Regulation on Minimum Requirements for Liquidity Risk Management of Commercial Banks of the Kyrgyz Republic

		Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic dated March 29, 2019 No. 2019-P-12/17-3-(NPA)

REGULATION on minimum requirements for liquidity risk management of commercial banks of the Kyrgyz Republic

Chapter 1. General Provisions

1. This Regulation establishes mandatory minimum requirements for liquidity risk management for commercial banks of the Kyrgyz Republic (hereinafter - commercial banks).

The Regulation applies to all commercial banks, including commercial banks operating in accordance with Islamic banking and finance principles, including banks with an "Islamic window", taking into account the special terminology they use in carrying out banking operations (hereinafter - banks).

2. The following definitions are used in the Regulation:

Liquidity indicator - an indicator that quantitatively determines one or more characteristic levels of a bank's liquidity risk.

Balance sheet liquidity risk represents the probability of a bank's losses associated with the bank's inability to fulfill its obligations due to insufficient liquid assets or cash as a result of the bank's inability to effectively meet current and/or future needs for cash inflows, without harming the bank's daily operations or its financial condition, i.e., current or expected income and capital. Balance sheet liquidity risk is associated with a decrease in the ability to finance accepted obligations under transactions when their maturity dates arrive, to cover counterparties' claims with cash, as well as collateral requirements. Balance sheet liquidity risk is the main type of liquidity risk.

Market liquidity risk - the risk that a bank cannot quickly sell an asset at market price due to insufficient market depth and/or due to deteriorating market conditions.

Chapter 2. Responsibilities of the Board of Directors and the Management Board of the bank in liquidity risk management

§ 1. Aggregate level of risk acceptance (risk appetite)

3. The bank's Board of Directors must determine the acceptable level of liquidity risk for the bank and ensure that the bank's Management Board, as well as the relevant departments/employees of the bank involved in liquidity risk management, clearly define and comply with legislative requirements and internal procedures for identifying, assessing, monitoring and controlling liquidity risk.

4. The bank's Board of Directors determines the bank's aggregate level of risk acceptance (risk appetite) taking into account the following factors:

• a clear definition of the level of balance sheet liquidity risk that the bank can accept under normal conditions and in a stress situation, taking into account its business strategy, financial position, and potential financing. The bank's aggregate level of risk acceptance (risk appetite) must correspond to the bank's systemic importance. The bank's department/employees involved in liquidity risk management must clearly understand and comply with the acceptable level of liquidity risk for the bank, and also monitor it;

• the bank's obligation to manage its liquidity prudently under normal conditions, and also to be able to withstand a prolonged period of stress, for one month or more;

• the aggregate level of risk acceptance (risk appetite) must reflect an assessment of liquidity risk sources, taking into account the interconnectedness between possible risks and profit.

5. The aggregate level of risk acceptance (risk appetite) must be documented and formulated using qualitative and quantitative indicators for the purpose of subsequent control of various aspects of liquidity risk.

6. The National Bank has the right to assess the reasonableness of the bank's aggregate level of risk acceptance (risk appetite) in relation to liquidity risk (and any subsequent changes in the acceptability of such risk). If the bank's aggregate level of risk acceptance (risk appetite), as assessed by the National Bank, is deemed higher than established (higher than acceptable for the bank), then at the request of the National Bank, the bank must review and establish an acceptable aggregate level of risk acceptance (risk appetite) for the bank.

7. The bank's Board of Directors bears full responsibility for the level of liquidity risk assumed by the bank and for liquidity risk management.

§ 2. Powers and responsibilities of the bank's Board of Directors for liquidity risk management

8. The bank's Board of Directors is responsible for organizing the liquidity risk management system, determining the liquidity risk structure appropriate to the bank's activities, its scale, complexity, and size.

9. The bank's Board of Directors analyzes the risks of the existing liquidity risk management system/structure, including when it changes, including in cases of changes in the bank's activities affecting liquidity risk.

10. The bank's Board of Directors, for the purpose of timely liquidity risk management, has the right to delegate some powers to the bank's Asset and Liability Management Committee (hereinafter - ALCO) or other similar committees. However, the delegation of powers does not relieve the Board of Directors and its members of their responsibilities for organizing an adequate internal control system that ensures the integrity of the liquidity risk management process, as well as for the work of all committees performing their assigned duties.

11. For the effective performance of liquidity risk management functions, ALCO should include employees from treasury, risk management departments (with advisory voting rights) and other key departments of the bank and/or their supervising members of the bank's Management Board who determine the bank's liquidity risk. ALCO also relies on information from the risk management service directly responsible for assessing and managing this risk.

12. The bank's Board of Directors must appoint competent management responsible for measuring, monitoring, and controlling liquidity risk, with sufficient experience and knowledge of systems and resources for effective liquidity risk management.

13. The bank's Board of Directors reviews and approves the bank's overall strategy, which also includes issues of liquidity management, as well as the liquidity risk management policy in accordance with the established aggregate level of risk acceptance (risk appetite) in order to maintain the established level of sufficient liquidity.

14. The bank's liquidity risk management policy must correspond to the bank's activities, its liquidity needs both under normal conditions and in a stress situation.

The bank's liquidity risk management policy must reflect, at a minimum, the following key aspects:

a) the level of liquidity risk acceptance;

b) goals and objectives, according to the bank's main strategy for:

• the level of diversification and stability of funding sources necessary to maintain an acceptable level of bank liquidity;

• the approach to liquidity management in various areas of activity;

• the approach to liquidity management during the working day;

• the permissible minimum level (limit) of liquidity;

• daily measurement and monitoring of cash inflows and outflows, as well as weekly monitoring of maturity mismatches of the bank's assets and liabilities to control daily liquidity needs and ensure fulfillment of obligations;

• forecasting necessary liquidity;

• the structure and assessment of the stability of the deposit base and other borrowed funds by the bank's Management Board;

• the ability to borrow in the money market;

• asset quality requirements;

• execution of off-balance sheet obligations;

• liquidity crisis planning;

• liquidity management in foreign currencies;

• internal control over liquidity risk management;

• necessary management reporting;

c) responsibilities for liquidity risk management with clearly defined delineation of powers and reporting structure;

d) liquidity risk management systems - the use of systems and tools for measuring, monitoring, controlling, and reporting on liquidity risk, including:

• establishing various liquidity limits and ratios (e.g., target liquidity ratios, maturity mismatch limits, loan-to-deposit ratio, etc.);

• bases for cash flow forecasting and liquidity stress testing, including methods, scenarios, and assumptions used;

• a liquidity risk management reporting system;

e) a contingency funding plan, which must contain approaches and strategies for possible stress situations.

15. The bank's Board of Directors reviews the approved overall bank strategy regarding liquidity management in accordance with economic, financial, and operational standards and conditions.

To ensure effective and adequate liquidity risk management, the bank's Board of Directors regularly, but at least once a year, reviews the bank's strategy and policy, making appropriate adjustments if necessary.

16. The bank's Board of Directors is responsible for organizing an adequate internal control system that ensures the integrity of the liquidity risk management process. For these purposes, the bank's Board of Directors creates an internal control system that ensures the implementation of control functions over liquidity risk management processes and their effectiveness.

The bank's Board of Directors ensures the independence and competence of the internal control carried out and the delineation of their functions from the bank's operational activities.

§ 3. Powers and responsibilities of the bank's Management Board for liquidity risk management

17. The bank's Management Board is responsible for implementing the bank's overall strategy, as well as the bank's liquidity risk management policy.

18. The bank's Management Board should establish the level of authority and responsibility of individual structural units whose functions will include preparing and providing timely and adequate reports on the bank's liquidity status.

19. The bank's Management Board must have timely and continuous information about new and potential problems, and changes in external market conditions that could potentially lead to future difficulties.

20. The bank's Management Board must timely and continuously inform the bank's Board of Directors about new and potential problems, such as:

• increased cost of funding (established threshold levels);

• increased funding size at various maturities;

• concentration of funding sources;

• negative changes in markets from which a significant part of funding comes;

• alternative funding sources;

• significant or prolonged excesses of established limits;

• significant change/reduction in the reserve of unencumbered, highly liquid assets;

• increased additional collateral requirements due to a potential decrease in the market price of assets serving as collateral or for other reasons;

• changes in external market conditions that could potentially lead to future difficulties.

§ 4. Independent assessment and audit of liquidity risk management

21. The bank must conduct periodic assessments of liquidity risk management processes to ensure the integrity, reliability, and reasonableness of the activities carried out. The assessment must be conducted by employees/experts independent of operational activities, internal or external auditors, possessing the necessary skills and knowledge.

The bank's Management Board must timely and continuously inform the bank's Board of Directors about the results of the assessment.

22. The assessment of liquidity risk management processes must include, at a minimum:

• the adequacy of internal systems and procedures for identifying, measuring, monitoring, and mitigating liquidity risk;

• the reasonableness of various internal limits on liquidity parameters that allow controlling liquidity risk;

• the constructiveness of the scenarios and assumptions used for cash flow analysis;

• the integrity and sufficiency of management information provided on liquidity risk;

• compliance with the rules and procedures established for maintaining liquidity.

The Board of Directors and the Management Board of the bank must timely and effectively eliminate any shortcomings or problems identified during the assessment of liquidity risk management processes.

Internal audit must regularly check the adequacy and effectiveness of the internal control system for liquidity risk management.

Chapter 3. Identification, measurement, monitoring, and control of liquidity risk

§ 1. Parameters and tools for measuring liquidity risk

23. The liquidity risk management process in a bank includes the following elements:

a) using a set of adapted (used in practice) tools and parameters, against which the bank sets internal limits for measuring, monitoring, and controlling liquidity risk levels;

b) developing and implementing early warning indicators to identify potential vulnerabilities in liquidity positions and risks;

c) creating a system for timely and effective reporting to the Board of Directors on existing and potential liquidity problems and other liquidity information.

24. To measure and analyze its liquidity risk, the bank must use various parameters that allow the bank's management to understand operational liquidity positions and structural liquidity mismatches, and also determine the bank's resilience under stress conditions.

Liquidity parameters should be aimed at:

• forecasting the bank's future cash flows and identifying potential funding mismatches, both in current normal operations and under stress conditions, as well as over various time intervals (cash flow forecasts must be based on reasonable and justified assumptions that are properly documented, periodically reviewed, and approved);

• assessing potential liquidity risks inherent in the bank's balance sheet and off-balance sheet structure and commercial activities, including emerging risks of a rarer nature, including contingent liabilities;

• assessing the bank's ability to attract funding, as well as its vulnerability or concentration by any of the main funding sources;

• identifying the bank's liquidity risk to exchange rate changes.

25. The bank must use parameters and tools appropriate to the structure, complexity, and risk characteristics of its activities. The following liquidity parameters can be used to measure risk:

• information on the level of concentration of funds attracted from key counterparties (including funds attracted from individuals and legal entities, regardless of volume) or key financing instruments (e.g., through the issuance of various types of securities);

• analysis of maturity mismatches based on contractual terms, as well as assumptions about the dynamics of cash inflows and outflows;

• information on the size, structure, and characteristics of the bank's liquidity reserve to assess its ability to attract additional liquidity under economic stress;

• other ratios and indicators (loan-to-deposit ratio), intragroup open positions and borrowings, swap ratio (to measure the bank's dependence on foreign currency to finance liquidity needs in national currency), contractual and non-contractual mechanisms and obligations corresponding to the bank's commercial activities.

26. The bank must regularly analyze information or trends, such as a sustained decline in stable deposit volumes, indicated by liquidity parameters, to identify significant potential liquidity problems.

§ 2. Limits for controlling liquidity risk management

27. The bank establishes limits for liquidity parameters that will be used to monitor and control liquidity risk levels. The set of limits must correspond to the bank's commercial activities and its level of accepted liquidity risk.

28. The established limits for liquidity risk parameters must be used to manage current liquidity, and must also be set at a level that will ensure the bank's ability to continue functioning under economic stress.

29. The bank must ensure compliance with the established limits for liquidity risk parameters and establish a procedure for preparing and submitting reports on exceptions or violations that may serve as early indicators of excessive risk and/or inadequate liquidity risk management. The established limits for liquidity risk parameters, and corresponding procedures for preparing and submitting reports, must be reviewed at least once a year, or as necessary during the year.

§ 3. Early warning indicators of excessive liquidity risk

30. The bank must develop indicators that allow early identification of increasing risks and indicate growing risks in various liquidity risk positions and/or potential funding needs (hereinafter - early warning indicators).

Early warning indicators must ensure the identification and assessment of any negative trends in liquidity for appropriate measures to be taken by the bank's management and to reduce the impact of emerging risk on the bank.

Both internal data and system-wide data can be used as early warning indicators of excessive liquidity risk.

31. Early warning indicators of excessive risk can be qualitative or quantitative, and at a minimum include the following:

• asset growth financed by potentially volatile liabilities/obligations;

• concentration of assets or liabilities, as well as funding sources;

• growth of currency mismatches;

• increased cost of funding;

• deterioration of cash flow indicators or structural liquidity positions, indicating an increase in negative maturity gaps, especially in the short-term interval up to 1 month, etc.;

• reduction in the weighted average maturity of liabilities;

• cases where regulatory ratios approach internal or established limits in the Regulation on Economic Norms and Requirements Mandatory for Commercial Banks of the Kyrgyz Republic, or exceed established limits;

• negative trends or increased risk, such as an increase in defaults, an increase in non-performing loans, or unprofitable activities related to a specific enterprise, business type, product, or banking activity;

• significant deterioration in the bank's profit indicators, asset quality, and overall financial condition;

• negative information about the bank in the media and on the Internet;

• credit rating downgrade, if applicable;

• counterparties' demand for additional collateral for loans or refusal to enter into new financing transactions without collateral, or for longer terms;

• reduction in available credit lines from correspondent banks;

• increasing trends of demand deposit withdrawals;

• increasing early withdrawals of time deposits;

• difficulties in accessing longer-term funding.

32. The bank must establish additional indicators to identify increasing risks from off-balance sheet operations and contingent liabilities of the bank that may cause asset repurchases, additional liquidity support for financial products, increased collateral requirements, or increased margin requirements in cash, or may significantly reveal changes in liquidity.

§ 4. Information systems

33. The bank must have a reliable information system designed to ensure timely and accurate provision of relevant information on the bank's liquidity status to the Board of Directors, the Management Board, and other responsible employees.

Information systems should assist the Board of Directors and the bank's management in identifying emerging liquidity problems, as well as monitoring the situation during a liquidity crisis, including during periods of non-compliance with the National Bank's requirements.

34. Information systems must, at a minimum, allow the bank to:

• monitor liquidity, both by currency type and on an aggregated basis;

• present concentration levels by funding sources from various aspects, such as maturity, source type, counterparty, etc.;

• reflect all sources of liquidity risk, including possible new requirements for contingent liabilities and off-balance sheet operations;

• calculate liquidity positions intraday, monthly, over longer time periods, and between periods;

• calculate and forecast various liquidity-related restrictions and ratios, including requirements of banking legislation and regulatory acts of the National Bank, for internal risk management purposes;

• monitor the bank's liquidity risk. The bank's Management Board must define reporting parameters, including the procedure and frequency of reporting for various recipients, as well as persons responsible for preparing reports.

Note from IC "Toktom": The number of paragraphs in point 34 of this Regulation does not correspond to the number of paragraphs in the text in the state language.

35. Reports for assessing liquidity risk management, measuring the required level of liquidity needs, and controlling liquidity risk must contain reliable data.

Reports must reflect current liquidity positions with established limits, both for internal liquidity risk management and for compliance with regulatory requirements, in order to identify emerging problems and help limit violations of limits.

In case of exceeding liquidity risk limits, it is necessary to inform higher management, depending on the competence of the management bodies, in order to make decisions on corrective measures to comply with the established limits, reasonably revise threshold values, and provide reports.

§ 5. Cash flow-based liquidity risk management

36. The bank must manage liquidity risk based on cash flows. Quantitative measurement and analysis of liquidity risk must be sufficient and include cash flows generated by assets, liabilities, as well as on-balance sheet and off-balance sheet positions within daily, weekly, monthly, and annual, and other time horizons, which must be used for:

• monitoring net funding needs under normal operating conditions on a daily basis;

• conducting regular cash flow analysis based on a full range of stress scenarios.

37. Liquidity measurement based on cash flows must include an assessment of the bank's cash inflows relative to its outflows, arising balance sheet and off-balance sheet assets and liabilities, as well as an assessment of the liquid value of its assets to identify potential net funding deficits.

Banks should assess and determine expected cash inflows and outflows under normal operating conditions, as well as under stress conditions. Forecasts must be forward-looking and based on reasonable assumptions and methods. When identifying, measuring, monitoring, and controlling liquidity risk, banks should consider:

• cash flows on assets and liabilities;

• possible events related to contingent liabilities and off-balance sheet positions;

• assets and liabilities in foreign currency;

• main business lines and activities, including correspondent, depository, and settlement services.

38. When forecasting cash flows, it is necessary to consider different factors and build forecasts for different time periods separately, including:

• changes in liquidity needs and funding potential within a single day;

• liquidity needs from one day, as well as more than one day, and funding potential for the short term up to one year;

• longer-term liquidity needs for a period of more than one year;

• vulnerability factors related to events, activities, and strategies that may create significant strain on the bank's ability to generate liquidity.

39. The bank must ensure a sufficient level of cash necessary for daily funding needs, or have the ability to withdraw sufficient funds from its own assets or other funding sources.

40. Funding needs must be assessed by constructing a maturity ladder of the bank's assets and liabilities.

All cash flows on the bank's balance sheet and off-balance sheet assets and liabilities must be distributed considering their maturities, by subtracting outflows from inflows in each time band.

The cumulative net mismatch position can be obtained by cumulatively adding net mismatch positions in successive time bands, which will allow the bank to assess future net funding needs in each time band.

41. The maturity profile must include a sufficient number of time bands for the bank to monitor its short-term, medium-term, and long-term liquidity needs.

It is necessary to use one-day time bands for the short term (especially for overnight and one-week maturities), and then broader and less detailed time bands for other periods.

42. The bank must consider mismatch positions for medium-term and longer-term time bands to identify early signs of potential liquidity problems caused by their structural balance sheet positions.

43. The bank should establish internal limits for its cumulative net cash outflow positions in shorter time bands, especially for the next day, seven days, and one month.

44. Maturity mismatch limits must be reflected in internal liquidity risk management documents. The bank reviews the limits once a year and, if necessary, may adjust the limits and make changes during the year.

45. Cash flows can be determined in accordance with established contractual terms, however, there may be cash flows that need to be assessed based on other signs, taking into account actual conditions, in order to compile a reliable cash flow forecast, considering the following aspects:

• future balance sheet growth;

• expectations regarding the repayment ratio of assets and liabilities maturing in the future;

• quality and share of liquid assets that can be used as collateral for secured funding;

• dynamic characteristics of assets and liabilities without clearly established maturities, such as repayment of overdrafts and withdrawals from demand accounts;

• potential cash flows from off-balance sheet assets and liabilities;

• convertibility of foreign currencies;

• time required to realize marketable debt securities, taking into account settlement periods and the impact of time discrepancies;

• access to funding sources.

46. The bank must regulate the impact of providing correspondent, depository, and settlement services on its cash flows. In doing so, the bank must develop and follow procedures/actions in case of non-settlement established by payment and settlement systems in which the bank is a direct participant, and be able to regulate the corresponding potential liquidity needs.

47. When forecasting cash flows, the bank must consider general economic and market trends that may affect the ability to access funding quickly and on reasonable terms.

48. The bank should document in its liquidity risk management policy the underlying conditions used to assess cash flow forecasts and their rationale. The conditions and their rationale must be approved and may be regularly reviewed by management.

49. The methods used by the bank to compile forecasts must take into account the current dynamics of the market situation and be harmonized considering the nature and complexity of their commercial activities.

50. When adopting dynamic assumptions regarding cash flows, the bank may analyze actual and historical data.

§ 6. Diversification and Access to Funding

51. To ensure reliable access to funds, both under normal conditions and in stress situations, banks should maintain a range of diversified and stable liquidity sources in the short, medium, and long term, and ensure access to relevant markets. The bank must take appropriate measures to strengthen relationships with persons providing or placing funds in the bank, and strengthen its presence in funding markets.

52. The bank must assess the possibility of quickly raising funds from available sources and the possible cost conditions for the bank. In doing so, the bank must also identify the main factors affecting its ability to raise funds and conduct thorough monitoring, which must be justified.

53. The interbank money market is an important source of liquidity for banks. The bank must assess the possibility of borrowing funds in this market, including based on historical data. The bank must regulate and establish internal limits for attracting large funding in national and foreign currencies - on a daily and weekly basis, for stable liquidity. In doing so, the bank needs to test its dependence on borrowing funds in the interbank money market.

54. When establishing limits for attracted funds in the interbank money market, the bank must consider factors such as the size of the bank, market capacity, the bank's market share, limits set by counterparties, and target amounts that must correspond to a level acceptable to the bank.

55. The bank needs to identify and establish additional relationships with counterparties, beyond those already established, which are sources of funding for them. In doing so, the bank must establish additional relationships with counterparties taking into account unforeseen and stress situations that may affect the repayment of obligations.

§ 7. Intraday Liquidity Risk Management

56. A bank that needs to comply with the instant liquidity ratio (K3.3) must establish the order of fulfilling its main obligations at a certain point upon their maturity and fulfilling other obligations within a single day.

The bank needs to manage intraday liquidity risk taking into account cash flows. The bank's cash outflows may exceed cash inflows at different times during the day. Net cash balances between the end of one business day and the beginning of the next may diverge in the timing of receipts and expenditures, which can cause a significant intraday liquidity deficit.

57. Policies, procedures, and control instruments for managing the bank's liquidity risk must contain sections describing intraday liquidity risks in all financial markets and for all currencies in which and for which the bank conducts significant payment and settlement activities.

Policies and procedures must also contain approaches to managing the aforementioned risks.

58. Managing intraday liquidity risk requires interaction between the bank's operational units and its documentation processing units with a clear distribution of tasks and responsibilities, as liquidity risk management requires careful tracking of expected payments and, if necessary, direct relationships with clients to promptly clarify the reasons for payment delays.

59. If the bank uses the services of correspondent banks and depository banks for payment and settlement operations, the bank must ensure continuity and timely fulfillment of its payment obligations and effectively manage its intraday liquidity risk even in a strained economic situation.

§ 8. Stress Testing and Scenario Analysis

60. The bank must regularly, at least once a quarter, conduct stress tests based on adverse scenarios to identify potential sources of liquidity instability under stress, as well as to identify them depending on the risk profile or risk appetite.

61. Stress tests are necessary for the bank to assess its ability to generate liquid assets to meet funding needs under adverse conditions. Stress tests must be conducted using data related to the nature of the bank's activities, the scale of the bank, and the complexity of the operations performed, taking into account current market conditions and the bank's experience in functioning in stressful situations.

62. Stress test scenarios must be regularly analyzed and reviewed by the bank's Management Board, and any fundamental changes to them must be approved by the bank's Board of Directors or the relevant committee(s) to which such powers have been delegated.

63. The bank must conduct stress tests by analyzing the dynamic characteristics of its assets, liabilities, and off-balance sheet obligations, including those of a non-contractual nature, but which create liquidity needs due to reputational risk.

64. Client deposits and their stability in a crisis scenario must be considered by the bank taking into account past trends and account dynamics, factors that are reflected in:

• deposit sizes (small or large deposits);

• methods of attracting deposits (directly/via the internet);

• level of deposit insurance;

• whether the depositor has a loan with the bank;

• type of depositors: relative stability of deposits from retail depositors, small businesses, large enterprises, private banking clients, and offshore clients;

• purposes of holding funds in the account: the bank may consider that some funds held for account operations, such as payroll accounts, show signs of greater stability during periods of stress;

• results of dynamic account analysis, such as baseline account analysis, deposit renewal history analysis, etc.

65. The above analysis can be used to assess potential run-off rates for various types of deposits in a crisis situation.

66. The bank must assess potential contingent liquidity risks created by off-balance sheet obligations in an economic crisis situation.

67. The bank must include the following types of scenarios in its stress testing procedure:

a) An idiosyncratic stress scenario, covering situations that may arise due to the bank's own problems, deterioration of asset quality, payment problems, negative information about the bank in the media and on the internet, loss of confidence in the bank, fraudulent operations by the bank's management, etc.

The scenario must reflect the bank's view of the "worst-case" state of its cash flows in a crisis situation.

Subsidiary banks and participants in banking groups must consider two types of idiosyncratic stress scenarios, namely: a crisis affecting only operations in the Kyrgyz Republic, and a crisis affecting global markets and the operations of the banking group.

The scenario related to a sharp mass withdrawal of funds from bank accounts must include the following characteristics:

• a high deposit run-off rate with increasing client requests for early withdrawal of funds from their time deposits over a long period;

• repayment of interbank deposits upon their maturity;

• inability to obtain new unsecured or secured funding in the market;

• forced sale of marketable securities at reduced prices.

b) A market-wide stress scenario, providing for events affecting the liquidity of many financial institutions in one or more markets.

68. The National Bank, within the framework of banking supervision, has the right to request the results of stress testing and, based on the study of these results, to conduct discussions and give recommendations for adjusting the scenarios.

§ 9. Liquidity Risk Management within a Banking Group

69. If a bank is part of a national or international banking group, it must be able to monitor and control liquidity risk arising from intra-group operations with other group members, taking into account any legal, regulatory, operational, or other restrictions on the transfer of liquidity and collateral between the bank and these entities.

70. When assessing funding needs, especially in stress situations, banks should consider any obligations to provide funding or liquidity to other group members, including in the form of guarantees or funding lines provided for use at times when such needs arise, and be prepared for any withdrawal of funds provided by group members.

The bank must analyze the impact of the liquidity position of banking group members, as well as their impact on banking liquidity, or the impact of additional funding and liquidity stress situations of other banking group members on the bank.

In cases where the bank uses funding support from other group entities, the bank should take measures to determine the impact on liquidity and consider any legal, regulatory, and other restrictions that may prevent it from receiving liquidity from group members in case of need.

71. During banking supervision, the National Bank has the right to monitor the level and trends in the dynamics of operations within banking groups and consider establishing limits to control open positions between group members if the National Bank has significant concerns regarding the prudence of the levels of open positions, especially in the case of questionable financial and liquidity health of the group and/or the bank.

72. Additionally, the bank heading a banking group in the Kyrgyz Republic must actively monitor and control liquidity risk at the group level, including all its related entities in its consolidated group, by establishing data aggregation processes across various systems within the country and between countries, to have an understanding of open liquidity risk positions for the entire group.

73. Banks should clearly document their policies and limits established for group entities, and any internal liquidity support mechanisms provided for the entities.

§ 10. Contingency Funding Plans

74. The bank must have an approved contingency funding plan, which clearly defines its strategy in case of emergencies, including liquidity deficits.

The contingency funding plan must contain a set of measures, procedures, and action plans that ensure the bank's readiness to overcome relevant shocks, including those considered within stress tests, with clearly established areas of responsibility and procedures for activating measures and escalating tasks to higher management levels.

The contingency funding plan must also be regularly tested and updated to ensure its operational reliability.

75. The contingency funding plan, developed by the bank's Management Board within the liquidity risk management policy, is approved by the Board of Directors.

76. The contingency funding plan must correspond to the complexity of the bank's organization, the scale of operations, and the systemic importance of the bank. The contingency funding plan, including its action plans and procedures, must be closely integrated with the ongoing liquidity risk analysis in the bank. The contingency funding plan must address liquidity issues for various time horizons, including instant liquidity.

77. The contingency funding plan must cover the following components:

1) Reporting procedures ensuring timely and uninterrupted information flows to the bank's Management Board and Board of Directors. A clear distribution of responsibilities within the bank must be established to understand the role of employees in a crisis situation, including the names and contact information of employees assigned responsibility for identifying crisis situations and to be included in the crisis resolution team.

Internal procedures for escalating tasks to higher management levels and prioritizing must also be established, which define who and when decisions on taking measures can be made.

2) Early warning indicators for a crisis situation, as well as mechanisms that facilitate continuous monitoring and reporting to the bank's Management Board and Board of Directors. Banks should develop indicators for each specific risk profile separately.

3) Procedures for covering cash flow deficits during a crisis must include considering various liquidity sources, including unused credit facilities, their availability, terms of use, reliability, and the order in which they are to be used. The bank must also assess the cost of alternative funding sources and the impact on capital.

4) Procedures for prioritizing clients during a crisis, when credit lines will be closed for specific clients.

5) Communication procedures for organizing effective information exchange with employees, clients, market participants, creditors, counterparties, shareholders, and the National Bank.

6) Stress test results and scenario analysis should be used as a basis for identifying various crisis situations that may affect the bank's liquidity, and for assessing their severity.

7) A bank with developed branch networks must consider actions in its contingency funding plan to ensure prompt supplies of cash for operations in a crisis situation.

8) In the presence of subsidiaries and banking group participants, the contingency funding plan must address liquidity management issues for operations in the Kyrgyz Republic. The contingency funding plan must include a condition for maintaining liquidity for operations in the Kyrgyz Republic, as well as the extent of obligations of parent entities or head offices to provide liquidity support in case of a crisis.

78. The contingency funding plan must be consistent with the bank's business continuity plans and be implemented in cases where the business continuity mechanism needs to be activated. In doing so, management needs to ensure coordination of employees involved in resolving liquidity crises and ensuring the bank's business continuity.

79. The bank's management should regularly review and update the contingency funding plan at an acceptable frequency or more often, if there are changes in the bank's organizational structure or the market situation, to ensure the reliability of these plans over time. Any changes to the contingency funding plan require proper documentation and approval by the bank's Board of Directors.

80. The contingency funding plan may be part of the bank's financial recovery plan.

§ 11. Public Disclosure

81. The bank must regularly publicly disclose information in the media, on its official website, etc., allowing market participants to draw conclusions about the reliability of its liquidity risk management framework and the bank's liquidity status.

82. The bank, within the framework of the Regulation "On Requirements for the Formation of Financial Statements of Commercial Banks of the Kyrgyz Republic", must provide quantitative information about its liquidity position, which allows market participants to form an understanding of the bank's liquidity risk.

83. The bank must disclose additional qualitative information that gives market participants a deeper understanding of liquidity risk management.

The bank may, among other things, disclose the following qualitative information:

• aspects of liquidity risk to which the bank is exposed and which the bank monitors;

• diversification of the bank's funding sources;

• other instruments used to reduce liquidity risk;

• the concept used for measuring liquidity position and liquidity risk;

• the bank's policy regarding the maintenance of liquidity reserves.