Regulation on Minimum Requirements for Credit Risk Management in Islamic Banking and Financing Operations

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Creation Date: 2026-05-13

Approved

by the Resolution of the Board of the National Bank of the Kyrgyz Republic of September 25, 2013 No. 35/13

REGULATION

on minimum requirements for credit risk management in the conduct of operations in accordance with Islamic principles of banking and financing

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of April 15, 2015 No. 22/7, October 14, 2015 No. 62/4, February 10, 2016 No. 7/3, August 24, 2016 No. 35/4, September 28, 2016 No. 40/6, February 22, 2017 No. 6/4, May 31, 2017 No. 21/11, June 19, 2019 No. 2019-P-12/32-3, March 24, 2020 No. 2020-P-12/15-5, March 31, 2021 No. 2021-P-12/14-5, June 30, 2021 No. 2021-P-12/36-3, November 16, 2022 No. 2022-P-12/70-1, December 20, 2023 No. 2023-P-12/80-3, July 5, 2024 No. 2024-P-12/28-3, August 14, 2024 No. 2024-P-12/36-1, October 31, 2024 No. 2024-P-12/58-2-(NPA), November 27, 2024 No. 2024-P-12/63-1-(NPA), January 22, 2025 No. 2025-P-12/2-2-(NPA), March 12, 2025 No. 2025-P-12/10-2-(NPA), June 18, 2025 No. 2025-P-12/28-1-(NPA), September 12, 2025 No. 2025-P-12/46-1-(NPA), October 23, 2025 No. 2025-P-12/55-3-(NPA), October 23, 2025 No. 2025-P-12/55-4-(NPA), April 2, 2026 No. 2026-P-12/20-5-(NPA), April 27, 2026 No. 2026-P-12/26-3-(NPA))

Chapter 1

General Provisions

1. This Regulation applies to commercial banks, including banks with an "Islamic window," and microfinance companies attracting term deposits and conducting operations in accordance with Islamic principles of banking and financing (hereinafter - banks).

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of May 31, 2017 No. 21/11)

2. The purpose of this Regulation is to establish an adequate credit risk management system in banks when conducting operations in accordance with Islamic principles of banking and financing.

2-1. This Regulation also applies to other assets carrying credit risk (including correspondent accounts, securities, interbank placements, etc.).

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 30, 2021 No. 2021-P-12/36-3)

3. Credit risk is the risk of non-performance by clients/suppliers/partners (hereinafter - client) of their obligations in accordance with the terms and conditions of the contract, which may have a negative impact on the bank's capital or profit.

Credit risk is present in all types of bank activities where a positive result depends on the client's performance of 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 factors increasing risk, on the basis of which credit risk can be forecasted and necessary measures taken to minimize it to an acceptable level.

3-1. Refinancing is the conclusion of a corresponding new contract for the full or partial repayment of an existing asset.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of February 22, 2017 No. 6/4)

3-2. Blank assets are assets carrying credit risk, secured by neither real estate, movable property, guarantees, suretyship, nor other instruments considered as collateral in asset classification, except for overdrafts on payment cards within salary projects and overdrafts on payment cards issued to pensioners, and are issued only to a solvent client/partner based on their reputation and assessment of their income level.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 20, 2023 No. 2023-P-12/80-3)

3-3. Cooling-off period is the period of time after signing the contract during which the bank does not transfer funds to the client/partner. During this period, the client/partner has the right to refuse to receive the funds.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of November 27, 2024 No. 2024-P-12/63-1-(NPA))

3-4. Women's entrepreneurship is entrepreneurial activity in accordance with the legislation of the Kyrgyz Republic.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 18, 2025 No. 2025-P-12/28-1-(NPA))

3-5. Self-prohibition on concluding a credit transaction (hereinafter - self-prohibition) is the independent declaration of will of a natural person to establish a prohibition on concluding a financing agreement or another agreement providing for the provision of money and/or other property on loan (hereinafter - financing agreement) by a financial-credit organization in accordance with the requirements of the Law of the Kyrgyz Republic "On the Exchange of Credit Information".

Establishment and removal of self-prohibition are carried out by a natural person free of charge, independently, via the State Portal of Electronic Services of the Kyrgyz Republic or by another method determined by the National Bank. The established self-prohibition does not have retroactive effect with respect to financing agreements concluded with credit organizations before the establishment of this self-prohibition. Information on the self-prohibition on concluding financing agreements is sent to credit bureaus at the choice of the natural person who established the self-prohibition. Banks ensure inter-system integration with existing credit bureaus to obtain information on the self-prohibition (removal of prohibition) on concluding financing agreements.

The procedure for determining the terms of commencement, action, and termination of the self-prohibition, the form of establishment, and requirements for the self-prohibition (removal of prohibition) are regulated by the Rules for Regulating the Activities of Credit Bureaus in the Territory of the Kyrgyz Republic, approved by the Resolution of the Board of the National Bank of September 28, 2016 No. 40/5.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of October 23, 2025 No. 2025-P-12/55-3-(NPA))

3-6. Total cost of financing for consumer purposes – the total size of all client expenses under the contract related to obtaining and servicing financing for consumer purposes, including markup, commissions, and other mandatory payments, as well as the increase in the cost of goods (works, services) due to the provision of financing for consumer purposes.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of April 27, 2026 No. 2026-P-12/26-3-(NPA))

3-7. Financing for consumer purposes
– financing provided by the bank on terms of maturity, repayment, and with an obligation to pay markup/income, including for the purpose of paying for goods, works, or services with subsequent payment by the client in installments (deferred payment) within the framework of a financing agreement for consumer purposes. Financing for consumer purposes is provided to individuals for personal, family, or household purposes not related to entrepreneurial activity and profit generation. For the purposes of this Regulation, financing and installments related to the acquisition, construction, or completion of residential real estate secured by real estate are not considered financing for consumer purposes. Financing for consumer purposes may be provided without markup by agreement of the parties.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 27, 2026 No. 2026-P-12/26-3-(NPA))

4. For the purposes of this Regulation, assets carrying credit risk are understood as assets placed in accordance with Islamic principles of financing. Cross-border assets carrying credit risk are assets issued to residents/non-residents for financing activities exclusively outside the Kyrgyz Republic, while the concept of resident/non-resident corresponds to the concept defined in the legislation of the Kyrgyz Republic.

Due to the unique characteristics of each type of asset carrying credit risk and the optional nature of some contracts, credit risk must be assessed separately for each type of asset to carry out corresponding internal control and risk management.

Contractual financing represents an asset carrying credit risk in the form of short-term financing (up to one year) of working capital for the fulfillment of the client/partner's obligations under a contract with counterparties.

Financing against warehouse receipts - assets issued to holders of double warehouse receipts and/or their separate parts (warehouse receipt or pledge certificate (warrant)) of the established legal form (security). The financing term must not exceed the storage period of the product at the commodity warehouse from which the double warehouse receipt was issued.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of June 30, 2021 No. 2021-P-12/36-3, January 22, 2025 No. 2025-P-12/2-2-(NPA))

5. The requirements of this Regulation, as well as other normative legal acts of the National Bank of the Kyrgyz Republic (hereinafter - National Bank), must be fully reflected in the bank's internal documents regulating credit risk management.

Chapter 2

Bank's Policy on Conducting Operations on Islamic Principles of Financing and Bank's Financing Strategy

(Name of chapter as amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 30, 2021 No. 2021-P-12/36-3)

6. All types of products and standard contracts for financing on Islamic principles that the bank intends to conduct must be initially approved by the bank's Shariah Council in terms of their compliance with Shariah standards.

7. The bank's operations on Islamic principles of financing are carried out in accordance with its internal policy, approved by the bank's Board of Directors.

The financing strategy may be included in the bank's business plan as a separate/additional section.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 30, 2021 No. 2021-P-12/36-3)

7-1. The financing strategy must at least take into account and include the following:

• target financing markets and their general characteristics that the bank plans to reach (including diversification level, planned indicators in assessing the quality of the financing portfolio, etc.);
• main sources of financing (the bank must specify the sources of financing, from which funds the financing is planned to be issued, and the financing portfolio increased);
• requirement to conduct an analysis of indirect currency risk;
• ratio of the share of assets carrying credit risk to bank assets;
• market conditions and the bank's financial condition, as well as its risk appetite;
• expected rate of profit and the size of the bank's capital;
• possible costs associated with the return of assets subject to credit risk;
• short-term/medium-term/long-term plans of the bank;
• requirement to conduct an analysis of the financing portfolio, which will be carried out based on the bank's existing financing portfolio. In addition, the bank must have a methodology for conducting such analysis that will allow assessing credit risk and indirect currency risk;
• current adequate economic indicators of the bank;
• the bank's organizational structure, technical capabilities and potential (qualifications, staff size) of personnel and bank management responsible for the bank's financing activities. Relevant personnel must be informed about the financing strategy and ensure clarity of the bank's financing strategy.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 30, 2021 No. 2021-P-12/36-3)

7-2. The Board of Directors periodically, but no less than once a year, reviews financial and economic indicators affecting or provided for in the financing strategy and makes necessary changes if required.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 30, 2021 No. 2021-P-12/36-3)

7-3. The bank's Board of Directors must ensure that the bank's policy on appointments and remuneration does not contradict the credit risk management strategy.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of June 30, 2021 No. 2021-P-12/36-3)

8. The bank's policy on conducting operations on Islamic principles of financing (hereinafter - Policy) defines the strategy, criteria, parameters, and procedures that bank employees must follow in activities related to the conduct, documentation of transactions, monitoring, and risk management.

The bank's policy must also be based on the principles of responsible financing: good faith, transparency, accuracy, partnership with respect to clients/partners, taking into account their economic interests and financial capabilities.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic of May 31, 2017 No. 21/11)

9. The Policy must reflect the following provisions regarding the issuance of assets carrying credit risk:

1. general provisions, including:

• composition of potential clients/partners, including restrictions on the number of investors;
• types of assets carrying credit risk, depending on financing goals and other conditions, including financing aimed at the development of women's entrepreneurship;
• quantitative financing limits;
• financing terms;
• criteria for assessing the solvency of clients/partners;
• criteria for assessing the solvency of clients/partners, as well as the procedure for calculating the debt burden indicator for financing for consumer purposes in accordance with the requirements of this Regulation;
• requirements for financial information of clients/partners;
• geographical restrictions;
• procedure for establishing the currency of issuance and restrictions;
• maximum concentration of assets carrying credit risk (by groups of clients/partners, geographical indicator, by industry, currency, and other factors);
• restrictions on assets carrying credit risk provided to persons affiliated with the bank and affiliated persons;
• criteria for assessing the value and acceptability of collateral, including assessment of risks related to the fact that the subject of collateral is the client/partner/collateral provider's only housing at the time of financing documentation;
• procedure for controlling compliance with the preparation procedure for providing assets carrying credit risk;
• requirements for the bank to issue guarantee letters (Appendix 2).
  Note: except for microfinance companies attracting term deposits;
• ratio of the maximum financing portfolio to assets;
• maximum specific weight of each type of asset in the financing portfolio;
• other;

2. procedure for documenting assets carrying credit risk, including:

• document forms;
• procedure for providing assets carrying credit risk;
• procedure for approving assets carrying credit risk;
• requirements for financial analysis;
• requirements for collateral and documentation (types of collateral, relationship of collateral to the asset carrying credit risk, assessment of market value and its location);
• procedure for controlling the correct documentation of assets carrying credit risk;

3. requirements for managing assets carrying credit risk, including:

• procedure for managing assets carrying credit risk;
• requirement to maintain an adequate client/partner dossier;
• organization of control over contract execution;
• frequency of collateral monitoring;
• conditions for restructuring overdue assets carrying credit risk;
• requirements for classification and formation of a reserve for potential losses and damages (RPPU);
• process of independent assessment of assets carrying credit risk;
• requirements for information systems (reporting);
• requirements for organizing control over the management of assets carrying credit risk;
• requirements for conducting stress testing to assess potential losses related to credit risk (Appendix 3);
• frequency of monitoring of assets carrying credit risk/financial condition of clients/partners;

4. separation of powers for the provision of assets carrying credit risk, indicating the maximum amount and type of asset carrying credit risk. The right to provide assets carrying credit risk and to take 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 financing;

5. obligations for the transfer of rights and exchange of information between structural units participating in the financing process;

6. procedure for assessing risks for new banking products. Risks for all new products must be identified, assessed, and under control before the bank enters the market for such products;

7. procedure for identifying, analyzing, and resolving situations related to "problem" assets carrying credit risk;

8. principles of responsible financing, containing requirements for the development and implementation of an assessment and reporting system aimed at preventing over-indebtedness (when a client/partner has parallel obligations, including in more than one financial-credit organization (hereinafter - FCO), due to which the client's/partner's debt burden may exceed the client's/partner's ability to service their obligations), including the application of the debt burden indicator for financing for consumer purposes in accordance with the requirements of this Regulation.

Within the requirements established by the legislation of the Kyrgyz Republic, including normative legal acts of the National Bank, the bank independently determines the circle of future clients/partners, types of assets carrying credit risk, forms a financing portfolio, and establishes markup/income on assets carrying credit risk, which includes taxes established by the tax legislation of the Kyrgyz Republic.

At the same time, the bank's internal documents must contain procedures for assessing the activities of a client/partner - a legal entity regarding the conduct of actual activities, namely the production and provision of certain goods/services in the market.

The bank is obliged to ensure compliance with the legislation of the Kyrgyz Republic on the maximum permissible size of markup/income on financing, including the requirements of the Law of the Kyrgyz Republic "On Restriction of Usurious Activities in the Kyrgyz Republic" and the Law of the Kyrgyz Republic "On Consumer Credit", as well as other requirements of the legislation of the Kyrgyz Republic regulating the procedure for providing financing for consumer purposes.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of May 31, 2017 No. 21/11, December 20, 2023 No. 2023-P-12/80-3, January 22, 2025 No. 2025-P-12/2-2-(NPA), June 18, 2025 No. 2025-P-12/28-1-(NPA), April 27, 2026 No. 2026-P-12/26-3-(NPA))

10. A clear and detailed bank policy should contribute to the proper handling of assets carrying credit risk and ensure the profitability of the bank's operations.

11. The Bank's Board is responsible for the execution of the bank's Policy and financing strategy, for which it is obliged to ensure the development and execution in the course of the bank's activities of policies and procedures for identifying, measuring, monitoring, and controlling credit risk, including credit risk arising from currency risk.

The bank must ensure a comprehensive system for constant identification, assessment, monitoring, and control of credit risk arising from currency risk, as well as ensure a reporting system for carrying out control, analysis, and monitoring of credit risk arising from currency risk.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic of October 14, 2015 No. 62/4, June 30, 2021 No. 2021-P-12/36-3)

12. The bank's Board of Directors is obliged to review the bank's Policy for its adequacy, limit systems, instruments, and procedures for credit risk management, the internal audit system, and internal Shariah audit for credit risk management, as well as, if necessary, as changes occur in the bank's risk profile, the National Bank's normative legal acts, the bank's organizational structure and staff affecting the financing process, including changes occurring in the economy of the republic and countries where the bank and its clients/partners have business ties affecting the financing process, but no less than once a year.

(Paragraph lost force in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic of December 20, 2023 No. 2023-P-12/80-3)

The bank must ensure a comprehensive system for constant identification, assessment, monitoring, and control of credit risk, as well as ensure a reporting system for carrying out control, analysis, and monitoring of credit risk, including that arising from currency risk.

The right to issue assets carrying credit risk must be divided among several levels of officials, and these persons are responsible in accordance with the legislation of the Kyrgyz Republic for violations committed by them in financing.

The issuance of high-risk assets and assets carrying credit risk to persons affiliated with the bank/affiliated persons of the bank must be approved by the bank's Board of Directors and comply with the requirements of the National Bank's normative legal acts. The bank's Board of Directors is responsible for approving decisions on the issuance of high-risk assets, assets carrying credit risk to persons affiliated with the bank/affiliated persons of the bank, cross-border assets, including assets secured by collateral located outside the Kyrgyz Republic, which were issued in violation of the requirements of the National Bank's normative legal acts and/or for which the bank incurred losses.

Approval by the bank's Board of Directors is also required in cases where collateral located outside the Kyrgyz Republic serves as security for an asset carrying credit risk for more than 20% of the amount of the asset carrying credit risk. In this case, the cost of collateral is understood as its liquidation value in accordance with the National Bank's normative legal acts.

In addition, the financing policy must specify the powers of the Financing Committee and/or the Board for Write-off and Restructuring of Financing with specified restrictions.

The bank's financing policy must also contain methodologies for assessing the solvency of clients/partners. For these purposes, the bank may develop an internal risk rating system for credit risk management. The internal risk rating system must correspond to the nature, size, and complexity of the types of activities carried out by the bank.

In addition, the bank is obliged to constantly maintain a database and register of assets carrying credit risk for which non-standard decisions were made upon issuance (individual markups, collateral structure, etc.).

The internal risk rating system for credit risk management must contain a comprehensive assessment of the financial condition of the client/partner, as the main indicator of their future solvency, and must reflect the disclosure of data about clients/partners specified in § 1 and § 2 of this Regulation.

When providing financing for consumer purposes, the client's solvency assessment system must include the calculation of the debt burden indicator in accordance with the requirements of this Regulation.

Risk rating for credit risk management is the main indicator of the quality of an asset carrying credit risk. The risk rating must be assigned at the initial stage of approving the issuance of an asset carrying credit risk, and may also be assigned during subsequent monitoring of the asset, its extension, or change of financing contract terms or restructuring of assets carrying credit risk. Developed risk ratings determining