Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic

LOST FORCE

in accordance with the resolution of the Board of the National Bank of the Kyrgyz Republic

from June 30, 2010 No. 52/4

Registered in the Ministry of Justice of the Kyrgyz Republic

June 3, 2005. Registration number 69-05

Approved

resolution of the Board

of the National Bank

of the Kyrgyz Republic

from April 27, 2005 No. 12/7

REGULATION

on minimum requirements for credit risk management

in commercial banks and other

financial and credit institutions licensed by

the National Bank of the Kyrgyz Republic

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of

December 23, 2005 No. 40/3, May 26, 2010 No. 36/3)

1. General Provisions

1.1. This regulatory act 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") and "On Microfinance Organizations". The Regulation

applies to all commercial banks, the Settlement and Savings

Company, the Kyrgyz Agricultural Financial Corporation,

the Financial Company for the Support and Development of Credit Unions and

microfinance companies attracting term deposits (hereinafter referred to as banks).

1.2. The purpose of this Regulation is to define the minimum

requirements for the formation in banks of an adequate credit risk management system.

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of December 23, 2005

No. 40/3)

1.3. Credit risk is the risk of clients failing to fulfill their obligations

in accordance with the terms and conditions of the contract.

Credit risk is present in all types of bank activity where

a positive result depends on the borrower or client fulfilling their

obligations to the bank provided for in agreements and/or contracts.

The goal of credit risk management is to determine the degree

of the bank's exposure to credit risk, identify the causes of its occurrence

and determine internal and external trends in risk increase, on

the basis of which credit risk can be forecasted, and taking necessary

measures to minimize it to an acceptable level.

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of December 23, 2005

No. 40/3)

1.4. The provisions of this regulatory act, as well as other regulatory

acts of the National Bank of the Kyrgyz Republic (hereinafter referred to as NBRK)

must be fully used in the internal documents of the bank governing its

credit policy.

2. Bank Credit Policy

2.1. Bank credit operations are carried out in accordance with its

internal credit policy, approved by the Bank's Board of Directors.

2.2. The credit policy defines the strategy, criteria, parameters

and procedures that bank employees must follow in their

activities related to the provision, documentation, monitoring and management

of risks.

2.3. The credit policy must reflect all main provisions

regarding the issuance of loans:

2.3.1. General provisions, including:

• composition of potential borrowers;

• types of loans depending on lending purposes and other conditions;

• quantitative lending limits;

• loan terms;

• criteria for assessing borrower creditworthiness;

• interest rates and methods for their establishment;

• requirements for borrower financial information;

• geographic restrictions;

• currency of issuance;

• loan concentration (by groups of borrowers, geographic

indicator, by industry, currency and other factors);

• restrictions on loans issued to insiders and affiliated

persons;

• criteria for assessing the value and acceptability of collateral;

• control over compliance with the procedure for preparing loan issuance;

• requirements for the issuance of bank guarantee letters((1) see note)

(appendix 2);

• and others.

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of December 23, 2005

No. 40/3)

2.3.2. Procedure for loan documentation:

• document forms;

• procedure for loan issuance;

• procedure for loan approval;

• requirements for financial analysis;

• requirements for collateral and documentation (types of collateral, loan-to-value ratio, market value assessment and its location);

• control over the correct documentation of loans.

2.3.3. Requirements for loan management:

• procedure for managing the loan portfolio;

• maintaining an adequate borrower credit file;

• control over the execution of loan agreements;

• frequency of collateral monitoring;

• conditions for extending or renewing overdue loans;

• classification and formation of reserves for potential

losses and losses (RPPU);

• process of independent assessment of the loan portfolio;

• requirements for information systems (reporting);

• control over loan management.

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of December 23, 2005

No. 40/3)

2.3.4. Separation of authorities for loan issuance with indication of the maximum

amount and type of loan. The right to issue loans and accept off-balance

sheet obligations of the bank must be divided among several levels

of officials who are responsible in accordance with the legislation

of the Kyrgyz Republic for violations committed in lending.

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of December 23, 2005

No. 40/3)

2.3.5. Obligations for the transfer of rights and provision of information

between structural units participating in the lending process.

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of December 23, 2005

No. 40/3)

2.3.6. Risk assessment for new banking products. Risks for all

new products must be identified, assessed and monitored until the bank enters the market for such products.

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of December 23, 2005

No. 40/3)

2.3.7. Procedure for identifying, analyzing and resolving situations related

to "problem" loans.

2.4. Within the regulatory requirements established by the legislation

of the Kyrgyz Republic and regulatory legal acts of the NBRK,

the bank independently determines the circle of future borrowers, types

of loans, forms the loan portfolio and sets interest rates.

2.5. The presence of a clear and detailed bank credit policy contributes

to proper loan management and ensures the profitability of the bank's operations.

2.6. The Bank's Board of Directors is responsible for the execution of the credit

policy and credit strategy of the bank, for which it is obliged to ensure the development

and implementation in the bank's activities of policies and procedures for the identification, measurement, monitoring and control of credit risk.

2.7. The Bank's Board of Directors is obliged, at least once a year, to review

the credit policy, and respond flexibly to changes

occurring in the economy of the republic and countries - trade partners.

3. Bank Credit Committee

3.1. The body carrying out the credit policy is the Credit

Committee of the bank, appointed by the Bank's Board of Directors.

3.2. All issues concerning the issuance of loans, guarantees of obligations, sureties,

and other assets and liabilities, by their nature

being credit operations, and carrying the risk of credit loss, must be decided only by the Credit Committee. The Credit Committee may delegate this right to other persons, except for issues relating to the

competence of the Bank's Board of Directors. The Credit Committee also

considers issues concerning the separation of authorities for the issuance of loans,

in accordance with the credit policy. The Credit Committee submits

to the consideration of the Board of Directors proposals for the sale and write-off

of loans carrying significant risk((2) see note). The Bank's Board of Directors is

responsible for the execution of the Board of Directors' decisions on these

issues.

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of December 23, 2005

No. 40/3)

3.3. The activities of the Credit Committee are governed by the Regulation on the

Credit Committee, which is approved by the Bank's Board of Directors.

3.4. The Regulation on the Credit Committee must define:

• the organization of the Credit Committee's work - composition, order of

holding meetings, list of documents necessary for decision-making;

• powers and responsibilities of the Credit Committee;

• accountability to the Board of Directors and the order of interaction with the Board

and structural units of the bank on lending issues.

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of December 23, 2005

No. 40/3)

3.5. The Credit Committee must consist of at least five people

and be headed by the Chairman of the Board or one of the deputies

of the Chairman of the Board of the bank.

The composition of the Credit Committee must include:

• head of the bank's credit unit;

• head of the bank's legal department;

• other bank employees.

4. Organization of bank work on the provision

of bank loans

4.1. Analysis of loan applications

4.1.1. Work on the provision of bank loans begins with

the moment of accepting from the borrower an application for a loan, in which

the purpose of the loan, the required amount, the term and conditions under which

the loan will be obtained, information on sources of loan repayment and collateral must be indicated. In each bank, there must be a certain order of

consideration of a loan application, as well as a number of requirements imposed

on the person applying for a loan.

4.1.2. In the event that a credit officer or any person participating

in the decision-making on loan issuance has a conflict of interest with

a potential borrower, such person must not be involved in the decision

on loan issuance.

4.1.3. All loan applications submitted to the bank for

consideration must be registered in a register, regardless of

the decision made on the application.

4.1.4. To determine the feasibility of providing a loan,

the credit officer must require the borrower to provide the following documents:

• a completed questionnaire, in which the borrower (if the borrower is a legal

entity, then the head of the legal entity) must indicate basic

information about themselves and the legal entity they lead (what the

legal entity does, the experience of the head, etc.);

• notarized copies of constituent documents (if the

borrower is a legal entity);

• financial statements for the last reporting year with a conclusion

of an external auditor in the event that the borrower is required to undergo annual audit

in accordance with the legislation of the Kyrgyz Republic, and/or annual financial

statements accepted by tax authorities (if the borrower is a

legal entity);

• financial statements, including the report on the movement of cash

flows, for the previous quarter (if the borrower is a legal entity);

• a document from state authorities on registration (if the borrower

is a legal entity);

• a business plan, including an economic justification for the use of

funds received, a production plan, industry and market

forecasts (market description, prices), an approximate forecast of the movement of funds of

the borrower, sources, terms and a plan of measures for loan repayment (if

the borrower is a legal entity);

• an inventory of pledged property indicating market value, date

of assessment, who performed the assessment, proof of registration, location

of collateral, ownership rights;

• guarantees (sureties) indicating the guarantor (surety), the amount

of the guarantee (surety), the financial statements of the guarantor, etc. (if

the bank requires the provision of a guarantee (surety));

• a document confirming identity (if the borrower is a natural

person);

• a certificate of salary for the last 12 months, or other

documents confirming information about income (if the borrower is a natural

person);

• other documents that the bank deems necessary to request from

the borrower (contracts, agreements, recommendation letters, etc.).

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of December 23, 2005

No. 40/3)

4.1.5. The bank, assuming the risks associated with the provision

of a loan, must verify the accuracy of these reports, both before the moment

of loan issuance, and subsequently - until the full repayment of funds to the bank.

4.1.6. In general, the analysis of a loan application should focus

on the following key factors:

• right to borrow funds. The credit officer must ensure

that the borrower has the right to obtain a loan and sign a

loan agreement;

• character of the borrower. The credit officer must establish that

the borrower treats borrowed funds responsibly, gives full answers to

the bank's questions and will make every effort to repay the debt. In

analysis, it should also be taken into account whether the borrower has used credits

in this bank or other financial and credit institutions in the past,

how the repayment was carried out, their discipline, readiness

to fulfill their obligations. It is also worth considering

their reputation both in a professional and in a general human sense,

it makes sense to request information about them from other credit institutions

if they were previously provided with loans. It is also important to consider the term

and experience of the borrower in this industry, their successes and achievements;

• funds. The main question that the credit officer must answer

when analyzing a loan application is:

will the borrower be able to obtain sufficient funds in the form of income and

cash flow to repay the loan. When assessing the borrower's funds, the credit officer must find out if

there was stable growth of profit or sales volume in the past, whether there is a probability

that such growth will continue during the term of the loan agreement;

• collateral. When assessing collateral, the credit officer must

find out whether the borrower has sufficient quality assets

for providing the necessary collateral for the loan. The bank may decide to conduct an independent

assessment of the collateral;

• guarantee (surety). If a guarantee (surety) is used as collateral for the loan,

then work should be done to study the guarantor (surety), their professional reputation, solvency, responsibility and readiness to fulfill their obligations.

4.1.7. The credit officer must also conduct an interview with

the potential borrower to determine the factors indicated in

para. 4.1.6 of this Regulation.

4.1.8. After conducting an analysis of the loan application, the

credit officer of the bank must prepare a conclusion, in which it is necessary

to justify the feasibility of providing or not providing a loan to the

borrower and indicate all the reasons for this.

4.1.9. If the amount indicated in the application does not exceed the amount that

employees included in the first level are authorized to issue, and in the event

of a positive decision, the process of loan issuance documentation begins. In

the event of a refusal to issue a loan, the borrower must be notified of the decision made

in accordance with the procedure established by the bank.

4.1.10. In the event that the amount indicated in the application exceeds the amount

that employees of the first level are authorized to issue, then the conclusion

of the first-level employee is submitted for consideration to the corresponding

level, whose authority includes the decision on the provision of

loans for such an amount. Based on this recommendation, employees of this

authorized level must finally decide on the issuance of this

loan. If necessary, the conclusion may be sent for

revision, or additional information about the borrower may be requested,

or a personal study of the borrower may be conducted, including conducting additional conversations with them.

After a complete study of all documents, a decision is made on the issuance

of the loan.

4.1.11. Employees of each level may change the terms agreed

in the client's application: the amount, loan term, interest rate and other

conditions only in accordance with the bank's credit policy. If

the client agrees to such changes, the fact of changing the initial

conditions must be noted (indicating all reasons for these changes) in the register of applications and in the borrower's credit file in the event of loan issuance.

4.1.12. In the event that the question of issuing a loan to the borrower is decided

positively, then a borrower credit file is formed from the documents received from them, into which all documents

concerning both this loan and all subsequent loans

must be filed in the future, if any are issued to them in the future (minimum requirements for

the borrower's credit file are given in Appendix 1).

4.1.13. The borrower's credit file must also keep a record of all

meetings, conversations and telephone calls with the borrower, conclusions on the verification of the presence and state of collateral, indicating the brief content and results of negotiations, as well as all correspondence related to this loan.

4.2. Conclusion of a loan agreement

4.2.1. After a positive decision is made to provide a loan to the

client and discussing all conditions with them, it is necessary to conclude a

loan agreement with the borrower.

4.2.2. When concluding a loan agreement, all conditions

under which the loan is issued and will be repaid should be agreed upon in order to

avoid possible problems with repayment in the future. When drawing up a

schedule for the planned repayment of the loan and interest on it, it is advisable to orient

oneself on the purpose of the loan and the specifics of the borrower's business, presented by the

borrower and verified by the bank's business plan and forecast of the movement of cash

flows.

4.2.3. The loan agreement must indicate at least:

• names of the parties;

• period of validity of the agreement;

• main loan conditions - amount, repayment term, collateral,

interest rate;

• rights and obligations of the parties;

• sanctions for violation by any party of their obligations,

cases of termination of the loan agreement.

4.2.4. It is necessary to jointly develop and approve with the borrower

the anticipated schedule for repayment of debt with a detailed description of the

order and terms of repayment. This schedule should be attached to the

loan agreement.

4.2.5. It is important to provide in the loan agreement for the periodic

provision by the borrower of financial statements, on the basis of which the bank

will monitor the compliance of the borrower's activities with the presented

business plan, cash flow forecast and anticipated schedule for

loan repayment.

4.2.6. It is advisable to stipulate in the loan agreement all measures and

sanctions that will be taken by the bank in the event of non-performance by the

borrower of obligations defined in the agreement, including violation of the terms

of the agreement, loan default or non-repayment. In addition, in the

agreement, the priority order for the repayment of overdue debt and fines should be indicated.

4.2.7. The number of copies of the concluded agreement must be no

less than the number of parties concluding it. Each party concluding the

agreement must receive an original copy of the loan agreement signed by all parties. The loan agreement must not contradict the legislation

of the Kyrgyz Republic, as well as regulatory legal acts

of the NBRK.

4.3. Securing loan repayment

4.3.1. Bank loans may be secured or unsecured (blank).

4.3.2. Primary and secondary sources of loan repayment are distinguished:

• the primary source is called those funds necessary

for loan repayment, which are generated in the process of production,

provision of services, work, etc., under normal circumstances: for legal

entities - this is income in cash and non-cash form, and for natural

persons - this is salary or other receipts;

• secondary sources are funds obtained from the sale

of pledged property, transfer of funds by a surety or guarantor.

4.3.3. When issuing a loan, one must focus, first of all,

on the primary source, and one must never rely only on the secondary

source of repayment. Therefore, in the process of considering an application for a loan,

primary attention must be paid to the analysis of the client's cash

flows, prospects for the development of the industry and business of this client,

the state of the client's relations with suppliers and buyers.

4.3.4. Secondary sources are necessary to provide additional

guarantees of loan repayment in the event that problems with repayment arise.

Such collateral includes: pledge of property and rights, assignment

of claims and rights, guarantees and sureties, subsidiary liability

of a group of persons based on a written agreement (only for microfinance

organizations) and other methods provided for by the legislation of the Kyrgyz Republic

or by contract.

(As amended by the resolution of the Board of the National Bank of the Kyrgyz Republic of May 26, 2010 No. 36/3)

4.3.5. Pledge of property as a secondary source of loan repayment

is оформляется (documented) by a pledge agreement signed by two parties and confirming the right of the creditor, in the event of non-fulfillment by the client of their obligations, to receive a preferential right to satisfaction of claims from the value of the pledged property.

4.3.6. The pledge agreement must indicate at least:

• the subject of the pledge and its assessment;

• the amount and term of fulfillment of the obligation secured by the pledge;

• indication of which party holds the pledged property;

• conditions and procedure for the transfer of the pledge to the ownership of the bank in the event of

non-repayment of the loan by the borrower;

• other requirements and obligations of the parties with respect to the pledge in

accordance with the legislation of the Kyrgyz Republic.

4.3.7. A complete inventory of the pledged property is attached to the pledge agreement.

assets with their value, as well as certificates, credentials and other technical documentation, if available. The pledge agreement must be executed in accordance with the legislation of the Kyrgyz Republic, and in cases where the pledge secures obligations under an agreement subject to notarization, it must be notarized. The number of original copies must be no less than the number of parties to the agreement.

4.3.8. If a loan is issued under a pledge of short-term state treasury bills (hereinafter referred to as STB) or a borrower's deposit held in this bank, it is necessary to check that their maturity date does not occur before the expiration of the loan term. For full guarantee of return to the bank, it is advisable to accept STBs and deposits in pledge for an amount equal to the loan amount and interest thereon, and also stipulate in the pledge agreement that the bank has the right to collect on them without account in case of the client's failure to fulfill its obligations.

4.3.9. The use of collateral implies the presence of a certain system for its administration: an inspection of the condition of the collateral must be conducted, its valuation must be carried out, a plan for monitoring the conditions of storage and monitoring of the collateral must be drawn up, and appropriate documentation must be available (Minimum requirements for pledge documentation are provided in Appendix 1).

4.3.10. If the security for the loan is guarantees and sureties, then property liability for the borrower in case he cannot pay is usually borne by a third party. When issuing a loan secured by a guarantee or surety, the bank must have complete information about the financial position of the guarantor or surety to assess its ability to repay the debt if necessary. Also, it is necessary to carefully check the authenticity of signatures and the authority of persons who signed them.

4.3.11. Unsecured (blank) bank loans do not imply a pledge of the borrower's assets and are issued exclusively to a creditworthy borrower based on his reputation and assessment of his income level. The issuance of blank loans should not be a widespread practice. The maximum risk size for loans not secured by collateral should not exceed 50% of the size of the bank's net aggregate capital((3) see note). When issuing blank loans, the bank must have access to high-quality financial reporting of the borrower and a credit history of working with the borrower for a long period (at least two years) preceding the issuance of the blank loan.

5. Credit Monitoring

5.1. After concluding a credit agreement and receiving the loan by the borrower, the bank must carry out constant monitoring of the loan and the client, the main goal of which is to ensure timely repayment of the loan, regular payment of interest, and early detection of problems.

5.2. The credit officer must periodically(*) prepare a report on the current status of the loan, in which it is necessary to note the quality of the loan, compliance with the terms of the credit agreement, the financial condition of the borrower, and the condition of the collateral. Upon detection of a problem, the credit officer must promptly report it to the bank management.

(*) the frequency of preparing a report on the current status of the loan should be determined by the bank depending on the term for which the loan is issued.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 23, 2005 No. 40/3)

5.3. Loan classification must be carried out by persons not involved in the loan issuance process.

5.4. The bank must develop and implement a system for independent assessment of the credit portfolio, which must be based on:

• the actual schedule of borrower payments and its compliance with the planned schedule;
• the quality and condition of collateral for the loan;
• the completeness of relevant documentation and the ability to obtain any provided collateral and realize the right to judicial protection of their violated rights and interests;
• assessment of changes in the financial position of the borrower;
• correctness of the assessment of loan quality, including loan classification;
• compliance with limits on issued loans;
• the quality and reliability of information systems (reporting to the bank's management and board of directors);
• assessment of compliance of the issued loan with the bank's credit policy, procedures and regulatory requirements of the NBKR.

5.5. Independent assessment of the credit portfolio must be conducted by an independent department or a bank employee independent of the loan issuance process. The results of the independent assessment must be provided to the Credit Committee and the Board of Directors of the bank.

5.6. During the term of the credit agreement, financial reporting documents must be requested from the borrower and from his guarantor (surety) and their thorough analysis must be conducted.

5.7. In order to constantly control the preservation of pledged property and identify possible changes in its current value, the bank must periodically, but no less than once a year, conduct monitoring of the collateral at its storage and location sites. The frequency of collateral monitoring is determined by the bank in accordance with the credit policy and depends on the type of collateral, loan quality and other factors. At the same time, an obligatory condition must be the bank's control over the preservation of the pledged property. Special attention should be paid to the following points:

• has the market value of the collateral decreased;
• are there any factors that have reduced the liquidity of the collateral since the last check;
• is the regime for the preservation of the collateral ensured.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 23, 2005 No. 40/3)

5.8. All these measures will help the bank in identifying possible trends in the deterioration of the borrower's condition, and consequently, the loan. The faster these trends are identified and determined, the more promptly the bank can take the necessary measures to rectify the situation and protect its interests.

5.9. Signs that may serve as warning signals of deterioration in the condition of the loan include, in particular:

• the borrower's evasion of contact with the bank;
• untimely, incomplete and reluctant provision of information about the financial condition, as well as suspicions about the possible unreliability of the information provided;
• deterioration of the borrower's financial condition;
• discrepancies with the presented forecast of cash flow and business plan;
• untimely payment of principal or interest;
• request for extension;
• non-target use of the loan;
• transfer and sale of property;
• negative information received about the client from any sources;
• changes (not necessarily adverse) in the economic, political and other spheres where the client placed borrowed funds;
• signs of growing conflict within the borrower enterprise;
• change of management of the borrower enterprise;
• and other things that may indicate potential problems.

5.10. Upon detection of any of the above warning signals, the bank must clarify the reason for their appearance. If this reason contains even a minimal possibility of potential deterioration in the condition of the loan, the bank should take this loan under special control and take all appropriate measures to ensure the protection of its interests, such as:

• additional verification of the presence and conditions of storage of collateral;
• attraction of additional collateral;
• preventive conversations;
• suspension of subsequent payments on the credit line until the situation is finally clarified;
• more detailed systematic study of the borrower and the state of the industry into which he placed the borrowed funds;
• other protective measures.

5.11. When working with a loan, it is necessary to document and account for all activities conducted with it, including recording in the journal a brief summary of telephone conversations and meetings with the client, protocol of conversations conducted with him, agreements concluded with the borrower, etc. It is especially important to produce such accounting in work with "problem" loans.

6. Work with "Problem" Loans

6.1. The goal of constant monitoring of the loan and independent assessment of the credit portfolio is the identification of "problem" loans.

6.2. "Problem" loans are understood to be loans for which the borrower does not fulfill the terms of the agreement with the bank, or for any circumstances (for example, external or financial) the fulfillment of obligations to the bank and repayment of the loan is put at risk.

6.3. In case of recognition of a loan as "problem", it is necessary to develop a bank action plan aimed at loan repayment, which includes a number of measures:

6.3.1. Measures for organizational, financial and other assistance by the bank to the problem borrower, contributing to overcoming the crisis and fulfilling the borrower's obligations to the bank:

• work with the borrower (management of the borrower) to identify problems and search for their solutions;
• appointment of managers, consultants to work with the borrower's enterprise on behalf of the bank;
• assistance in increasing the company's equity capital at the expense of owners or other parties;
• obtaining additional collateral and guarantees, etc.;
• if necessary, development of a program for changing the debt structure (revision of the payment schedule for loan repayment and interest payment, change of lending forms, etc.).

6.3.2. Along with these measures, it is necessary to carry out constant work with the borrower itself, which may consist of the following:

• notification of the borrower that he has violated the terms of the credit agreement, the loan term is overdue, and about possible problems associated with this;
• conducting negotiations;
• summoning the borrower to the bank;
• publication, if necessary, information about the dishonest borrower in the press, if provided for by the credit agreement, etc.

6.3.3. In order to ensure the direct return of the loan in the shortest possible time, the following measures are carried out:

• collection on the subject of collateral;
• sale of the borrower's debt to a third party;
• appeal to guarantors and sureties;
• appeal to the court;
• other measures.

6.4. In order to ensure timely repayment of the borrower's debt, the bank must stipulate in the credit agreement that repayment from secondary sources is possible even before the expiration of the loan term. In this case, the bank must determine in the agreement the circumstances that determine the possibility of early repayment of debt using secondary sources of repayment or in another way.

6.5. The head of the bank structural unit responsible for work with problem loans must monthly submit to the Credit Committee a report on the work done with proposals for further actions regarding "problem" loans. Copies of the report are sent to the Board and the Board of Directors of the bank.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 23, 2005 No. 40/3)

6.6. If the above actions of the bank do not lead to a positive result, the bank is obliged to appeal to the court for compulsory collection of debt. In case if compulsory collection does not ensure repayment of the debt, the bank may initiate bankruptcy proceedings in accordance with the legislation of the Kyrgyz Republic.

6.7. After exhausting all legal possibilities for loan repayment, the decision on writing off loans carrying significant risk((4) see note) is made by the Board of Directors of the bank, and the rest of the loans by the Board of the bank with mandatory notification of the Board of Directors.

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 23, 2005 No. 40/3)

6.8. After writing off loans, they are accounted for off-system for at least five years in case of possible repayment of debt.

6.9. Regardless of the term of off-system accounting, upon detection of any positive information for the bank allowing to hope for possible repayment of debt, the bank must carry out measures aimed at finding possible ways to repay it.

Appendix No. 1

MINIMUM REQUIREMENTS

for the borrower's credit file

(In the edition of the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 23, 2005 No. 40/3)

I. General information about the borrower

1. Application for a loan, signed by the borrower, which must contain the following information:

• name of the borrower (surname, first name, patronymic, if the borrower is an individual);
• Full Name of the head (if the borrower is a legal entity);
• address (legal address), telephone/fax;
• type of business and organizational-legal form (if the borrower is a legal entity);
• amount, currency and term of the requested loan;
• purpose of the loan;
• sources of loan repayment (primary, secondary);
• proposed collateral.

2. Analysis of the borrower's creditworthiness.

3. Financial reporting of the borrower for the last reporting year, certified by an external auditor, in case if the borrower is required to undergo annual audit in accordance with the legislation of the Kyrgyz Republic, and for the two previous years (if the borrower is a legal entity).

4. Certificate of salary for the last 12 months, name of the organization where the borrower works, position, duration of work, other documents confirming information about income (if the borrower is an individual).

5. Credit agreement.

6. Founding documents (if the borrower is a legal entity).

7. Business plan (if the borrower is a legal entity).

8. Document from state bodies on registration (if the borrower is a legal entity).

9. Document from tax bodies on registration (if the borrower is a legal entity).

10. Decision of the corresponding body of the borrower on obtaining a loan (if the borrower is a legal entity).

11. Copy of the document confirming identity (if the borrower is an individual).

12. Decision of the corresponding body of the bank on issuing a loan.

13. Quarterly financial reporting during the loan term (if the borrower is a legal entity).

14. Accounting of contacts with the borrower, in which the following information must be reflected for each contact:

• date of contact;
• type of contact (conversation, telephone call);
• conditions of contact (Full Name of the employee, content of the conversation);
• result.

15. Correspondence with the borrower (with attachment of all correspondence).

16. Legal documentation (copies of the borrower's contracts with suppliers, etc.)

II. Pledge Documentation

1. Pledge agreement.

2. Certificates, certificates and other qualification documents of the pledged property.

3. Documents confirming ownership of the pledged property.

4. Notarially certified cards with samples of signatures of persons authorized to sign (if the borrower is a legal entity).

5. Documents confirming the purchase price (if the bank finances the purchase of collateral, for example, equipment, consumer goods, etc.).

6. Documents confirming the valuation of the collateral with the following information reflected in them:

• estimated value of the collateral;
• date of valuation;
• who conducted the valuation;
• valuation method.

7. Documents confirming the registration of the pledge agreement (if the pledge must be registered, or the bank requires registration).

8. Decision of the corresponding body of the borrower on providing collateral (if the borrower is a legal entity).

9. Inspection act of the collateral, which must reflect:

• date of collateral inspection;
• type of collateral;
• date of collateral valuation;
• valuation method;
• location of the collateral;
• condition of the collateral and conditions of its storage;
• estimated value of the collateral;
• schedule for periodic inspection of the collateral.

III. Guarantees or Sureties

1. Written guarantee or surety with indication of the corresponding credit agreement, the amount for which the guarantee is issued, the date of expiration of the guarantee.

2. Decision of the corresponding body of the guarantor on issuing a guarantee.

3. Consent of the family members of the surety to issue a surety.

4. Founding documents of the guarantor.

5. Financial reporting of the guarantor for the last two years and the last quarter.

6. Certificate of salary for the last 12 months, or other documents confirming information about income (if the surety is an individual).

7. Analysis of the solvency of the guarantor or surety.

Appendix No. 2

MINIMUM REQUIREMENTS

for issuing guarantee letters

The credit policy of the bank must define all the main provisions regarding the issuance of guarantee letters:

1. The issue of issuing a guarantee letter by the bank must be considered at a meeting of the Credit Committee. The issuance of a guarantee letter will be considered valid only upon the presence of a corresponding decision of the Credit Committee.

2. Clear separation of powers and responsibilities of officials of the bank and its branches on signing and accounting for guarantee letters.

3. The original of the guarantee letter must be drawn up in the state language or official language of the Kyrgyz Republic.

4. The guarantee letter must be drawn up on a numbered corporate letterhead, signed by authorized officials of the bank or branch, and also certified with the round seal of the bank.

5. The bank's guarantee letter must be registered in the register of guarantee letters (or in the register of outgoing correspondence of the bank).

6. Accounting for guarantee letters must be carried out in accordance with accounting standards.

7. An obligatory requirement for the bank that issued the guarantee letter is the official confirmation of the guarantee recipient about the receipt of the guarantee letter.

8. In case of detection of fake guarantees, the bank must report them to the law enforcement agencies, and information about canceled guarantees must be placed in the media.