Regulations on Requirements for Commercial Bank Credit Policy

Regulation of the Board of the Central Bank of the Republic of Uzbekistan, registered on 02.03.2000, registration number 905

Date of Entry into Force

12.03.2000

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24.12.2021

29.08.2019

15.08.2019

03.05.2018

18.11.2010

16.09.2006

07.06.2005

12.03.2000

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Document lost its force 24.12.2021

[
OKOB:
1.
07.00.00.00 Legislation on Finance and Credit. Bank Activity / 07.22.00.00 Lending / 07.22.03.00 Loans of Commercial Banks]
[
TSZ:
1.
Finance / Banks and other credit institutions. Loans]

Republic of Uzbekistan

Approved by

the Board of the Central Bank of the Republic of Uzbekistan

(Protocol No. 3)

February 22, 2000

No. 429

"APPROVED"

REGULATIONS ON REQUIREMENTS FOR COMMERCIAL BANK CREDIT POLICY

Regulation

(new edition)

[Registered by the Ministry of Justice of the Republic of Uzbekistan on March 2, 2000, registration number 905]

This Regulation loses its force on December 24, 2021, based on the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 20/8 dated August 31, 2021 "On Declaring Ineffective the Regulation on Requirements for Commercial Bank Credit Policy, as well as Amendments and Additions thereto" (registration number 905-7, dated September 23, 2021).

This Regulation was developed in accordance with the Laws of the Republic of Uzbekistan "On the Central Bank" and "On Banks and Banking Activity," and it establishes requirements for the credit policy of commercial banks.

1. GENERAL PROVISIONS

1.1. The Bank's credit policy is a document that defines measures and methods adopted by the bank's management to manage risks arising in the lending process, and provides the bank's management and employees with instructions on effective management of the credit portfolio. The credit policy must clearly indicate and specify the goals of the bank's credit activity.

1.2. The credit policy of commercial banks is developed as a separate document and is approved by the Bank Council.

1.3. Each bank must develop and implement its own credit policy. Responsibility for the development and implementation of the credit policy is placed on the members of the Bank Council and the Board, as well as other officials of the bank.

1.4. The description of the credit policy is determined based on the composition of the credit portfolio and the economy of the region where the bank conducts its activity. When forming the credit strategy and preparing the relevant credit policy, the bank must take these factors into account.

1.5. The Bank's credit policy must be reviewed at least once a year by the Bank Council by February 1 of the relevant year.

Amendments and additions to the credit policy may be made during the year as necessary. If amendments and additions are made to the majority of the credit policy (not less than 50 percent), it is appropriate to adopt the credit policy in a new edition. (Paragraph 1.5 in the edition of the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 18/6 dated August 10, 2019 (registration number 905-6, dated August 29, 2019) — National Database of Legislation of the Republic of Uzbekistan, August 29, 2019, No. 10/19/905-6/3667)

1.51. The Bank's credit policy, amendments and additions thereto, or its new edition, must be submitted to the Central Bank within 15 days after being approved by the Bank Council.

If the Bank Council adopts a decision that there is no need to make amendments and additions to the bank's credit policy, a copy of the Council's meeting minutes must be submitted to the Central Bank within 15 days from the date of adoption of this decision. (Paragraph 1.51 added based on the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 18/6 dated August 10, 2019 (registration number 905-6, dated August 29, 2019) — National Database of Legislation of the Republic of Uzbekistan, August 29, 2019, No. 10/19/905-6/3667)

1.6. The credit policy must include the procedure for transparent registration and consideration of credit applications, indicating the step-by-step process of making a decision on granting a credit (microloan) and the procedure for informing or substantiated refusal to grant it.

2. CONTENT OF CREDIT POLICY

The content and structure of the credit policy vary depending on the types of bank activities. This section establishes a list of general issues that must be reflected in the credit policy, regardless of the bank's status and location.

In this regard, the directions of the credit policy must reflect the volume and form of loans granted, the ratio between short-term and long-term loans, the process of analyzing financial information, and measures to ensure the repayment of the credit portfolio and funds.

2.1. Goals and Strategy of Credit Policy

The goal of any credit policy usually consists of the following: ensuring high income for shareholders from long-term investments, maintaining liquidity, diversifying risks, guaranteeing unity of policy and measures, compliance with laws and regulatory documents, and meeting the region's demand for loans.

The strategic directions of lending are determined and approved by the Bank Council.

2.2. Levels of Authority and Distribution of Responsibility

The credit policy must reflect clear boundaries of responsibility between the head office and its branches, indicating the criteria for setting lending limits for independent decision-making by branches in the allocation of credits.

The authorities of all persons responsible for lending must be recorded in the credit policy.

The periodicity of Credit Committee meetings and their reporting to the bank's management bodies must also be established in the credit policy.

2.3. Types of Credits

The credit policy must define and specify the categories and types of credits granted by the bank. For example, by lending sectors: commercial activity, industry, agriculture, financing of capital investments, etc. By credit types: lending "with and without opening credit lines," Lombard and bill credits, etc.

The credit policy must also specify credit types and categories that are considered unsuitable or unacceptable for this bank, with the directive principles for granting special loans clearly expressed.

The credit policy must include the following prohibitive rules for banks:

granting credits (loans) in foreign currency to individuals (physical persons) and accounting for their obligations in foreign currency;

providing new microfinance services to individuals if there is outstanding overdue debt on previously obtained credits (loans).
(Paragraph 2.3 supplemented with headings based on the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 18/6 dated August 10, 2019 (registration number 905-6, dated August 29, 2019) — National Database of Legislation of the Republic of Uzbekistan, August 29, 2019, No. 10/19/905-6/3667)

2.4. Accumulation of Credits

The credit policy must include requirements for monitoring the level of accumulation of credits and microloans, including by credit type, economic sectors, geographic regions, and others. The credit policy must establish requirements for preparing relevant reports regularly submitted to management.

2.5. Repayment of Credits

The repayment term of a credit must be determined based on a careful assessment of its primary and secondary repayment sources. The credit policy must consist of acceptable repayment programs for different categories and types of credits from the management's perspective.

The credit policy must establish maximum terms for granting credits. This policy must also include the procedure for granting credit types where the principal amount is repaid at the end of the credit repayment term and when the initial repayment term is extended.

The credit policy must include measures to ensure timely payment of installments, recovery of funds, and collection of debt on granted credits.

2.6. Financial Information on Debtors

The bank's credit policy must include requirements for financial reports of individuals and legal entities at both the credit granting stage and subsequent monitoring stages. Requirements for auditing financial reports, submitting reports on cash flow, and other information must be clearly expressed. It should also be noted that information required by banks must be submitted in accordance with National Accounting Standards (NAS).

The credit policy must detail measures for analyzing the financial condition of potential debtors to determine their creditworthiness (liquidity, coverage, autonomy coefficients, degree of capitalization, collateral valuation, etc.). The bank must clearly define the criteria for debtors' creditworthiness and the methodology for their assessment.

In addition, the credit policy must include requirements for including in the borrower's portfolio the structure of the business plan, services provided using bank credit, and the availability of the market for selling produced goods.

2.7. Requirements for Collateral Security

The credit policy must include limits on the maximum amount of loans granted based on certain types of securities (real estate, cars, etc.) and establish measures for formalizing the set of credit documents for each type of secured loan. The bank must establish in the credit policy that collateral is not the sole basis for credit repayment at the time of granting the loan (except for loans secured by cash or short-term state bonds (treasury bills)).

The credit policy must include requirements for the collateral subject based on the type of property pledged and the ratio of the credit to the collateral value. This paragraph must clearly state that the collateral subject is carefully evaluated and its market value must cover potential losses that may arise when it needs to be sold.

The document must indicate cases where the collateral subject is evaluated by an appraisal organization and an internal bank appraiser. Methods for evaluating different collateral categories must be reflected in detail. The policy must include specific requirements for including down payments by the debtor to repay credits granted for financing real estate, production equipment, and consumer credits.

The credit policy must indicate that if land plots are transferred to the bank as collateral security in the prescribed manner, the bank must put these land plots up for sale no later than six months from the date the property rights were transferred to it.

2.8. Requirements for Credit Monitoring

The credit policy must clearly express the system for classifying credits. Credit employees must inform management of all known negative changes in the credit portfolio. Early detection of deterioration in the debtor's or collateral's situation is very important to reduce potential losses.

To determine the quality of loans and form adequate reserves against expected credit losses, a full inventory of the bank's credit portfolio must be conducted at least once a quarter, as established in the bank's credit policy.

The credit policy must include a clear definition of the concept of "non-payment" for all categories of credits, criteria for not increasing interest rates, and requirements for relevant reports to the Bank Board and Council. Reports must detail the deterioration of the situation, causes of hidden losses, and rehabilitation plans.

The credit policy must require consistent step-by-step measures to be taken regarding the repayment of debts. Management must develop measures for writing off credits in accordance with requirements established by the Central Bank.

2.9. Interest Rates

The credit policy must include the concept of "total cost of credit," including complete information on all payments related to obtaining and servicing (repaying) the credit. In this regard, the cost of resources, expected expenses for servicing the credit, brokerage fees, administrative costs, reserves against potential losses, and bank margin must be assessed. (First heading of Paragraph 2.9 in the edition of the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 5/24 dated March 16, 2019 (registration number 905-5, dated May 14, 2019) — National Database of Legislation of the Republic of Uzbekistan, May 14, 2019, No. 10/19/905-5/3126)

The calculation of the total cost of consumer credits and loans granted to individuals is carried out in the manner prescribed by the Appendix to this Regulation.
(Paragraph 2.9 supplemented with a second heading based on the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 5/24 dated March 16, 2019 (registration number 905-5, dated May 14, 2019) — National Database of Legislation of the Republic of Uzbekistan, May 14, 2019, No. 10/19/905-5/3126)

The credit policy must provide for the following prohibitions:

charging interest, commissions, and penalties (fines, late fees) in an amount exceeding half of the annual debt amount on microloan agreements, and applying other liability measures;

payments for consideration of credit applications, servicing loan accounts, granting credits, as well as penalties for early repayment of credits (microloans) by individuals and small business entities.

2.10. Operations with Affiliated Persons

The credit policy must include limits for credits granted to persons affiliated with the bank in accordance with Central Bank requirements.

The credit policy must establish the procedure and measures for approving and renewing credits granted to affiliated persons to eliminate any possibility of reducing or concluding transactions with affiliated persons.

2.11. Contingent Liabilities (Off-Balance Sheet Items)

The credit policy must detail the purpose and use of guarantees and letters of credit, the authority of officials to issue such obligations, cases in which such instruments may be issued, and requirements for documents and reports related to them.

Requirements for submitting financial reports (documents) when issuing off-balance sheet obligations must be the same as those used for granting any other type of credit. Additional requirements for commercial letters of credit, payment and cargo loading documents (waybills), insurance policies, and other documents required in accordance with international standards and practices must be noted.

2.12. Audit of Credit Portfolio

The policy must establish a list of officials responsible for periodically evaluating the bank's credit portfolio and define the purposes of internal bank credit analysis necessary to identify problematic credits to determine the quality of the credit portfolio and make corrections with minimal resulting losses.

Analysis purposes include determining credit quality, evaluating the quality of managing the lending process, including ensuring compliance with the approved credit policy, formalizing credit documents, financial analysis, formalizing and evaluating collateral, distributing lending authorities, and compliance with legislative norms.

2.13. Reports Submitted to the Bank Board and Council

The credit policy must establish the type and periodicity of reports submitted by bank services and departments to the Bank Board and Council, including various aspects of lending and other information related to the quality of the credit portfolio and credit portfolio management.

Reports must be adapted to different levels of management for assessing risks based on overall lending instruments and directions by branch and bank, and must be detailed.

With the introduction of this Regulation, the Central Bank's Resolution No. 429 dated November 9, 1998 "On Regulations on Requirements for Commercial Bank Credit Policy," registered with the Ministry of Justice on February 11, 1999, under number 627, loses its force.

Deputy Chairman of the Central Bank A. KADIROV

Appendix to the Regulation on Requirements for Commercial Bank Credit Policy

PROCEDURE FOR CALCULATING THE TOTAL COST OF CONSUMER CREDITS AND LOANS

This Procedure establishes the procedure for calculating the total cost of consumer credits and loans granted to individuals — consumers (hereinafter referred to as borrowers in the text).

1. The following main concepts are used in this Procedure:

total cost of credit or loan
(hereinafter referred to as TCC in the text) — the fair, annual, and effective interest rate of payments related to obtaining a consumer credit or loan, as well as the total cost;

contract
— a credit or loan contract providing for the provision of monetary funds by commercial banks and their branches (hereinafter referred to as banks) to borrowers on the basis of profitability, term, and repayability.

2. The following payments of the borrower are taken into account when calculating TCC:

a) payments on the main debt and interest;

b) payments made for the benefit of the bank — if such payments are included in the borrower's obligations according to the contract terms and/or are related to the granting of the credit or loan with the implementation of such payments;

c) payments made for the benefit of third parties, if such payments are included in the borrower's obligations according to the contract terms, including the following payments:

payments made for the benefit of an insurance company, if the bank is the beneficiary in the event of an insured event under the insurance contract;

payments made by the borrower for the benefit of an insurance company for insuring the collateral subject accepted as security for the borrower's obligations and remaining at the discretion of the pledgor under the collateral contract;

payments made by the borrower to the guarantor (surety) for obtaining a guarantee (suretyship), as well as to the appraisal organization for evaluating the property being pledged;

payments made for the benefit of organizations (intermediaries) providing services to the bank, such as attracting customers, checking documents submitted by them for obtaining a credit or loan, submitting these documents to the bank, and accepting payments and money transfers from bank customers to cover credits or loans.

The bank calculates the TCC indicator taking into account all payments provided for in this paragraph until the expiration of the contract term.

3. The following are not included in the TCC calculation:

a) payments made by the borrower for the benefit of third parties, except for the payments specified in Paragraph 2 of this Procedure;

b) payments of the borrower related to non-performance of contract terms, including penalties and other types of fines.

c) payments on credits (loans) granted using bank plastic cards, specifically:

commissions charged for operations carried out in a currency other than the currency of the currency account (allocated credit currency);

commissions related to issuing and servicing the bank card;

commissions paid for obtaining cash from ATMs using credit (loan) amounts.

4. Banks must calculate TCC in the following cases:

a) when the contract is concluded;

b) when providing information to borrowers expressing interest in obtaining a credit or loan about the terms of obtaining a credit or loan. If it is not possible to determine the amount of some payments provided for in Paragraph 2 of this Procedure at the time of providing information, the bank must apply tariffs for such payments known to it and disclose the sources of such payments to borrowers expressing interest in obtaining a credit or loan (for example, the name of the insurance company whose tariffs were used in calculating TCC, etc.).

5. In calculating TCC, payments already made by the borrower on the credit or loan are taken into account at the time they were actually paid, and future payments are taken into account according to the payment schedule based on the credit or loan terms known at the date the contract was concluded.

If the insurance of the collateral subject is to be carried out after the date the contract was concluded, the bank must determine the amount of the payment to be made to the insurance company from the borrower and calculate TCC based on this amount.

6. If the interest rate on a credit or loan is linked to base indicators (the Central Bank's refinancing rate, inflation rate, etc.), the bank uses the amount of base indicators on that day when calculating TCC.

7. Banks calculate TCC using software tools. In this regard, the use of the IRR function of the Microsoft EXCEL program is recommended (if the version of Microsoft EXCEL is in English, then the XIRR function).

8. Banks must provide potential borrowers with the opportunity to independently calculate TCC on their official websites. In this regard, banks must disclose the procedure for calculating TCC and the list of payments used in its calculation.

9. TCC is calculated rounded to one digit after the decimal point. If the second digit after the decimal point is equal to or greater than "5," the second digit is increased by one unit.

For example: The TCC indicator amounted to 18.66. After rounding, it becomes 18.7.

10. Banks must indicate the amount of TCC in contracts concluded with borrowers. The TCC amount must be written in the upper right corner of the first page of the contract, inside a square frame, in black color on a white background, in a readable font of no less than size 16, both in numbers and words.

11. Along with the information on the TCC amount, the bank must provide the borrower with written information indicating its absolute value at the time of concluding the contract, i.e., the main value of the credit or loan, interest, commission and other payments, including payments made for the benefit of third parties according to actual tariffs, if such payments arise from the contract terms as an obligation of the debtor, indicating them separately.

12. When banks announce information about a credit or loan through mass media, they must provide information in such announcements that customers will be provided with the calculation of TCC related to obtaining a credit or loan upon contacting the bank.
    (Appendix added based on the Resolution of the Board of the Central Bank of the Republic of Uzbekistan No. 5/24 dated March 16, 2019 (registration number 905-5, dated May 14, 2019) — National Database of Legislation of the Republic of Uzbekistan, May 14, 2019, No. 10/19/905-5/3126)