Resolution of the Board of the National Bank of the Kyrgyz Republic No. 2017-P-12/23-6-(NPA) of June 8, 2017 "On Approval of the Regulation on Consolidated Supervision"

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Creation date: 2017-06-22

Resolution of the Board of the National Bank of the Kyrgyz Republic

of June 8, 2017

No. 2017-P-12\23-6-(NPA)

On Approval of the Regulation "On Consolidated Supervision"

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

1. Approve the Regulation "On Consolidated Supervision" (attached).

2. Recognize as having lost force:

• paragraph 1 of the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic" dated February 17, 2010 No. 2/3;

• paragraph 34 of the appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Amendments and Additions to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic" dated November 16, 2012 No. 43/1;

• in the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Amendments and Additions to Certain Resolutions of the Board of the National Bank of the Kyrgyz Republic" dated November 27, 2014 No. 53/8:

the fifth paragraph of paragraph 1 of the resolution;

paragraph 4 of the appendix to the resolution.

3. To the Legal Department:

• publish this resolution on the official website of the National Bank of the Kyrgyz Republic;

• after official publication, send this resolution to the Ministry of Justice of the Kyrgyz Republic for inclusion in the State Register of Regulatory Legal Acts of the Kyrgyz Republic.

4. This resolution enters into force on June 22, 2017.

5. The Supervision and Licensing Methodology Department shall bring this resolution to the attention of commercial banks, the State Development Bank of the Kyrgyz Republic, the Limited Liability Partnership "Union of Banks of Kyrgyzstan", regional departments, and the representation of the National Bank of the Kyrgyz Republic in the Batken region.

6. Control over the execution of this resolution is entrusted to the Board Member of the National Bank of the Kyrgyz Republic T.D. Jusupov.

Chairman T. Abdygulov

Appendix
to the Resolution of the Board of the National Bank of the Kyrgyz Republic

dated June 8, 2017

No. 2017-P-12\23-6-(NPA)

REGULATION

on consolidated supervision

Chapter 1. General Provisions

1. This Regulation is developed for the purpose of conducting consolidated supervision over the activities of banking groups and their affiliated persons.

2. For the purposes of this Regulation, the following definitions apply:

Banking group:

• a group consisting of a bank operating in the territory of the Kyrgyz Republic and its subsidiaries and/or dependent companies, as well as their affiliated persons;

• a group consisting of a banking holding company created in the territory of the Kyrgyz Republic, one of whose subsidiaries and/or dependent companies is a bank operating in the territory of the Kyrgyz Republic;

• a group of legal entities engaged in banking and/or financial activities, which also includes a bank over which control is exercised by the same legal or natural person, alone or jointly with other persons.

Banking holding company - a parent company, the subsidiary or one of the subsidiaries and/or dependent companies of which is a bank.

Subsidiary bank - a bank controlled by another bank or another legal entity (parent company). A subsidiary bank of a subsidiary bank is also considered a subsidiary bank of the parent company;

Dependent bank – a bank in which any person, alone or jointly with another person, exercises direct or indirect management of more than twenty percent of voting shares;

Management company - a company that may be created by the main parent company, in the form of a joint-stock company, exclusively for the purpose of managing subsidiaries and/or dependent companies (participants) included in the banking group.

Participant of a banking group - a legal entity included in the composition of a banking group.

3. For the purposes of determining a significant participant, dependent company, and control:

1) shares held by companies that are dependent companies of one person or controlled by one person are considered to be held indirectly by that person and are combined with shares held directly by that person when determining the total number of shares owned by that person;

2) shares owned by a person and their close relatives (heirs of the first and second order according to civil legislation) are considered to be directly owned by that person.

4. The National Bank conducts consolidated supervision in respect of:

• a bank operating in the territory of the Kyrgyz Republic and its subsidiaries and/or dependent companies;

• a banking group consisting of a banking holding company, one of whose subsidiaries and/or dependent companies is a bank operating in the territory of the Kyrgyz Republic;

• a group of legal entities engaged in banking and/or financial activities in the territory of the Kyrgyz Republic, which also includes a bank operating in the territory of the Kyrgyz Republic, over which control is exercised by the same person, alone or jointly with other persons.

In the event that in a group of legal entities engaged in banking and/or financial activities, over which control is exercised by the same person, alone or jointly with other persons, there is no parent company, then the legal entity authorized by a decision of the controlling person and agreed with the National Bank (engaged in banking and/or financial activities) fulfills the requirements established by the National Bank, including those regarding the provision of information and reporting.

Chapter 2. Transparency of the activities of a banking group

5. Companies included in a banking group may carry out only banking and/or financial activities, as well as activities related to banking and/or financial activities, including the holding of shares of group participants in the case of banking holding companies.

6. The National Bank has the right at any time to require necessary information from controlling persons and significant participants of a bank, any other participant of a banking group, and persons having common interests with the bank to determine:

• the financial condition, level of risk management system, and quality of corporate governance of the banking holding company;
• the degree of influence of the banking holding company on the subsidiary bank;
• the controlling person and/or persons (natural and legal);
• activities carried out by the banking group and its participants;
• the financial condition of the banking group and its participants;
• types of risks inherent in the banking group and its participants;
• the risk management system of the banking group;
• business, financial, and other relationships between participants of the banking group.

The National Bank may require the provision of additional information from the banking holding company or from any participant of the banking group.

7. Any natural or legal person is obliged to obtain prior permission from the National Bank if it intends to acquire or dispose of a threshold participation in the capital of a bank in accordance with legislation, alone or jointly with other persons.

Legal entities not engaged in banking and/or financial activities, as well as activities related to banking and/or financial activities, may not, alone or jointly with other persons, carry out:

• direct or indirect ownership, or management of more than twenty percent of voting shares (of any type) of a bank;

• or, regardless of participation in the authorized capital of a bank, exercise significant influence on the management and/or policy of that bank based on an agreement or otherwise.

8. Permission from the National Bank must also be obtained in the event that as a result of additional acquisition of shares of a bank or otherwise any natural or legal person becomes a significant participant of a bank directly or indirectly, will exercise direct or indirect ownership, or management of a threshold participation, or become a controlling person of a bank.

9. When submitting an application for the acquisition of shares of a bank, information must be submitted to the National Bank in accordance with the requirements of the Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic, Banks and Banking Activity", the Regulation on Licensing of Banking Activities (hereinafter - Regulation on Licensing of Banking Activities).

10. A bank that is a participant of a banking group carries out its activities independently of the other participants of the banking group.

11. The bank at the head of the banking group, the banking holding company, or the parent/management company controlling the group of legal entities are responsible for the activities of the entire banking group for compliance with legislative requirements.

12. The supervisory body and executive body of the bank at the head of the banking group, the banking holding company, or the parent/management company controlling the group of legal entities must ensure the proper exchange of necessary information between all participants of the banking group.

13. The parent company (including a non-resident of the Kyrgyz Republic), in the presence of facts or circumstances that may negatively/significantly affect the activities of its subsidiary and/or dependent bank licensed by the National Bank, within 5 working days from the moment of identification of such facts or circumstances, sends a written notification to the National Bank about this, indicating measures taken to prevent such influence.

Note: Negative and/or significant influence refers to facts or circumstances that may lead to a violation of the legislation of the Kyrgyz Republic or changes in the activities of the bank licensed by the National Bank.

In the event of failure to notify by the parent company or notification with a violation of the established deadline, the National Bank has the right to apply enforcement measures provided for by the legislation of the Kyrgyz Republic in respect of the subsidiary and/or dependent bank located in the territory of the Kyrgyz Republic and its parent company (resident of the Kyrgyz Republic).

The parent company, in the event of the presence of facts or circumstances that may negatively and/or significantly affect the activities of its subsidiary and/or dependent bank licensed by the National Bank, for the purpose of preventing such influence, timely informs the subsidiary and/or dependent bank located in the territory of the Kyrgyz Republic about this.

The subsidiary and/or dependent bank licensed by the National Bank, upon receiving the above information from the parent company, notifies the National Bank in writing within 2 working days after receiving this information.

14. In the event of a threat to the financial condition of a bank licensed by the National Bank arising as a result of participation in a banking group, the bank within 2 working days from the moment the threat arises, notifies the National Bank in writing about this, indicating measures taken to prevent such impact.

Chapter 3. Capital of a banking group

15. A banking group must have an appropriate level of capital sufficient to cover unforeseen possible losses and losses of all group participants.

16. Participants of a banking group must have policies and procedures for ensuring capital adequacy, providing protection from possible shocks to banks within the group and corresponding to their economic activity.

17. The capital of a banking group and participants of a banking group must comply with the requirements established by the legislation of the Kyrgyz Republic and regulatory legal acts of the National Bank. Participants of a banking group are responsible for ensuring compliance with this requirement.

18. The bank at the head of the banking group, the banking holding company, or the parent/management company controlling the group of legal entities must submit to the National Bank the policy of the banking group on capital adequacy approved by the supervisory body, including the approved methodology for assessing capital adequacy.

19. When conducting inspections, the National Bank has the right to check the presence and compliance with the relevant policies and procedures of the banking group on capital adequacy.

20. For the purpose of ensuring the protection of banks included in a banking group, the National Bank may require amendments and additions to policies and procedures for ensuring capital adequacy.

21. The National Bank may require a bank to contribute additional capital or introduce higher economic capital adequacy ratios if it establishes that the group's capital is insufficient to protect the bank and there is a significant risk of negative impact on the financial condition of the bank associated with its participation in the banking group, or that the activities of the banking group are not sufficiently transparent to comply with the legislation of the Kyrgyz Republic, including the requirements of the National Bank.

22. The bank at the head of the banking group, the banking holding company, or the parent/management company controlling the group of legal entities must mandatory notify the National Bank of all facts or circumstances that may significantly affect its capital or the capital of any of its subsidiaries or dependent companies.

Chapter 4. Risk management and internal control of a banking group

23. Participants of a banking group in their activities must not take on risks that may endanger the financial stability of any participant of the banking group or the banking group as a whole.

24. Banking groups must have risk management and internal control systems corresponding to the activities of the banking group.

25. A banking group must comply with the National Bank's restrictions on large risks, investment sizes, and currency positions on a consolidated basis, as well as fulfill other requirements for risk minimization and limitation of activities.

26. The risk management policy of a banking group must include:

1) adequate management of risks taken by the banking group in accordance with policies approved by the governing body of the banking group;

2) norms ensuring the maintenance of a level of capital sufficient to cover risks taken by the banking group;

3) provisions according to which risk management systems cover the entire banking group.

27. The internal control system must include:

1) mechanisms adequate to significant risks, determining the assessment of capital adequacy in relation to those taken by the banking group;

2) reliable reporting and accounting procedures for determining, assessing, monitoring, and controlling intra-group operations and concentration risk.

28. The bank at the head of the banking group, the banking holding company, or the parent/management company controlling the group of legal entities is responsible for the compliance of the banking group with the National Bank's requirements for the risk management system.

29. A banking group whose participants carry out financial (non-banking) activities must have policies and procedures for limiting large credit risks, liquidity risk, investment, currency, and other risks characteristic of their activities and protecting banks within the group.

30. Participants of a banking group who carry out financial (non-banking) activities must include a description of policies and procedures in the annual report of the banking holding company or the bank at the head of the banking group.

31. The National Bank may require adjustments to the policies and procedures of participants of a banking group carrying out financial (non-banking) activities for the purpose of minimizing risks and preventing violation of the legislation of the Kyrgyz Republic by the bank(s) included in the group.

32. In the event of a bank, a participant of a banking group (deposit/credit and other assets carrying credit risk) attracting funds, the corresponding contract for attracting funds from the parent company, a participant of a banking group, or any other foreign company/participant of a banking group must contain a condition on the mandatory notification of the National Bank about the early termination of the contract 30 working days before its termination. At the same time, the initiator of the notification must be that participant of the banking group that is subject to supervision by the National Bank.

Chapter 5. Corporate governance of a banking group

33. Officials, members of the supervisory and executive bodies of the bank at the head of the banking group, the banking holding company, or the parent/management company controlling the group of legal entities, including any controlled financial-credit organization included in the banking group located in the territory of the Kyrgyz Republic, must have impeccable business reputation in accordance with the legislation of the Kyrgyz Republic.

Also, officials, members of the supervisory and executive bodies of the bank at the head of the banking group, the banking holding company, or the parent/management company, which are located in the territory of the Kyrgyz Republic and control the group of legal entities, including financial-credit organizations, any of which is located in the territory of the Kyrgyz Republic, must meet the minimum qualification requirements established by the National Bank for officials.

34. The banking holding company must provide the National Bank with information about members of the supervisory body and executive body, about significant participants, about persons exercising direct or indirect control, and about other persons associated with them, together with information about the business reputation and reliability of appointed officials in accordance with the requirements of the Regulation on Licensing of Banking Activities.

The banking holding company-resident of the Kyrgyz Republic must provide the National Bank with the above information within thirty working days after their appointment.

The banking holding company-non-resident of the Kyrgyz Republic must provide the National Bank with the above information within thirty calendar days after their appointment.

35. A person cannot be a member of the supervisory body of a banking holding company:

1) if they do not have or have lost impeccable business reputation;

2) if they do not meet the minimum qualification requirements established by the National Bank for officials of banks (banking group, banking holding company, or parent/management company controlling the group of legal entities in the territory of the KR).

36. The supervisory and executive bodies of the bank at the head of the banking group, the banking holding company, or the parent/management company controlling the group of legal entities are responsible for establishing and implementing general policies and strategies of the banking group for the purpose of determining the optimal structure of management of its subsidiaries/dependent banks and subsidiaries/dependent companies, which will facilitate the implementation of effective and consistent control over the activities of the banking group as a whole.

37. The supervisory body of the bank at the head of the banking group, the banking holding company, or the parent/management company controlling the group of legal entities must:

1) provide the National Bank with information on the structure of the banking group, information on participants of the banking group, including information on the main activities of group participants, the risk management policy of the banking group and internal control approved by the supervisory body of the banking holding company, information on controlling persons of the banking group, information on persons who exercise real control in the banking group, information on the financial condition of group participants;

2) present to the National Bank the approved development strategy of the banking group and the banking holding company for the upcoming three-year period of activity;

3) develop and approve a policy on adequate capitalization of the banking group to cover risks characteristic of the activities of the banking group, satisfying regulatory, market, and strategic needs of the banking group;

4) develop and approve a policy on identifying and managing all risks associated with participants of the banking group or types of activities;

5) establish appropriate limits on transactions with participants of the banking group;

6) monitor compliance by the banking group with legislative requirements and internal policies;

7) ensure the proper exchange of necessary information between all participants of the banking group;

8) ensure safe and reliable management guaranteeing the protection of depositors of banks included in the banking group and other creditors of the banking group.

38. The supervisory body of the bank at the head of the banking group, the banking holding company, or the parent/management company controlling the group of legal entities, for the purpose of increasing the efficiency of corporate governance, establishes requirements for the inclusion in the verification of internal control adequacy during the implementation of all types of activities of participants of the banking group regarding compliance with strategic goals and legislation, assessment of risks arising from the activities of participants of the banking group.

39. The supervisory and executive bodies of the bank at the head of the banking group, the banking holding company, or the parent/management company controlling the group of legal entities must know about risks that may affect the activities of participants of the banking group, therefore, must carry out appropriate control of their activities. The executive body no less than once a quarter, and if necessary - immediately, informs the Supervisory Body in writing about risks present in the activities of the banking holding company or the bank at the head of the banking group and the banking group, as well as about measures taken for their timely identification and elimination.

40. The banking holding company may have an Audit Committee.

Chapter 6. Requirements for subsidiary and dependent companies of a bank

41. A bank may create or acquire a subsidiary or dependent company. At the same time, legal entities over which control is exercised or in which subsidiaries and/or dependent companies of a banking holding company or a bank licensed by the National Bank have participation, are not entitled to create and/or acquire subsidiaries and/or dependent companies.

42. Subsidiary and/or dependent companies included in a banking group may carry out only the following types of activities:

1) banking activities;

2) microfinance activities in accordance with the Law of the Kyrgyz Republic "On Microfinance Organizations in the Kyrgyz Republic";

3) investment activities in accordance with the Law "On Investment Funds";

4) insurance activities in accordance with the Law of the Kyrgyz Republic "On the Organization of Insurance in the Kyrgyz Republic";

5) audit activities in accordance with the Law of the Kyrgyz Republic "On Audit Activities";

6) activities related to the organization and maintenance of accounting records in accordance with the Law of the Kyrgyz Republic "On Accounting";

7) leasing activities;

8) pawnshop activities;

9) payment services activities:

• receiving and processing payments and settlements on behalf of third parties without opening an account;

• receiving, processing, and issuing financial information (processing) for payments and settlements of third parties to participants of payment systems;

• receiving, processing, and issuing financial information (interbank processing) for payments and settlements of third parties to participants of both interbank and non-bank payment systems;

• issuing, distributing, accepting for payment, and confirming prepaid cards equivalent to electronic money;

10) purchase and sale of debt obligations (factoring);

11) acquisition of the right to claim performance of monetary obligations from third parties;

12) provision of brokerage services, including the purchase and sale of securities on behalf of the client, acting according to client instructions;

13) trust management of property under a contract with an individual or legal entity;

14) issuance of securities in its own name in accordance with regulatory legal acts, except for the issuance of debt securities;

15) purchase and sale of securities for the company in its own name in accordance with regulatory legal acts;

16) provision of consulting and information services related to the company's activities.

43. The creation or acquisition by a bank of a subsidiary or dependent company is carried out based on written permission from the National Bank.

44. The creation and/or acquisition by a bank of a subsidiary or dependent company is carried out in accordance with the procedure established by the regulatory legal acts of the National Bank.

45. The creation or acquisition of a subsidiary or dependent company must not violate the transparency of the organizational structure of the banking group.

46. If the acquired or created company is foreign and subject to regulation by a financial sector supervisory authority, the application must contain information about the supervisory regime to which this company is subject in its country of origin.

47. A bank that creates or acquires a foreign subsidiary or dependent company must ensure:

1) provision to the bank by the subsidiary or dependent company of all information necessary for the bank to comply with the requirements of this Regulation;

2) prevention of the establishment of common interests with other persons that could lead to a violation of the National Bank's requirements regarding the transparency of the banking group's structure.

48. The National Bank may withdraw its consent to the creation or acquisition of a subsidiary or dependent company if facts become known on the basis of which permission to create a bank could be denied, or if the subsidiary or dependent company engages in activities not permitted by the legislation of the Kyrgyz Republic.

49. In the event of the National Bank withdrawing its permission, the bank must sell the shares of the subsidiary company it owns to persons not affiliated with the bank within a period determined by the National Bank.

50. If a bank creates or acquires a subsidiary or dependent company without prior written consent from the National Bank, such transaction is void.

Chapter 7. Economic standards established by the National Bank

51. The National Bank establishes the following economic standards and requirements mandatory for compliance by the banking group:

1) capital adequacy ratio (own funds);

2) maximum risk size per borrower;

3) liquidity ratio;

4) other standards and requirements necessary to reduce the risks of the banking group and protect the interests of depositors of banks included in the group.

52. The capital adequacy ratio (own funds) of the banking group (K) must be at least 12%. It is determined as the ratio of the sum of the net total capital of the commercial bank included in the banking group and the own capital (own funds) of the participants of the banking group to the sum of assets of the commercial bank included in the banking group, weighted by risk degree, and the total assets of the participants of the banking group, according to the formula:

K = CK / SA x 100%, where:

CK - sum of the net total capital of the commercial bank included in the banking group and the own capital (own funds) of the participants of the banking group.

SA - sum of the total assets of the participants of the banking group and the assets of the commercial bank included in the banking group, weighted by risk degree, minus the bank's investments in subsidiary and/or dependent companies.

The net total capital and assets weighted by risk degree of the commercial bank included in the banking group are determined in accordance with the Instruction on Determining Capital Adequacy Standards for Commercial Banks of the Kyrgyz Republic. In this case, when calculating the net total capital of the commercial bank included in the banking group, investments in the charter capital of the participants of the banking group are excluded.

Note: Approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the New Edition of the Instruction on Determining Capital Adequacy Standards for Commercial Banks of the Kyrgyz Republic" dated July 21, 2004, No. 18/2, registration number MJ KR 94-04 dated August 23, 2004.

The size of the own capital of a participant of the banking group is determined in accordance with the requirements of the regulatory legal acts of the Kyrgyz Republic.

The size of the own capital of a participant of the banking group that is a non-resident of the Kyrgyz Republic is determined by the regulatory legal acts of the authorized body regulating its activities in the country of its location.

In the event that no special procedure for calculating the size of own capital is established for a participant of the banking group, the capital of the participant of the banking group is determined as the difference between its assets and liabilities in accordance with established norms of accounting and financial reporting formation.

53. The liquidity ratio must be maintained at a level of not less than 30%.

The liquidity ratio is determined by the formula:

LR = LA / O, where:

LA - sum of liquid assets of the participants of the banking group, which include:

• liquid assets of the bank, a participant of the banking group, determined in accordance with the regulatory legal acts of the National Bank;

• liquid assets of the participant of the banking group, determined in accordance with the legislation of the Kyrgyz Republic, including cash and securities that can be converted into cash within 30 days from the date of assessment, minus pledged assets.

O - sum of liabilities of the participants of the banking group, which for the calculation of the liquidity ratio include:

• liabilities of the bank, a participant of the banking group, determined in accordance with the regulatory legal acts of the National Bank;

• liabilities of the participant of the banking group, determined in accordance with the legislation of the Kyrgyz Republic, settlements on which mature within 30 days after the reporting date.

54. The maximum risk size per borrower of the banking group (MP) must not exceed the following values:

• maximum risk size per borrower not affiliated with the banking group - 15%;

• maximum risk size per borrower affiliated with the banking group - 10%.

The maximum risk size per borrower ratio (MP) is calculated as follows:

MR = SZ / K x 100%, where:

SZ - total indebtedness, total indebtedness of one borrower for all assets provided to him by the participants of the banking group, carrying credit risk, including for:

• loans (regardless of repayment term);

• factoring;

• financial leasing;

• interbank placements;

• investments in capital;

• investments in the form of debt obligations;

• accrued interest receivable;

• any other type of direct or indirect provision of funds to borrowers that are essentially credit substitutes;

• sum of off-balance sheet obligations (guarantees, letters of credit, obligations to issue loans) issued to this borrower;

• any risk of the participant regarding a third party that is unconditionally guaranteed by this borrower;

• previously written-off loans, including interest. In the credit file of each borrower, information on previously written-off loans and interest of this borrower and persons associated with him must be attached, which must contain the following information: name of the borrower and associated persons, amount of the written-off loan and interest, date of write-off, and the reason why this debt was written off.

K - sum of the net total capital of the commercial bank included in the banking group and the own capital (own funds) of the participants of the banking group.

Compliance with the maximum risk size per borrower affiliated with the banking group is carried out in cases where the borrower:

• is part of the banking group;

• is affiliated with the bank and/or an affiliated person of a participant of the banking group;

• is associated with another borrower by a joint venture agreement or another document containing signs of a joint venture agreement;

• is a person capable of exerting direct or indirect (through third parties) significant influence on decisions made by the management bodies of legal entities - borrowers.

55. Companies, including banks, included in the banking group, must comply with the relevant requirements and economic standards established for them by the legislation of the Kyrgyz Republic.

56. To comply with economic standards and reduce risks, the banking group is recommended to establish internal limits on economic standards and requirements that must be lower than the maximum and higher than the minimum limits established by the respective regulatory legal acts of the National Bank.

57. A bank, a participant of the banking group, cannot enter into a transaction and/or carry out operations with any person in order to provide them with the opportunity:

• to pay an obligation to a person affiliated with the bank or an affiliated person of a participant of the banking group;

• to purchase any property from a person affiliated with the bank or an affiliated person of a participant of the banking group;

• to acquire securities issued by an affiliated person of a participant of the banking group;

• to carry out operations/transactions that could lead to a deterioration in the financial condition of the bank.

A person affiliated with the bank and/or an affiliated person of one of the participants of the banking group is recognized as affiliated with the bank and/or an affiliated person of each participant of the banking group.

58. A banking holding company or a bank at the head of the banking group is responsible for ensuring compliance with requirements and economic standards by participants of the banking group.

Chapter 8. Reporting and information provided by the banking group to the National Bank

59. The banking group is obliged to disclose and submit to the National Bank consolidated reporting and information about its activities according to the list, form, volume, procedure, and deadlines established by the National Bank, including in relation to participants of the banking group who are non-residents of the Kyrgyz Republic.

60. Legal entities regarding which the banking group or its participants have or exert significant (direct or indirect) influence are obliged to submit reports on their activities for the purpose of preparing consolidated reporting.

61. A bank at the head of the banking group or a banking holding company, including a parent/management company that is a non-resident of the Kyrgyz Republic, submits to the National Bank information about members of the Board of Directors and the Board of Directors, significant participants, persons directly or indirectly exercising control, and other persons associated with them in the volume, procedure, and deadlines established by the National Bank, as well as changes made to founding documents, charters, structure of subsidiary or dependent companies, expansion of their activities, change of officials in subsidiary or dependent companies, and information about the creation and/or acquisition of subsidiary companies by subsidiary companies of the bank within a period of no more than 30 days from the date of adoption of the corresponding decision.

62. A bank at the head of the banking group or a banking holding company, including a parent/management company that is a non-resident of the Kyrgyz Republic, submits to the National Bank information about members of the Board of Directors and the Board of Directors, significant participants, persons directly or indirectly exercising control, and other persons associated with them in the volume, procedure, and deadlines established by the National Bank, as well as changes made to founding documents, charters, structure of subsidiary or dependent companies, expansion of their activities, change of officials in subsidiary or dependent companies, and information about the creation and/or acquisition of subsidiary companies by subsidiary companies of the bank within a period of no more than 30 days from the date of adoption of the corresponding decision.

63. A bank at the head of the banking group or a banking holding company, including a parent company that is a non-resident of the Kyrgyz Republic, submits to the National Bank an annual report together with annual financial reporting, confirmed by an independent audit company, on an individual and consolidated basis within a period of no more than 180 days from the end of the reporting year, containing an assessment of the adequacy of internal control for the banking group and the banking holding company. These reports must also contain information about the activities of the banking group, including information about all subsidiary and dependent companies of the banking holding company, including the name, percentage of ownership, type or types of activities in which each participant of the banking group is involved.

64. The National Bank has the right to require the submission of other reports and information from the banking group and its participants to assess the financial condition, risk management system, quality of corporate governance, and other supervisory purposes.

65. The annual report must be signed by the chairman of the supervisory body, the executive body, and the chief accountant of the banking holding company or the bank at the head of the banking group.

Chapter 9. Applicable measures to participants of the banking group

66. Impact measures may be applied to any participant (individuals and legal entities) of the banking group or its officials in accordance with the requirements provided for in the Law "On the National Bank of the Kyrgyz Republic, Banks and Banking Activities" if:

1) affiliated persons do not take measures at the request of the National Bank to eliminate identified violations and deficiencies that cause or may cause damage to the financial stability of the bank and the interests of bank depositors;

2) a significant participant of the bank does not take measures at the request of the National Bank regarding companies controlled by them, whose activities or financial condition cause or may cause damage to the financial stability of the bank and the interests of bank depositors;

3) in the opinion of the National Bank, insufficient control/supervision is exercised over participants of the banking group from the head (parent) bank/company and/or foreign supervisory authority within the banking group, which does not allow identifying and minimizing risks;

4) the National Bank cannot obtain access to necessary information to carry out consolidated supervision;

5) on other grounds provided for by the Law "On the National Bank of the Kyrgyz Republic, Banks and Banking Activities", including.

a) if obstacles arise in the implementation of proper consolidated supervision regarding the bank and participants of the banking group;

b) in case of violation of norms, requirements, and restrictions established by the legislation of the Kyrgyz Republic.

67. The National Bank has the right:

1) in the case of a subsidiary company of a bank - to require the bank to suspend any investments in this company;

2) in the case of affiliated persons of a bank - to require the bank and/or affiliated persons to suspend the conduct of operations, transactions (direct and indirect) between such affiliated persons and the bank;

3) in the case of a banking holding company - to require the banking holding company to suspend control over the bank, including suspending the exercise, directly or indirectly, of voting rights on shares;

4) in the case of companies controlled by significant participants of a bank - to require the significant participant:

a) to suspend participation in the activities of the bank, including suspending the exercise, directly or indirectly, of voting rights on shares;

b) to suspend the conduct of direct and indirect operations, transactions between the bank and the significant participant and/or between the bank and the company controlled by the significant participant of the bank;

5) in the case of a subsidiary or dependent company of a bank - to require the bank to reduce its investments to a level where the company will no longer be a subsidiary or dependent company of the bank;

6) in the case of a banking holding company - to annul the permission to acquire a threshold participation in the capital of the bank and require the sale of the corresponding share package;

7) in the case of a subsidiary company of the parent company of a bank - to require the banking holding company to cease control over the subsidiary company or the bank;

8) in the case of companies that are significant participants of a bank - to annul the permission to acquire a threshold participation in the capital of the bank and require the cessation of significant participation in the bank;

9) in the case of legal entities controlled by significant participants of a bank - to annul the permission to be a significant participant in the bank and require the cessation of significant participation in the bank. The form of presentation of the National Bank's requirements is a directive of the National Bank or a written agreement between the National Bank and an affiliated person of the bank.

68. In the cases specified in subparagraphs 3-9 of paragraph 67, votes on shares are not taken into account when counting the quorum of the shareholders' meeting of the bank and when making decisions. All previously made decisions are considered invalid if the number of votes on such shares affected the adoption of a decision on the merits. At the request of the National Bank, the person on whose side a violation was identified is obliged to sell the corresponding share package to persons not affiliated with them within the established period. Otherwise, the National Bank applies to the court with a statement on the forced alienation of shares of the specified person.

69. In the cases specified in subparagraphs 1, 2, 4 of paragraph 67, if transactions are carried out in violation of the National Bank's requirement, such transactions are deemed void. The National Bank has the right to apply to the court with a requirement to apply the consequences of the invalidity of the void transaction.

Chapter 10. Interaction between supervisory authorities of the financial sector

70. If a company that is part of the banking group is subject to supervision or regulation by another authorized state body, the National Bank and the other authorized state body must carry out cooperation for the purpose of comprehensive regulation and supervision of the banking group.

71. The authorized state body provides the National Bank with information at its disposal concerning the banking group or any participant of the banking group:

• allowing determination of the structure of the banking group, controlling persons, officials;

• about changes in ownership structure, management, or organizational structure of any participant of the banking group that require approval or notification of this authorized state body;

• about the activities and policies of the banking group or a participant of the banking group;

• about the financial condition of the banking group and its participants (special attention should be paid to capital adequacy, operations with persons having common interests, intra-group risks, and profits);

• about the organization of the internal control system of the banking group or a participant of the banking group, risk management;

• about the procedure for collecting information from the management bodies of participants of the banking group and verification of such information;

• about operations, transactions, other events within the banking group or a participant of the banking group that could seriously affect the activities of the bank-participant of the banking group;

• about measures and sanctions taken by the authorized state body regarding participants of the banking group;

• other information necessary for the implementation of effective banking supervision.

72. The National Bank has the right to request reports and other materials from this authorized state body for the purpose of carrying out consolidated supervision. The National Bank also has the right to inspect participants of the banking group if another authorized state body does not possess information necessary for the National Bank, or if the information provided by another authorized state body is, in the opinion of the National Bank, insufficient. The specified companies and their officials are obliged to assist and not hinder the National Bank in exercising its powers to the same extent as required of the bank and their officials.

73. For the purpose of comprehensive regulation and consolidated supervision of the banking group, memoranda of cooperation may be concluded between the supervisory authorities of the country of origin and the host country.

Contacts

Public Reception

+996 (312) 61-04-86 +996 (312) 66-90-15 +1257, +1256

Consumer Protection Department

+996 (312) 66-90-15 +1671, +1666

Report Corruption

+996 (312) 66-90-15 +2120 +996 (312) 61-04-00

Auto-informant of Official Exchange Rates

+996 (312) 61-07-11

Numismatic Museum

+996 (312) 66-90-15 +1232 +996 (312) 61-24-14

E-mail

mail@nbkr.kg

For Media Relations

press@nbkr.kg

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