Resolution of the Board of the National Bank of the Kyrgyz Republic No. 18/8 of April 25, 2012 on Amendments to Certain Regulatory Acts

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of April 25, 2012 No. 18/8

On Amendments and Additions to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic

In accordance with Articles 7 and 43 of the Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic", the Board of the National Bank of the Kyrgyz Republic

RESOLVES:

1. Approve additions to the "Regulation on Economic Norms and Requirements Mandatory for Commercial Banks of the Kyrgyz Republic", approved by Resolution No. 18/1 of the Board of the National Bank of the Kyrgyz Republic of July 21, 2004, registered in the Ministry of Justice of the Kyrgyz Republic on August 23, 2004, registration number No. 93-04 (attached).

2. Approve amendments and additions to the "Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic", approved by Resolution No. 52/4 of the Board of the National Bank of the Kyrgyz Republic of June 30, 2010 (attached).

3. Approve an addition to the "Temporary Procedure for Applying Special Classification of Loans Meeting Certain Criteria", approved by Resolution No. 5/6 of the Board of the National Bank of the Kyrgyz Republic of March 2, 2006, registered in the Ministry of Justice of the Kyrgyz Republic on April 7, 2006, No. 35-06 (attached).

4. Publish this Resolution on the official website of the National Bank of the Kyrgyz Republic.

5. After official publication, direct this Resolution to the Legal Department to submit it to the Ministry of Justice of the Kyrgyz Republic for inclusion in the State Register of Regulatory Legal Acts of the Kyrgyz Republic.

6. This Resolution shall enter into force one month after its official publication.

7. The Supervision and Licensing Methodology Department shall bring this Resolution to the attention of commercial banks, microfinance, and microcredit companies.

8. Control over the implementation of this Resolution shall be entrusted to the Deputy Chairman of the National Bank of the Kyrgyz Republic, Z.L. Chokoev.

| Chairman | Z. Asankozhoeva |

| | Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic of April 25, 2012 No. 18/8 |

AMENDMENTS AND ADDITIONS to certain regulatory legal acts of the National Bank of the Kyrgyz Republic

I. Make the following additions to the "Regulation on Economic Norms and Requirements Mandatory for Commercial Banks of the Kyrgyz Republic", approved by Resolution No. 18/1 of the Board of the National Bank of the Kyrgyz Republic of July 21, 2004:

1. Add paragraphs 7.2 and 7.3 to Section 7 in the following wording:

"7.2. The Bank has the right to exclude from the calculation of the maximum risk size ratio for unsecured loans, loans issued under the guarantee of members of a joint liability group, provided that the conditions and criteria described in the Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic regarding lending to joint liability groups are met.

7.3. The maximum volume of deposits attracted from individuals and legal entities shall not exceed 100 percent of the bank's net aggregate capital, if the volume of loans issued to joint liability group members in the bank's loan portfolio is 50 percent or more."

II. Make the following amendments and additions to the "Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic", approved by Resolution No. 52/4 of the Board of the National Bank of the Kyrgyz Republic of June 30, 2010:

1. In Chapter 4 "Organization of Bank Work on Providing Bank Loans":

• supplement paragraph 30 with the following paragraph:

"- guarantee of members of a joint liability group. In this case, a joint liability group (hereinafter referred to as JLG) is understood as a voluntary association of participants - individuals (at least 3 people) engaged in entrepreneurial activity aimed at profit, whereby JLG members jointly guarantee the fulfillment of obligations of each group member and bear responsibility for the full repayment of received loan funds jointly and severally, under any circumstances, in accordance with the legislation of the Kyrgyz Republic";

• in paragraph 51:

• replace the word "subsidiary" with the word "joint";

• exclude the words "(only for microfinance organizations)";

• supplement with paragraphs 61-1, 61-2, 61-3 in the following wording:

"61-1. The Bank has the right to issue loans under the guarantee of JLG members (hereinafter referred to as group loans) only:

• if there is a policy (which may be part of the credit policy) on group lending approved by the Bank's Board of Directors, and other regulatory legal acts (procedure for consideration/approval/rejection of applications, group lending process, monitoring, classification of group loans). In this case, the policy must specify that the loan is issued to persons whose income is sufficient to cover loan payments according to the repayment schedule. Internal bank documents regulating work with group loans must describe potential risks inherent in this type of banking product, as well as provide methods and ways to mitigate these risks and ensure high repayment of group loans;

• after written agreement with the National Bank of the Bank's intention to issue group loans;

• if there is qualified personnel with experience in this lending sector.

61-2. The Bank has the right to calculate the maximum risk size ratio for group loans in accordance with paragraph 61-3 of this Regulation, provided that all of the following conditions are met:

• the Bank's positive experience in providing group loans under the guarantee of JLG members is at least two years;

• the share of overdue group loans from the total volume of group loans over two years did not exceed 5 percent.

61-3. When calculating the maximum risk size ratio for unsecured loans, group loans provided under the joint liability of JLG members are excluded, which meet all of the following criteria:

• the loan amount issued to each individual member of the credit group does not exceed 150,000 som, and the total loan amount issued to the JLG does not exceed 1,500,000 som;

• JLG participants who received a loan from the bank are not affiliated persons or insiders of the bank;

• the Bank applies special asset classification and corresponding provisions for reserves to cover potential losses and losses for group loans in accordance with the Temporary Procedure for Applying Special Classification of Loans Meeting Certain Criteria."

III. Make the following addition to the "Temporary Procedure for Applying Special Classification of Loans Meeting Certain Criteria", approved by Resolution No. 5/6 of the Board of the National Bank of the Kyrgyz Republic of March 2, 2006:

1. Supplement paragraph 2 with sub-paragraph 2.2 in the following wording:

"2.2. Special classification shall be applied to loans issued to a joint liability group under the guarantee of members of the joint liability group."