Resolution of the Board of the Central Bank of the Republic of Uzbekistan, registered on December 17, 2004, registration number 1435

Date of Entry into Force

27.12.2004

All

27.02.2022

30.11.2021

26.10.2015

27.12.2004

Form

Russian
Uzbek
Uzb
Uzb|Russian

Document lost its force 27.02.2022

[
OKOZ:
1.
07.00.00.00 Legislation on Finance and Credit. Banking Activity / 07.21.00.00 Banking Activity / 07.21.17.00 Accounting and Reporting in Banks;
2.
07.00.00.00 Legislation on Finance and Credit. Banking Activity / 07.22.00.00 Lending / 07.22.03.00 Loans of Commercial Banks;
3.
07.00.00.00 Legislation on Finance and Credit. Banking Activity / 07.29.00.00 Accounting. Financial Reporting / 07.29.07.00 Accounting in Specific Industries]
[
TSZ:
1.
Finance / Banks and other credit institutions. Loans; 2.
Finance / Accounting]

RESOLUTION OF THE BOARD OF THE CENTRAL BANK OF THE REPUBLIC OF UZBEKISTON

ON APPROVING THE REGULATION ON THE PROCEDURE FOR MAINTAINING ACCOUNTING OF LOANS IN COMMERCIAL BANKS

[Registered by the Ministry of Justice of the Republic of Uzbekistan on December 17, 2004, registration number 1435]

This resolution loses its force on February 27, 2022, based on the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 20/4 dated November 18, 2021 "On Approving the Chart of Accounts for Accounting in Commercial Banks" (registration number 3336, dated 26.11.2021).

In accordance with the Laws of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan", "On Banks and Banking Activity", and "On Accounting", the Board of the Central Bank of the Republic of Uzbekistan resolves:

1. Approve the "Regulation on the Procedure for Maintaining Accounting of Loans in Commercial Banks" attached hereto.

2. This Regulation enters into force 10 days after the date of its state registration by the Ministry of Justice of the Republic of Uzbekistan.

Chairman of the Central Bank Board
F. MULLAJONOV

Tashkent city,
November 27, 2004,
No. 25/9

APPROVED
By the Board of the Central Bank of the Republic of Uzbekistan November 27, 2004, No. 25/9

Regulation

On the Procedure for Maintaining Accounting of Loans in Commercial Banks

This Regulation is developed in accordance with the Civil Code of the Republic of Uzbekistan, the Law of the Republic of Uzbekistan "On the Central Bank of the Republic of Uzbekistan", "On Banks and Banking Activity", and "On Accounting", and is based on International Financial Reporting Standards (IFRS). It establishes the procedure for commercial banks (hereinafter referred to as "banks") to maintain accounting for loan transactions in accordance with IFRS.

I. General Provisions

1. Loans in bank assets are classified in accordance with the requirements of the Regulation "On the Procedure for Classifying Asset Quality in Commercial Banks and Forming and Using Reserves to Cover Potential Losses on Assets" (registration number 2696, July 14, 2015).

Accounting for loans granted non-accrual status is carried out in accordance with the Regulation "On Non-Accrual" (registration number 1304, January 24, 2004).

Calculation of interest, as well as cancellation of unpaid interest on loans, is carried out in accordance with the Regulation "On Calculation of Interest in Commercial Banks" (registration number 1306, January 30, 2004).

II. Concepts

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

Loans and receivables accounts are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, except:

1. Financial assets that the bank intends to sell immediately or in the near future and therefore must be classified as held for trading, or were initially classified as held for trading and sale;

2. Assets classified as held for sale upon initial recognition by the bank;

3. Assets whose owner cannot practically recover the initial investment amount, excluding cases of impairment of loans that must be classified as held for sale.

Effective interest rate method is a method that leads to the recognition of a constant interest rate through the amortization of the discount or premium over the life of the asset (liability) by allocating extended interest payments (for example, received or paid annually rather than monthly);

Effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset (or a shorter period where appropriate) to the net carrying amount of the asset;

Impairment loss (or impairment loss that may be recognized) is the amount by which the balance sheet value of the loan exceeds its recoverable amount. This indicates that the debtor cannot repay the full amount of the loan (principal and interest) and that a loss may occur in the bank;

Recoverable amount is the greater of the present value of the loan's balance sheet value and the discounted expected future cash flows at the loan's initial effective interest rate.

III. Initial Recognition

3. Loans granted by the bank are reflected at fair value, which represents the amount of funds disbursed to the borrower. When the bank grants a loan, the following accounting entry is made:

Dr 11900 — 15500 (relevant loan account)

Cr 10301 — "Representative Account in the Central Bank — Nostro" (if the fund recipient is serviced by another commercial bank), or

Cr — Demand deposit account of the fund recipient (if the fund recipient is serviced by this bank), or

Cr 10100 — "Cash in Cashier and Other Payment Documents" (if the loan is granted in cash).

4. Intermediation fees received by the bank in connection with granting a loan include compensation for bank expenses related to assessing the borrower's financial condition and investment project viability, evaluating and reflecting guarantees, organizing collateral and other security, preparing and processing documents, and concluding the agreement. Such intermediation fees are an integral part of granting the loan and future loan relationships, and together with directly attributable costs, they are amortized and recognized as a correction of real income. In addition, banks may charge intermediation fees for written obligations to grant loans.

5. When intermediation fees are collected from potential borrowers for the services specified in paragraph 4 of this Regulation, the following accounting entry is made:

Dr — Demand deposit account of the borrower

Cr 22896 — "Other Deferred Income"

6. Intermediation income received for granting a written obligation is considered a payment (compensation) for the bank's continuous participation in the lending process when there is a possibility of concluding a loan agreement. Intermediation income received by the bank is amortized together with directly attributable costs related to them and is recognized as a correction of real income.

If the obligation to grant a loan expires and the loan is not demanded, the intermediation fee for the loan granting obligation is recognized as income immediately after the expiration of this term (Attachment No. 1).

7. If an agreement is reached between the bank and the debtor that a certain commission will be paid in alternative to a higher interest rate formed relative to the interest rate specified in the loan contract in the market, this commission payment must be paid over the loan term, i.e., it is amortized and recognized as a correction of real income.

8. If the debtor repays the loan early or waives it in favor of another person, the bank recognizes any deferred intermediation fee related to this loan as income on the date the loan is repaid or waived in favor of another person.

IV. Loan Impairment

9. At each balance sheet date (monthly), the bank classifies loans and forms reserves to cover existing and possible losses in accordance with the Regulation "On the Procedure for Classifying Asset Quality in Commercial Banks and Forming and Using Reserves to Cover Potential Losses on Assets" (registration number 2696, July 14, 2015), the Regulation "On Non-Accrual" (registration number 1304, January 24, 2004), and IFRS.

10. If objective evidence and conditions confirming loan impairment are identified, the loss amount is assessed at the higher of the following two amounts:

1. The amount determined in accordance with the Regulation "On the Procedure for Classifying Asset Quality in Commercial Banks and Forming and Using Reserves to Cover Potential Losses on Assets" (registration number 2696, July 14, 2015); or

2. The difference between the balance sheet value of the loan and the present value of expected future cash flows discounted at the loan's initial effective interest rate.

11. The bank reflects the assessment of possible losses as follows:

Dr 56802 — "Assessment of Possible Losses on Loans"

Cr — Reserve for Possible Losses on Loans — Relevant Category of Loans (contra-asset)

12. If the results of subsequent analysis of the loan portfolio show that its reserves exceed the requirements specified in paragraph 10 of this Regulation, the bank must adjust the reserve amount to the amount of possible losses determined as of the last date. The following accounting entry is made in this case:

Dr — Reserve for Possible Losses on Loans — Relevant Category of Loans (contra-asset)

Cr 56802 — "Assessment of Possible Losses on Loans".

13. The assessment of possible losses on loans granted in foreign currency is carried out in the same currency in which the loan was originally granted. Thus, any assessment of possible losses is first carried out in foreign currency, and then this amount is reflected in the national currency of the Republic of Uzbekistan.

14. Loan repayment is carried out from the borrower's demand deposit accounts through the following accounting entry:

Dr — Borrower's demand deposit account

Cr — Loan account

If the loan is repaid by a guarantor, the following accounting entry is made:

Dr — Guarantor's demand deposit account, or

Dr 10301 — "Representative Account in the Central Bank — Nostro" (if the fund recipient is serviced by another commercial bank)

Cr — Loan account

When loans are repaid in cash, the following accounting entry is made:

Dr 10100 — "Cash in Cashier and Other Payment Documents"

Cr — Loan account

15. If the loan is not granted non-accrual status, interest income on loans is reflected through the following accounting entry:

Dr — Borrower's demand deposit account

Cr 16309 — "Accrued Interest on Loans".

Interest calculation on non-accrual loans is carried out in accordance with the Regulation "On Non-Accrual" (registration number 1304, January 24, 2004).

16. If an unsecured loan is not repaid or fully repaid by the debtor, their write-off from the formed reserve is carried out through the following accounting entry:

Dr — Reserve for Possible Losses on Loans — Relevant Category of Loans (contra-asset)

Cr — Loan account

17. If a secured loan is not repaid or fully repaid by the debtor, the bank has the right to direct recovery to the collateral property. The sale of collateral property directed for recovery is carried out through public auction in the manner established by legislation. When funds from the sale of collateral property are received, the 10301 — "Representative Account in the Central Bank — Nostro" account is debited and the 29801 — "Settlements with Customers" account is credited.

Write-off of the principal debt on loans and accrued but not yet received interest on this loan is carried out through the following accounting entry:

a) When the principal debt is repaid:

Dr 29801 — "Settlements with Customers"

Cr — Loan account.

b) After the principal debt is fully repaid, when interest is written off:

Dr 29801 — "Settlements with Customers"

Cr 41400 — 44600 — Interest Income on Loans

18. If the loan is repaid by taking possession of the collateral property, the following accounting entry is made at the lower of the loan's balance sheet value and the fair value of the collateral property, minus expenses for its sale, but not less than 10% of the initial sale price in a resale:

Dr 16701 — "Property Recovered from Collateral on Loans and Leasing"

Cr — Loan account.

19. If the debtor does not have sufficient funds, the bank has the right to recover the loan debt from the debtor's liquid assets with the debtor's consent, or, if the debtor disagrees, by directing recovery to the debtor's liquid assets based on a court decision in the manner established by legislation.

When the principal debt on loans and accrued but not yet received interest are repaid from funds received from the sale of the debtor's liquid assets, the accounting entries specified in paragraph 18 of this Regulation are made.

20. The use of the reserve for possible losses on loans is carried out in accordance with the Regulation "On the Procedure for Classifying Asset Quality in Commercial Banks and Forming and Using Reserves to Cover Potential Losses on Assets" (registration number 2696, July 14, 2015).

V. Financial Reporting Disclosure

21. In the notes to financial reports, banks must disclose:

1. Accounting policy explaining the reasons for recognizing loans as hopeless and writing them off;

2. Changes in the "Assessment of Possible Losses" account, separately indicating: the amount recognized as period expenses for uncollectible loans; the amount collected during the period for written-off loans; and the amount of income recognized during the period as a result of the recovery of previously written-off loans;

3. The total amount of assessed losses on loans as of the reporting date;

4. The total amount included in the balance sheet for non-accrual loans, as well as the basis for determining the balance sheet value of such loans.

22. In addition, banks must disclose other situations reflecting any significant concentration of risks of their loans by geographic areas, customer groups or industrial sectors, types of foreign currency.

Attachment No. 1 to the Regulation

Example of Reflecting Intermediation Fees as Part of Real Income on a Loan

Intermediation fees for preparing a loan, as well as intermediation fees for an obligation to grant a loan (for loans granted during the validity period of the obligation to grant a loan), are recognized as a correction of income on the loan. In the example below, intermediation fees for an obligation to grant a loan are considered; this methodology can also be applied to intermediation fees for preparing a loan.

Example: A bank receives an obligation to grant a loan in the amount of 10 million soums. This bank receives an intermediation fee of 4% of the total loan amount (non-refundable) for the obligation to grant a loan, and the validity period of this obligation is 3 months. The interest rate on the loan (annual) is 15%, with interest payments to be made monthly. The principal debt amount of 10 million soums must be repaid after two years. The bank waits for the customer to apply for a loan during the 3-month period during which the obligation to grant a loan is valid.

Intermediation fee amount = 10,000,000 x 4% = 400,000

Monthly interest = 10 million x 15%/12 = 125,000

Accounting entry for receiving intermediation fee for the obligation:

Dr — Borrower's demand deposit account

400,000

Cr 22896 — "Other Deferred Income"

400,000

If the loan obligation expires without the loan being provided:

Dr 22896 — "Other Deferred Income"

400,000

Cr 45237 — "Income Received for Services Rendered on Loan Obligations"

400,000

If the bank is fulfilling the obligation to grant a loan, then the deferred income is amortized as a correction of income during the validity period of the loan using the effective interest rate method. Given that the intermediation fee is essentially considered a correction of income on the loan, the actual internal rate of return on the loan constitutes 17.3473%, not the amount of the interest rate specified as 15%. To more accurately reflect the essence of the operation, the amortization of deferred intermediation fees should relate to "interest income" rather than "intermediation income".

Amortization Schedule of Deferred Intermediation Fees

Period	Cash Interest Received	Interest Income	Amortization of Deferred Intermediation Income
1.	125,000	144,561	19,561
2.	125,000	139,061	14,061
3.	125,000	139,265	14,265
4.	125,000	139,471	14,471
5.	125,000	139,680	14,680
6.	125,000	139,892	14,892
7.	125,000	140,107	15,107
8.	125,000	140,326	15,326
9.	125,000	140,547	15,547
10.	125,000	140,772	15,772
11.	125,000	141,000	16,000
12.	125,000	141,231	16,231
13.	125,000	141,466	16,466
14.	125,000	141,704	16,704
15.	125,000	141,946	16,946
16.	125,000	142,191	17,191
17.	125,000	142,439	17,439
18.	125,000	142,691	17,691
19.	125,000	142,947	17,947
20.	125,000	143,206	18,206
21.	125,000	143,470	18,470
22.	125,000	143,737	18,737
23.	125,000	144,007	19,007
24.	125,000	144,282	19,282
Total	3,400,000		400,000

Intermediation income for the first month is recognized as follows:

Dr 22896 — "Other Deferred Income"

19,561

Dr — Borrower's demand deposit account

125,000

Cr 41400 — 44600 — Interest Income on Loans

144,561

(Collected Laws of the Republic of Uzbekistan, 2004, No. 50, Article 511)