Amount: (in thousand som)

[The Bank explains the methodology and assumptions on which the methodology for calculating internal capital requirements is based.]

[The Bank lists internal regulatory acts detailing the methodology for assessing internal capital requirements to cover compliance risk.]

6. Methodology for Assessing Internal Capital Requirements to Cover Credit Concentration Risk

Internal Capital Requirements for Covering Credit Concentration Risk

Amount: (in thousand soms)

[The Bank explains the methodology and assumptions underlying the methodology for calculating internal capital requirements.

[The Bank lists internal regulatory acts in which the methodology for assessing internal capital requirements for covering credit concentration risk is detailed.]

7. Methodology for Assessing Internal Capital Requirements for Covering Other Material Risks

Internal Capital Requirements for Covering Other Material Risks

Amount: (in thousand soms)

The Bank applies a simplified procedure for calculating internal capital requirements for other material risks

[The Bank explains the reasons for choosing the percentage share of capital adequacy that it must use to cover all other material risks.]

The Bank applies other methods for calculating internal capital requirements for covering other material risks

[The Bank explains the main assumptions and assessment method for each of the other material risks.]

[The Bank lists internal policies in which the Bank details the methodology for assessing internal capital requirements for each of the other material risks.]

9.2. General Internal Capital Requirements

1. Internal Capital Requirements

[The Bank determines general internal capital requirements by summing the internal capital requirements for all material risks.]

Table 15. Minimum Capital Requirements and Internal Capital Requirements

in thousand soms

Risk Categories

Minimum Capital Requirements

Internal Capital Requirements

Credit Risk

Subcategories, including:

Xx

Xx

…

Operational Risk

Subcategories, including:

xx

xx

...

Market Risk

Subcategories, including:

xxx

xx

...

Interest Rate Risk in the Banking Book

Subcategories, including:

Xx

xx

…

Compliance Risk

Subcategories, including:

xx

xx

...

Credit Concentration Risk

Subcategories, including:

Xx

Xx

...

Other Material Risks

xx

xx

Total

10. Capital Planning and Stress Testing

10.1. Capital Planning (see paragraph 10 of Chapter 4 of this Regulation)

1. Financial Planning and Capital Planning

[The Bank indicates the planned absolute size and structure of capital, by which the Bank will cover all material risks from its activities for the next three years.]

[Description of the general capital planning scheme, including aspects considered (e.g., internal, regulatory), time horizon, capital raising instruments, etc.]

[The Bank describes the most significant elements of the capital management plan.]

[The Bank provides an analysis of discrepancies between the planned capital amount for the year for which this report is prepared and the established general internal capital requirements calculated based on the ICAAP results for the same date.]

[Description and assessment of current conclusions from capital planning, such as planned issuances of various capital raising instruments, other capital-related measures (e.g., dividend payout policy), and planned changes in the balance sheet (e.g., portfolio sales.)]

Table 16. Expectations for Key Macroeconomic Indicators

Index

Unit of Measurement

Year 1

Year 2

Year 3

Table 17. Balance Sheet

in thousand soms

Positions

Baseline

Forecast

Year 1

Year 2

Year 3

No.

Assets

Cash

Correspondent Account at the National Bank of the Kyrgyz Republic

Correspondent accounts and deposits in other banks and financial institutions

Securities

Short-term placements, including repo operations

Loans to financial institutions

Loans and financial leasing to other clients

minus: Reserve for possible credit and leasing losses and losses

Total Net Loans Sum of lines 12-14

Bank's Fixed Assets

Other Bank Property

Investments and Financial Participation

Other Assets

Total: Assets Sum of lines 7-14, 16-21

Liabilities

Demand Deposits of Population and Enterprises

Savings Deposits

Term Deposits of Population and Enterprises

Deposits and "Loro" accounts of banks and other financial institutions

Total: Deposits Sum of lines 15-18

Loans from Banks and Other Financial Institutions

Loans received from the National Bank of the Kyrgyz Republic

Deposits and Loans of State Bodies of the Kyrgyz Republic and Local Self-Government Bodies

Other Long-term Liabilities and Loans

Other Liabilities

Total: Liabilities Sum of lines 19-24

CAPITAL

Ordinary Shares

Preferred Shares

Undistributed Profit

General Reserves

RPPU

Other General Reserves

Total: Capital (sum of lines 27-32)

Total: Liabilities and Equity (sum of lines 25 and 33)

Table 18. Profit and Loss

in thousand soms

Positions

Starting Point

Forecast

Year 1

Year 2

Year 3

A. Interest Income

1. Interest Income on Securities

2. Interest Income on Loans

3. Other Interest Income on Loans

4. Total Interest Income

B. Interest Expenses

5. Interest Expenses on Deposits

6. Interest Expenses on Received Loans

7. Other Interest Expenses

8. Total Interest Expenses

9. Net Interest Income

10. Reserve for possible losses and losses on loans

11. Net Interest Income after RPPU deduction

Non-interest Income

12. Fees and Commissions for Services

13. Income from Securities Operations

14. Income from Foreign Currency Operations

15. Other Non-interest Income

16. Total Non-interest Income

C. Other Operating and Administrative Expenses

17. Personnel Expenses

18. Fixed Asset Costs

(a) rent

(b) other

19. Other Operating and Administrative Expenses

20. Total Other Operating and Administrative Expenses

21. Net Operating Profit (Loss)

22. Reserve for losses and losses (not from credit operations)

23. Net Income (Loss) after RPPU

24. Income Tax

25. Net Income (Loss) from Unforeseen Income and Expenses

26. Net Profit (Loss)

Table 19. Definition of Capital-Related Activities

Capital-Related Activities

Brief Description

10.2. Stress Testing (see paragraph 11 of Chapter 4 of this Regulation)

1. Stress Testing

[It is expected that the Bank will determine to what extent all material risks identified by the Bank within the ICAAP have been properly accounted for in stress testing. It is expected that the Bank will compare the main risk factors used in the stress test with material risks.]

[Description of the stress testing program, including, among other things, the types of stress tests conducted, their frequency, methodological aspects and models used, range of assumptions and relevant data infrastructure.]

[Description of mechanisms for organizing risk management of the stress testing program, use of stress testing, and its integration into the risk management and control structure.]

[Description of the stress scenario considered within the ICAAP, including characteristics of scenario assumptions, key macro variables, business assumptions regarding the balance sheet, base dates, time horizons, etc.]

[Description of quantitative results of the scenario taking into account the proposed tables.]

Table 20. Expectations Regarding Changes in Macroeconomic Indicators Under Stress

Index

Unit of Measurement

Year 1

Year 2

Year 3

…

Table 21. Balance Sheet Under Stress Conditions

in thousand soms

Positions

Baseline

Forecast

Year 1

Year 2

Year 3

No.

Assets

Cash

Correspondent Account at the National Bank of the Kyrgyz Republic

Correspondent accounts and deposits in other banks and financial institutions

Securities

Short-term placements, including repo operations

Loans to financial institutions

Loans and financial leasing to other clients

minus: Reserve for possible credit and leasing losses and losses

Total Net Loans Sum of lines 12-14

Bank's Fixed Assets

Other Bank Property

Investments and Financial Participation

Other Assets

Total: Assets Sum of lines 7-14, 16-21

Liabilities

Demand Deposits of Population and Enterprises

Savings Deposits

Term Deposits of Population and Enterprises

Deposits and "Loro" accounts of banks and other financial institutions

Total: Deposits Sum of lines 15-18

Loans from Banks and Other Financial Institutions

Loans received from the National Bank of the Kyrgyz Republic

Deposits and Loans of State Bodies of the Kyrgyz Republic and Local Self-Government Bodies

Other Long-term Liabilities and Loans

Other Liabilities

Total: Liabilities Sum of lines 19-24

CAPITAL

Ordinary Shares

Preferred Shares

Undistributed Profit

General Reserves

RPPU

Other General Reserves

Total: Capital (sum of lines 27-32)

Total: Liabilities and Equity (sum of lines 25 and 33)

Table 22. Profit and Loss Under Stress Conditions

in thousand soms

Positions

Baseline

Forecast

Year 1

Year 2

Year 3

A. Interest Income

1. Interest Income on Securities

2. Interest Income on Loans

3. Other Interest Income on Loans

4. Total Interest Income

B. Interest Expenses

5. Interest Expenses on Deposits

6. Interest Expenses on Received Loans

7. Other Interest Expenses

8. Total Interest Expenses

9. Net Interest Income

10. Reserve for possible losses and losses on loans

11. Net Interest Income after RPPU deduction

C. Non-interest Income

12. Fees and Commissions for Services

13. Income from Securities Operations

14. Income from Foreign Currency Operations

15. Other Non-interest Income

16. Total Non-interest Income

D. Other Operating and Administrative Expenses

17. Personnel Expenses

18. Fixed Asset Costs

(a) rent

(b) other

19. Other Operating and Administrative Expenses

20. Total Other Operating and Administrative Expenses

21. Net Operating Profit (Loss)

22. Reserve for losses and losses (not from credit operations)

23. Net Income (Loss) after RPPU

24. Income Tax

25. Net Income (Loss) from Unforeseen Income and Expenses

26. Net Profit (Loss)

27. Other Provisions

(see paragraph 12 of Chapter 4 of this Regulation)

11.1. Improvement of ICAAP

1. ICAAP Improvement Measures

[The Bank describes the main weaknesses and shortcomings of the ICAAP noted by the Bank.]

[If necessary, the Bank refers to internal regulatory documents regarding the action plan for refinement and improvement of the ICAAP.]

[The Bank provides a list of changes planned in the risk management strategy.]

11.2. Other Information

1. Other

[Provision of all other information and ICAAP results that were not covered in other parts of this report.]

Appendix 2
to the Regulation "On Internal Procedures for the Assessment of Capital Adequacy of Commercial Banks of the Kyrgyz Republic"

STANDARD APPROACHES

for Allocating Capital to Cover Credit Concentration Risk

1. General Provisions

2. In accordance with the requirements of sub-item 2 (a) of item 29 of this Regulation, when assessing internal capital requirements for covering credit concentration risk, banks must present in the ICAAP report an analysis of credit concentration risk as a risk that may lead to losses for the Bank. Below are the forms of credit concentration risk that the Bank may calculate:

1. individual concentration: concentration on clients or related client groups; and

2. industry concentration: concentration on an industry/economic sector arising from working with clients whose financial position depends on similar products or services.

2. When assessing the internal capital requirement for covering this risk related to concentration in economic sectors and on clients or related client groups, banks may use the method defined by the National Bank in this Appendix.

3. Individual Concentration

4. Calculation of concentration by clients/related client groups is carried out based on the Herfindahl-Hirschman Index (HHI), as defined in item 4 of this Appendix. When HHI exceeds 1, the Bank increases internal capital requirements for covering client/related client group concentration risk. For this, the capital requirement for covering credit risk is multiplied by the corresponding risk amount according to the increase in the table below:

Client/Related Client Group Concentration Index

Increase (%)

0 < HHIi ≤ 1

0.00

1 < HHIi ≤ 2

2.00

2 < HHIi ≤ 4

4.00

4 < HHIi ≤ 10

6.00

10 < HHIi ≤ 100

8.00

4. The Bank assesses the total risk for the 100 largest borrowers, regardless of their status. The individual concentration index (HHII) is calculated using the following formula:

1. HHII = Σ xi² / (Σxi)² * Σ xi / Σy * 100;

where:

a) "xi" means the cost of "i" clients in the Bank's portfolio (by total risk);

b) "y" means the total cost of the Bank's portfolio;

c) "i" means the number of clients used for HHI calculation (i = 100).

Total Risk Amount

% Risk Exposure

Total Risk Exposure

Σy

100 Largest Borrowers

Σx

Individual Concentration Index

HHII

3. Industry Concentration

4. Calculation of industry concentration is carried out based on the HHI index, as defined in item 6 of this Appendix. When HHI exceeds 10, the Bank increases internal capital requirements for covering industry concentration risk. For this, the internal capital requirement for covering credit risk is multiplied by the corresponding risk amount according to the increase in the following table:

Industry Concentration Index

Increase (%)

0 < HHIi ≤ 10

0.00

10 < HHIi ≤ 15

2.00

15 < HHIi ≤ 20

4.00

20 < HHIi ≤ 25

6.00

25 < HHIi ≤ 100

8.00

6. The Bank assesses the total risk for one sector according to Table 2.

The industry concentration index (HHIs) is calculated using the following formula:

1. HHIs = Σ x² / (Σx) 2 * (Σx) / y,

where:

a) "x" means the exposure indicator of a specific sector;

b) "y" means total exposure.

The Bank must classify its risk exposures by sector in accordance with available data.

Economic Sectors

Sector according to the International Standard Industrial Classification of All Economic Activities

Total Risk Exposure in a Specific Sector

% of Total Risk Exposure

Agriculture, Forestry, Hunting, Fishing and Aquaculture

Mining

Manufacturing

Electricity, Gas, Steam and Air Conditioning Supply

Water Supply; Sewerage, Waste Management and Remediation Activities

Construction

Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles

Transportation and Storage

Accommodation and Food Service Activities

Information and Communication

Financial and Insurance Activities

Real Estate Activities

Professional, Scientific and Technical Activities

Administrative and Support Service Activities

Public Administration and Defence; Compulsory Social Security

Education

Human Health and Social Work Activities

Arts, Entertainment and Recreation

Other Service Activities

Activities of Households as Employers; Undifferentiated Goods- and Services-Producing Activities of Households for Own Use

Activities of Extraterritorial Organizations and Bodies

Contacts

Public Reception

+996 (312) 61-04-86 +996 (312) 66-90-15 +1257, +1256

Consumer Protection Department

+996 (312) 66-90-15 +1671, +1666

Report Corruption

+996 (312) 66-90-15 +2120 +996 (312) 61-04-00

Official Currency Rates Auto-Information

+996 (312) 61-07-11

Numismatic Museum

+996 (312) 66-90-15 +1232 +996 (312) 61-24-14

E-mail

mail@nbkr.kg

For Media Relations

press@nbkr.kg

720010, Kyrgyz Republic, Bishkek, Kievskaya St., 189