Resolution of the Board of the National Bank of the Kyrgyz Republic No. 2021-P-12/36-3(НПА) of 30 June 2021 on Amending Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic to Create an Equal Legal Environment for Financial and Credit Organizations Conducting Operations in Accordance with Islamic Financing Principles

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of 30 June 2021 No. 2021-P-12/36-3-(NPA)

On Amending Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic to Create an Equal Legal Environment for Financial and Credit Organizations Conducting Operations in Accordance with Islamic Financing Principles

In accordance with Articles 20 and 68 of the Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic, Banks and Banking Activities", the Board of the National Bank of the Kyrgyz Republic

RESOLVES:

1. To introduce amendments to the following regulatory legal acts of the National Bank of the Kyrgyz Republic (attached):

• 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" of 28 December 2009 No. 51/6;

• Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulation 'On Minimum Requirements for Credit Risk Management in Conducting Operations in Accordance with Islamic Banking and Financing Principles' of 25 September 2013 No. 35/13.

2. This resolution enters into force upon the expiry of fifteen days from the day of official publication.

3. The Legal Department shall:

• 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. The Banking Supervision Methodology and Licensing Department shall bring this resolution to the attention of OJSC "Commercial Bank KYRGYZSTAN", CJSC "EcoIslamicBank", OJSC "BAKAI BANK", the Union of Banks of Kyrgyzstan, relevant structural subdivisions, regional departments and the representative office of the National Bank of the Kyrgyz Republic in Batken Oblast.

5. Control over the execution of this resolution shall be assigned to the member of the Board of the National Bank of the Kyrgyz Republic supervising the Banking Supervision Methodology and Licensing Department.

Chairman of the Board of the National Bank of the Kyrgyz Republic		T. Abdygulov

Annex to the Resolution of the Board of the National Bank of the Kyrgyz Republic of 30 June 2021 No. 2021-P-12/36-3-(NPA)

AMENDMENTS to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic to Create an Equal Legal Environment for Financial and Credit Organizations Conducting Operations in Accordance with Islamic Financing Principles

1. To introduce the following amendments to 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" of 28 December 2009 No. 51/6:

in the Regulation "On Classification of Assets and Corresponding Deductions to the Reserve for Potential Losses and Depreciation in Conducting Operations in Accordance with Islamic Banking and Financing Principles", approved by the above-mentioned Resolution:

• paragraph 13 shall be restated as follows:

"13. Bank investments in securities and/or in capital - the bank's investments in securities issued in accordance with Islamic banking and financing principles, and/or acquisition of shares or financial investment in the capital of companies whose purpose and activities comply with Sharia standards.

Placement of the bank's funds in the working capital of other companies and participation in joint projects are considered assets bearing credit risk.

Non-market investments in securities are investments in such securities that are not quoted on the securities market, or the market for these securities is not developed, efficient, transparent and does not allow determining the fair value of these securities. At the same time, transactions with securities may be occasional, and there is no extensive, reliable and easily accessible information about the security for all persons.

All other investments in securities are market investments.";

• paragraph 17 shall be recognized as having lost force;

• the Regulation shall be supplemented with paragraphs 17-3, 17-4, 17-5, 17-6 as follows:

"17-3. When analyzing secondary sources of repayment of assets, it should be taken into account that this usually entails a delay in payments associated with the difficulty of determining the value of realization of collateral, with legal costs and delays. These factors usually lead to the fact that the final amount of debt payment received using a secondary source does not meet expectations.

17-4. If the bank relies entirely on a person acting as a guarantor or surety as a secondary source of repayment, the bank must have complete information about the financial position of this person to assess his ability to repay the debt if necessary. If the said person has become the sole source of debt repayment, when classifying, not only his solvency but also his willingness to repay the asset guaranteed by him must be taken into account, which must be formalized in the relevant document. If the information about the guarantor is unreliable or completely absent, then such a guarantee should not be taken into account when classifying the asset.

17-5. A significant deviation from the original source of repayment is a sufficient basis for classification as well as non-specific repayment terms or overdue asset. However, not all overdue assets may be subject to classification. An asset may be overdue, but if at the same time it has collateral in the form of funds deposited with the bank or government securities that have not yet been redeemed, then such an asset may be recognized as unclassified.

17-6. The written expression of the client's intention and ability to fulfill his obligations under the contract is the primary criterion for assessing the risk of the asset. This implies that the client must have income or liquid assets sufficient to reduce or repay the debt to the bank in accordance with the agreement within reasonable and predictable timeframes.".

2. To introduce the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulation 'On Minimum Requirements for Credit Risk Management in Conducting Operations in Accordance with Islamic Banking and Financing Principles' of 25 September 2013 No. 35/13:

in the Regulation "On Minimum Requirements for Credit Risk Management in Conducting Operations in Accordance with Islamic Banking and Financing Principles", approved by the above-mentioned Resolution:

• paragraph 2-1 shall be restated as follows:

"2-1. This Regulation also applies to other assets bearing credit risk (including correspondent accounts, securities, interbank placements, etc.).";

• the Regulation shall be supplemented with paragraph 3-2 as follows:

"3-2. Blank assets are assets bearing credit risk, the collateral for which is not immovable property, movable property, guarantees or suretyship and other instruments considered as collateral in asset classification, with the exception of overdrafts on payment cards within salary projects, and are issued only to a solvent client/partner based on his reputation and assessment of his income level.";

• in paragraph 4:

in the first paragraph, the words "Law of the Kyrgyz Republic 'On Operations in Foreign Currency'" shall be replaced by the words "legislation of the Kyrgyz Republic";

the paragraph shall be supplemented with a third paragraph as follows:

"Contract financing is an asset bearing credit risk in the form of short-term financing (up to one year) of working capital to fulfill the obligations of the client/partner under a contract with counterparties.";

• the title of Chapter 2 shall be restated as follows:

"Chapter 2. Bank policy on conducting operations under Islamic financing principles and bank financing strategy";

• paragraph 7 shall be supplemented with a second paragraph as follows:

"The financing strategy may be included in the bank's business plan as a separate/additional section.";

• the Regulation shall be supplemented with paragraphs 7-1, 7-2, 7-3 as follows:

"7-1. The financing strategy must at a minimum take into account and include the following:

• target financing markets and their general characteristics that the bank plans to achieve (including the level of diversification, planned indicators in assessing the quality of the financing portfolio, etc.);

• main sources of financing (the bank must specify the sources of financing, from which funds it is planned to issue financing, increase the financing portfolio);

• requirement to conduct an analysis of indirect currency risk;

• ratio of the share of assets bearing credit risk to the bank's assets;

• market conditions and financial condition of the bank, as well as its risk appetite;

• expected rate of return and size of the bank's capital;

• possible costs associated with the return of assets exposed to credit risk;

• short-term/medium-term/long-term plans of the bank;

• requirement to conduct an analysis of the financing portfolio, which will be carried out on the basis of the bank's current financing portfolio. In addition, the bank must have a methodology for conducting such an analysis that will allow assessing credit risk and indirect currency risk;

• current adequate economic indicators of the bank;

• organizational structure of the bank, technical capabilities and potential (qualifications, staffing) of the bank's personnel and management responsible for the bank's financing activities. Relevant personnel must be informed about the financing strategy and ensure clarity of the bank's financing strategy.

7-2. The Board of Directors periodically, but at least once a year, reviews the financial and economic indicators influencing or envisaged, laid down in the financing strategy, and if necessary makes the necessary changes.

7-3. The bank's Board of Directors must ensure that the bank's appointment and remuneration policy does not contradict the credit risk management strategy.";

• in the first paragraph of paragraph 11, the words "Policy and strategy of the bank" shall be replaced by the words "Policy and strategy of the bank's financing";

• paragraph 12 shall be restated as follows:

"12. The bank's Board of Directors is obliged to review the bank's Policy for its adequacy, the systems of limits, tools and procedures for credit risk management, the internal audit system for credit risk management, as well as, if necessary, as changes occur in the bank's risk profile, regulatory legal acts of the National Bank, the organizational structure and staffing of the bank affecting the financing process, including changes occurring in the economy of the republic and countries where the bank and its clients/partners have business connections, affecting the financing process, but not less than once a year.

All issues related to the issuance of assets bearing credit risk must be decided only by the bank's Financing Committee or persons to whom the committee, in accordance with regulatory legal acts, has the right to delegate this right, with the exception of issues within the competence of the bank's Board of Directors.

The right to issue assets bearing credit risk must be divided into several levels of officials, and these persons are liable in accordance with the legislation of the Kyrgyz Republic for violations committed by them during financing.

The issuance of assets bearing large risk and assets bearing credit risk to persons related to the bank/affiliated persons of the bank must be approved by the bank's Board of Directors and comply with the requirements of regulatory legal acts of the National Bank. The bank's Board of Directors is responsible for approving decisions on the issuance of assets bearing large risk, assets bearing credit risk to persons related to the bank/affiliated persons of the bank, cross-border assets, including assets secured by collateral located outside the Kyrgyz Republic, which were issued in violation of the requirements of regulatory legal acts of the National Bank and/or for which the bank incurred losses.

Approval of the bank's Board of Directors is also required in cases where collateral located outside the Kyrgyz Republic serves as security for an asset bearing credit risk of more than 20% of the amount of the asset bearing credit risk. At the same time, the value of collateral means its liquidation value in accordance with regulatory legal acts of the National Bank.

In addition, the financing policy must specify the powers of the Financing Committee and/or the Management Board to write off and restructure financing, indicating restrictions.

The bank's financing policy must also contain methodologies for assessing the solvency of clients/partners. For these purposes, the bank may develop an internal risk rating system for credit risk management. The internal risk rating system must correspond to the nature, size and complexity of the bank's activities.

In addition, the bank is obliged to constantly maintain a database and a log of assets bearing credit risk for which non-standard decisions were made upon issuance (individual markups, collateral structure, etc.).

The internal risk rating system for credit risk management must contain a comprehensive assessment of the financial condition of the client/partner as the main indicator of his future solvency, and must reflect the disclosure of data on clients/partners specified in § 1 and § 2 of this Regulation.

The risk rating for credit risk management is the main indicator of the quality of an asset bearing credit risk. The risk rating must be assigned at the initial stage of approval of the issuance of an asset bearing credit risk, and may also be assigned during subsequent monitoring of the asset, its extension or change in the terms of the financing agreement or restructuring of assets bearing credit risk. The developed risk ratings determining the solvency of clients/partners are established in the form of alphabetic, numeric or alpha-numeric symbols that indicate risks when the bank issues assets bearing credit risk. The bank assigns a risk rating taking into account certain characteristics related to the client/partner and the asset bearing credit risk itself.

Approaches to analyzing the solvency of clients/partners when determining the risk rating may be based on various methods:

• quantitative - using appropriate indicators that allow determining the risk rating (coefficient method, rating models, scoring models);

• forecast, which relies on statistics of past years and is aimed at modeling the life of the client/partner's asset bearing credit risk and the probability of its insolvency;

• qualitative, which uses a system of diverse qualitative indicators.

The bank, in order to conduct an effective assessment of the solvency of the client/partner when issuing an asset bearing credit risk, may develop its own model, which must consist of approaches most meeting the requirements for assessing clients/partners and assets bearing credit risk provided by the bank. The following may be taken as a basis:

• coefficient method, allowing a comprehensive assessment of the financial condition of clients/partners and the quality of assets bearing credit risk;

• rating model - automated assessment by the coefficient method by calculating an integral indicator, which is the most convenient and simple to use;

• scoring model - assessment of solvency in points by assigning the client/partner to a certain group;

• model based on assessing future cash flows with the client/partner's obligations;

• model using statistics of past years, etc.

The internal risk rating system may be used to make a decision on issuing financing; determining the cost of financing; assisting the bank in monitoring credit risk; creating a reserve for potential losses and depreciation; managing received and necessary information; distributing financing according to the credit rating scale, as well as determining the previous position and possible future movement of financing along the credit rating scale; assessing general risks and trends in the financing portfolio; making changes to the bank's financing strategy.

The use of an internal credit rating system may allow forming a database with historical data that will evaluate certain types of assets bearing credit risk by credit rating indicators over time, which may allow banks to assess their credit risk more accurately.

The internal risk rating system in the bank must contain the distribution of powers for:

• assigning an initial rating to the client/partner (upon receipt of a financing application);

• analyzing the assigned rating (when analyzing all documents on the client's activities, his solvency and collateral);

• final approval of the issuance of financing.

The decision on issuing financing, according to the risk rating, is made for financing of individuals and individual entrepreneurs in the amount of up to 100,000 soms.

Subsequently, for assets bearing credit risk and issued to individuals and individual entrepreneurs in the amount of up to 100,000 soms, it is necessary to periodically conduct payment monitoring with the frequency according to this Regulation, as well as analysis of assigned risk ratings in order to monitor the fulfillment of obligations and develop recommendations for changing the rating, if necessary.

The bank's internal policies must contain requirements for verifying facts indicating that the collateral is the only housing of the client/partner/pledgor at the time of the decision on its out-of-court foreclosure. If at the time of foreclosure the pledged immovable property is the only housing of the client/partner/pledgor, then foreclosure on this property must be carried out by a court decision.";

• paragraph 12-1 shall be restated as follows:

"12-1. Internal audit of the internal risk rating system for credit risk management must be conducted annually to determine the compliance of the bank's financing activities with the financing strategy, bank policy and to identify deficiencies in the credit risk management process, in the financing policy and in financing procedures.

Also, the bank, within the framework of internal audit, must assess the internal control system for credit risk caused by currency risk, including the classification of assets bearing credit risk/assets in accordance with the established requirements of the National Bank.

Information on the subsequent implementation of corrective measures for deficiencies identified as a result of internal audit of the internal control system for credit risk must be periodically, but not less than once every six months, transmitted to the bank's Board of Directors and at least once a quarter - to the Audit Committee.";

• paragraph 28 shall be recognized as having lost force;

• in paragraph 29:

the fifth paragraph shall be restated as follows:

"- a document from state bodies on registration (if the client/partner is a legal entity or an individual carrying out entrepreneurial activity on the basis of a certificate or patent) with the exception of individuals - agricultural producers who have been issued financing in the amount of not more than 250,000 soms with the provision of documents certifying the right to land use or documents on the presence of livestock, as well as persons who have been issued financing within the framework of government programs aimed at agricultural development.";

• paragraph 30 shall be restated as follows:

"30. When providing banking services, the bank must ensure compliance with the rights of clients/partners, including the following rights:

• the right of the client under murabaha, istisna, ijara contracts to refuse to receive an asset bearing credit risk from the moment of signing the contract until the moment of payment for the goods/property;

• the right of the partner under mudaraba and musharaka contracts to refuse to receive an asset bearing credit risk from the moment of signing the contract until the moment of receiving funds;

• the right of the client/partner, before signing the contract, to receive a draft contract with all documents attached to it and to seek legal advice outside the bank, while the time provided to the client/partner to familiarize themselves with the contract must be not less than 1 (one) day, but not more than 3 (three) days;

• the right of the client/partner to apply to the bank with a request for prolongation or restructuring of an asset bearing credit risk;

• the right of the client/partner, if more than 50% of the principal amount of the asset bearing credit risk has been repaid, to provide in exchange for the existing collateral another collateral acceptable to both parties, the value of which covers the remaining amount of debt on the asset bearing credit risk, in accordance with the bank's internal documents, without payment of commissions and other payments.

When concluding a financing agreement with a client/partner - an individual, including an individual entrepreneur, the bank grants these clients/partners the right to choose the following methods of receiving financing:

• receiving funds in cash without payment of commissions and other fees for cash withdrawal;

• receiving funds from a settlement (current) account/account for bank deposits (deposits)/on demand, the servicing terms of which are determined in the relevant agreement.

At the same time, clients/partners - individuals, including individual entrepreneurs, have the right to repay financing both in cash and non-cash form.

The right to receive funds without payment of commissions and other fees for cash withdrawal is granted by the bank for mortgage financing, as well as financing within the framework of state/government and social programs aimed at economic development to clients/partners - individuals, including individual entrepreneurs.";

• paragraph 33 shall be restated as follows:

"33. When assuming the risks associated with the provision of an asset carrying credit risk, the bank must verify the completeness and reliability of the information submitted by the client/partner, including on the income of clients/partners who have income not confirmed by documents, both before the issuance of the asset carrying credit risk and subsequently - until the full return of the bank's funds, at least once a year, taking into account the requirements specified in paragraph 68-1 of this Regulation.";

• paragraph 34 shall be stated in the following wording:

"34. In general, the analysis of an application for an asset carrying credit risk must be based on the bank's policy approved by the board of directors and concentrate on the following key factors:

• the right to receive financing. The bank must make sure that the client/partner has the right to receive the asset carrying credit risk and to sign the contract;

• the character of the client/partner. The bank must establish that the client/partner takes a responsible attitude toward receiving financing, gives complete answers to the bank's questions and will make every effort to repay the debt. The analysis should also take into account whether the client/partner has used credits (loans) or assets carrying credit risk at this bank or other financial and credit organizations in the past, how repayment was made, their discipline, and readiness to fulfill their obligations. Their reputation, both professionally and in human terms, should also be taken into account, and the length and experience of the client/partner's work in the given sector, their successes and achievements should be considered. It makes sense to request information on assets carrying credit risk provided to them at other credit organizations. In addition, it is necessary to request information (a credit report) on persons related to the client/partner, with their consent in accordance with legislation, from one or several credit bureaus.

The bank must observe the confidentiality and safekeeping of the credit report received from the credit bureau, not disclose the credit information contained in it to third parties and use the credit report only for the purposes established by legislation on the exchange of credit information.

The bank is liable for the distortion of the information contained in the credit report received from the credit bureau;

• monetary funds. The main question that the bank employee analyzing an application for an asset carrying credit risk must answer is: will the client/partner be able to receive sufficient monetary funds in the form of income and cash flow, including in the currency in which they intend to receive financing, in order to repay the asset carrying credit risk. When assessing, the bank must determine whether stable growth of profit or sales volume was observed in the past, and whether such growth is likely to continue during the term of the contract.

In addition, the bank must determine the sufficiency of the client/partner's income (revenue) (including in foreign currency) taking into account exchange rate growth in order to ensure timely repayment by the client/partner of the asset.

If in the coming 12 months the client/partner's income (revenue) will be predominantly in national currency, the bank must assess the advisability of issuing financing in foreign currency to such a client/partner, taking into account the credit risk caused by currency risk as a result of an unfavorable change in the exchange rate for the client/partner, taking into account the requirements of the National Bank's regulatory legal acts, including on RPPU;

• collateral. When assessing collateral, the bank's financing specialist must determine whether the client/partner has sufficient quality collateral necessary to reduce the risk of non-repayment of the asset carrying credit risk.

When issuing assets carrying credit risk, various forms, types and methods of collateral may be used.

Collateral for clients'/partners' obligations is classified according to various criteria:

• the property form of collateral for assets carrying credit risk, which means a secondary source of repayment of the asset through the receipt of monetary funds from the sale of property provided by the client/partner upon receipt of the asset carrying credit risk.

The property form may include the following types of collateral for assets carrying credit risk:

• pledge of immovable property;

• pledge of movable property (this property, as a rule, remains in the use of the client/partner - motor vehicles, goods in turnover, household appliances, etc.);

• deposit (property that is transferred for storage to the bank - precious metals, securities, pledge of a deposit, etc.);

• the non-property form of collateral for assets carrying credit risk. The non-property form of collateral for assets is a source of repayment of the asset through the legal formalization of a guarantee of the return of funds.

The non-property form of collateral for assets carrying credit risk may include such types of collateral for assets as:

• guarantee;

• suretyship.

According to the degree of coverage of the obligation, collateral for an asset carrying credit risk is divided into:

• main collateral;

• additional collateral.

Depending on the completeness of the obligation covered, collateral for an asset carrying credit risk is divided into:

• fully covering the obligation under the asset carrying credit risk;

• partially covering the obligation under the asset carrying credit risk.

A separate form of minimizing the bank's credit risks may be credit risk insurance.

The bank's main measures for accepting property collateral for an asset carrying credit risk:

• the bank must make sure that the collateral provided by the client/partner exists. Documents on ownership of the property, as well as on its existence in kind, should be checked. The property (right) proposed as collateral must be real. At the same time, subsequent pledge of the collateral is permitted subject to compliance with the requirements of the legislation of the Kyrgyz Republic.

Note: An exception to this subparagraph are cases where visual inspection and assessment of collateral in the form of large and small cattle is impossible due to their seasonal grazing in remote and hard-to-reach areas. In such cases, the bank verifies the presence of livestock with the client/partner by checking the area of the barn, sheepfold, availability of feed supplies, pasture lease agreements, etc. Additionally, the client must provide a certificate from the ayil okmotu on the presence of livestock, as well as other documents evidencing the presence of livestock, if any;

• the bank must determine the level of liquidity of the collateral, i.e. the possibility of a quick sale (realization);

• the bank may, independently or with the involvement of independent specialist appraisers holding the relevant certificate, in accordance with the requirements of legislation, conduct an assessment of the value of the collateral. The excess of the market value of the collateral for an asset carrying credit risk over the amount of financing and the payments due on it, taking into account the amount of possible costs for the realization of the collateral, is a tool for managing the risk of non-repayment of assets carrying credit risk;

• the bank should carry out a market analysis in order to determine the stability of prices for the property proposed by the client/partner, and the bank should take into account the risks of a decrease in the value of this collateral;

• the bank must accept as collateral property with a period of use/service life of at least the period of use by the client/partner of the financing, and the possibility of a need for storage of the collateral, which may cause additional expenses, should be taken into account. If the collateral for contract financing in an amount exceeding 100,000 soms is a guarantee and/or a right of claim under a contract, the bank must analyze the solvency of the guarantor/counterparty of the client/partner for at least the last year, assess the risks associated with the fulfillment by the parties of obligations under this financing and the realization of the secondary source of repayment in the event of non-repayment of the financing;

• guarantee/suretyship. When securing an asset carrying credit risk with a guarantee/suretyship, in order to determine the advisability of providing financing, the bank conducts an analysis of the solvency of the guarantor/surety to the same extent as that of the client/partner themselves. The bank must require from the guarantor/surety the documents requested for analyzing the solvency of the client/partner themselves, in accordance with the requirements of this Regulation, study their professional reputation, responsibility and readiness to fulfill their obligations. At the same time, failure to comply with this condition entails recognition of such assets carrying credit risk, in the part secured by a guarantee/suretyship, as blank;

• suretyship of members of a joint liability group. At the same time, a joint liability group (hereinafter - JLG) means a voluntary association of participants - individuals (minimum 3 persons) engaged in entrepreneurial activity aimed at making profit, where the members of the JLG jointly stand surety for the fulfillment of the obligations of each member of the group and bear responsibility for the full return of the funds received jointly and severally, under any circumstances, in accordance with the legislation of the Kyrgyz Republic.

When considering an application for an asset carrying credit risk from JLG participants, the bank must pay attention to ensuring that members of one family living together and/or conducting a joint business are not participants of the same JLG.

It is necessary to take into account that the number of JLG participants who are not members of one family but have a joint business must not exceed 20 percent of the total number of participants of the given JLG, and the share of JLG participants who are not members of one family but have a joint business must not exceed 20 percent of the total amount of the asset carrying credit risk issued to the JLG.

For the purposes of this Regulation, joint business means economic activity in which several entrepreneurs are involved (partners, co-owners, etc.). At the same time, their activity is aimed at making profit from joint production and/or sale of goods, provision of services, for which purpose property, intangible assets, and the labor of these entrepreneurs are used. Participants of the joint business divide among themselves proportionally the profit from conducting the business and bear the risk of loss of all or part of the property.";

• paragraph 36 shall be supplemented with a third paragraph of the following content:

"The result produced by the bank's internal risk rating, containing the rating value on the advisability/inadvisability of providing financing to the client/partner, may be considered as a financing opinion.";

• in paragraph 43, the second sentence shall be stated in the following wording:

"At the same time, the bank is not entitled to unilaterally change the initial terms of the contract if this worsens the rights and/or increases the obligations of the client/partner.";

• the eighth paragraph of paragraph 44 shall be stated in the following wording:

"- the client's right to early repayment of the asset in full or in part at any time without the imposition of penalty sanctions (commissions and other payments), subject to prior written notification to the bank 30 (thirty) days in advance. At the same time, this condition establishes the period after which (after sending the notification) the client may make early repayment of the asset. The notification may specify a different period for early repayment, provided that the notification is sent to the bank at least 30 (thirty) calendar days before the day of early repayment. Early repayment by one JLG participant is possible with the written consent of the JLG participants;";

• paragraph 45 shall be stated in the following wording:

"45. A service for which the bank charges commissions and other payments must meet the following requirements:

• have a separate benefit or consumer value for the client/partner;

• be standalone and independent from the main service of providing financing;

• not relate to services that are provided free of charge in accordance with the requirements of legislation.

The bank is not allowed to charge monetary funds and commissions for the same operation.

Penalties (fine/penalty) and other penalty sanctions are charged by the bank from the client only for non-fulfillment/improper fulfillment by the client of their obligations under the contract and/or other agreements.

An integral part of the contract between the bank and the client/partner is the list of expenses (payments) of the bank's clients/partners and penalty sanctions, which is drawn up in tabular form in accordance with Appendix 6 to this Regulation.

The financing contract is prohibited from including additional fees, commissions and other payments, other than those published or established by the bank, in accordance with Appendix 6 to this Regulation, as well as other related services on a paid basis, regardless of the agreement with the client/partner.

The bank must provide and familiarize the client with the specified list and, if necessary, provide the client/partner with explanations on the procedure for calculating the asset carrying credit risk, penalties, fines, the procedure for receiving/repaying the asset, including using bank payment cards, and on possible risks, insolvency in conditions of growth of the foreign currency exchange rate, if the asset was received in foreign currency and the expected income (or part of it) is in national currency, etc., and also obtain the consent of the client/partner, evidenced by their signature.

In case of delay in payment of the markup on the principal amount of financing and/or delay in payment of the principal amount of financing, the accrual of penalties (fine, penalty) must be made on the amount of overdue debt and for the actual period of overdue debt.

The bank must indicate all expenses of the bank's client/partner related to the provision, use and return of the asset carrying credit risk, in accordance with the contract and the bank's internal procedures. The bank indicates the cost of expenses for third-party services (payment for insurance services, notary, etc.) for the awareness of the client/partner according to the current tariffs of third parties on the date of conclusion of the contract, indicating that these expenses may change in the future.

In addition, the contract must contain:

• the obligation of banks to provide, within 3 (three) working days upon request of the client/partner, information on their receipt of an asset carrying credit risk and on the client's/partner's compliance with the terms of the contract for this asset carrying credit risk, for its provision to another financial and credit organization, as well as to provide clear and accurate information on the client's/partner's account (account statements, check, balance status, confirmation of payment on financing and other necessary information);

• foreclosure on the subject of pledge exclusively through court, if the subject of pledge has significant historical, artistic or other cultural value for society or is the only dwelling owned by right of ownership by an individual;

• the obligation of the bank to stop accruing penalties (fines, penalty) upon the expiration of 15 (fifteen) days from the moment of sending the notice of the commencement of the procedure for foreclosure on the subject of pledge for the asset carrying credit risk of the client/partner - an individual, including an individual entrepreneur without forming a legal entity. Penalty sanctions and penalties may be applied in cases provided for by Sharia standards. The amount of the penalty (fines, penalty) accrued for the entire period of the financing must not exceed 20 (twenty) percent of the amount of financing issued. At the same time, the monetary funds received in the form of a penalty (fine, penalty) must be directed to charitable purposes in organizations not affiliated with the financial and credit organization;

• the obligation of the client/partner - an individual, including an individual entrepreneur, to provide information on the presence of credits and assets carrying credit risk in other financial and credit organizations, including credits and assets carrying credit risk of the spouse, parents and children, and on compliance with credit discipline on these credits and assets at least once every six months.";

• paragraph 47 shall be supplemented with a second paragraph of the following content:

"Note: If facts of use by the client/partner of financing for non-targeted purposes are detected, the bank has the right to apply penalty sanctions on the financing. At the same time, the bank's internal documents must provide for norms establishing clear rules on measures of responsibility of the client/partner, including the application of penalty sanctions on the financing. In this case, the monetary funds received in the form of penalty sanctions must be directed to charitable purposes in organizations not affiliated with the financial and credit institution.";

• the first paragraph of paragraph 49 shall be stated in the following wording:

"Each page of the contract with all appendices must be signed by the client/partner on paper or in the form of a single electronic document signed by means of an electronic signature allowing verification of its belonging to a party to the contract.";

• in paragraph 57:

the second paragraph shall be stated in the following wording:

"- the subject of pledge and its pledged value (taking into account the pledge coefficient);";

supplement with a ninth paragraph of the following content:

"Upon termination of the pledge, the pledge holder is obliged to draw up a notice of termination of the pledge; if the subject of pledge was subject to registration, register this notice with the body/bodies carrying out state registration of the pledge.";

• in paragraph 62:

in the second paragraph, the first sentence shall be excluded;

supplement with a fourth paragraph of the following content:

"Note: The maximum risk amount for blank assets must also include all assets carrying credit risk not secured by pledge, issued before the date of entry into force of the resolution of the Board of the National Bank of "_" ______ 20 No. ___ and not complying with the requirements specified in this resolution of the Board of the National Bank.";

• in paragraph 65:

the first paragraph shall be stated in the following wording:

"The bank has the right to calculate the ratio of the maximum risk amount for blank assets carrying credit risk, in the part of group financing, in accordance with paragraph 66 of this Regulation, subject to all of the following conditions:";

supplement with a fourth paragraph of the following content:

"The requirements of this paragraph apply to assets carrying credit risk that meet the criteria of blank assets carrying credit risk issued before the date of entry into force of the resolution of the Board of the National Bank of "_" ______ 20 No. ___.";

• the Regulation shall be supplemented with paragraph 65-1 of the following content:

"65-1. The requirements of paragraph 65 of this Regulation do not apply to the calculation of the ratio of the maximum risk amount for blank assets for banks in which the share of group assets carrying credit risk from the total financing portfolio is 5% or less, as well as for banks that have approved a strategy (plan) to reduce the portfolio of group assets to 5% or less by 31 December 2021.";

• in paragraph 66:

the first paragraph shall be stated in the following wording:

"When calculating the ratio of the maximum risk amount for blank assets carrying credit risk, group assets carrying credit risk provided under the joint liability of JLG members are excluded if they meet all of the following criteria:";

in the second paragraph, the words "not more than 2,500,000 soms" shall be replaced by the words "not more than 1,500,000 soms";

supplement with a fifth paragraph of the following content:

"The requirements of this paragraph apply to assets carrying credit risk that meet the criteria of blank assets carrying credit risk issued before the date of entry into force of the resolution of the Board of the National Bank of "_" ______ 20 No. ___.";

• the Regulation shall be supplemented with paragraph 66-1 of the following content:

"66-1. When calculating the ratio of the maximum risk amount for blank assets carrying credit risk, assets in the form of contract financing that meet all of the following criteria are excluded:

• the outstanding balance on the asset in the form of contract financing is not more than 3% of the total financing portfolio of the bank;

• the share of overdue assets issued in the form of contract financing in the total financing portfolio is not more than 1% during the last 6 (six) months, and in the total volume of these assets carrying credit risk does not exceed 2% during the last 12 (twelve) months;

• settlements between the client/partner and their counterparties under contract financing are carried out only through the client's/partner's accounts with this bank;

• the client/partner who received the asset carrying credit risk, their guarantor/surety (if any), as well as the counterparty of this client/partner are not persons related to the bank or affiliated persons of the bank.

The requirements of this paragraph apply to assets carrying credit risk that meet the criteria of blank assets carrying credit risk issued before the date of entry into force of the resolution of the Board of the National Bank of "_" ______ 20 No. ___.";

• in paragraph 68-1:

the third paragraph shall be stated in the following wording:

"- at least once a year for other assets, with the exception of assets up to 100,000 soms. For assets up to 100,000 soms, payment monitoring is carried out, which involves analysis based on payments made on the asset.";

supplement with a fourth paragraph of the following content:

"The bank also needs to establish an appropriate level of control over the use and condition of the collateral for the asset carrying credit risk; in particular, the bank must determine whether the quality of the collateral provided has deteriorated, whether circumstances have led to a decrease in its value, a deterioration in the financial condition of the guarantor/surety, and whether the bank will be able to realize the collateral in the event of non-fulfillment by the client/partner of the obligation and recover the debt from the guarantor/surety.";

• in paragraph 74, the fifth and eighth paragraphs shall be recognized as having lost force;

• paragraph 80 shall be stated in the following wording:

"80. Measures for organizational, financial and other assistance by the bank to a problem client, contributing to overcoming the crisis and fulfilling the client's obligations to the bank, may include:

• work with the client (their management) to identify problems and find solutions;

• appointment, with the consent of the client/partner, of managers and consultants to work with the client's/partner's enterprise on behalf of the bank;

• assistance in increasing the company's own capital at the expense of the owners or other parties;

• if necessary, development of a program to change the debt structure (revision of the schedule of payments for the return of the asset carrying credit risk and payment of the markup/income on it, change of financing forms, etc.);

• obtaining additional collateral and guarantees, etc.

When restructuring an asset bearing credit risk, the bank must consider the current financial condition and the degree of the bank's confidence in the client/partner. The bank may restructure an asset only if the client/partner has real ability to fulfill its obligations under the changed terms of its asset, which must be confirmed by the analysis performed and the relevant documents.

The dossier of a client/partner whose asset has been restructured must include all information on the current financial condition of the client/partner and its ability to repay the asset bearing credit risk, as well as information and the relevant documents on the restructuring performed.";

• in paragraph 85, replace the word "monthly" with the word "quarterly";

• Regulation shall be supplemented with paragraph 86-1 as follows:

"86-1. A bank may initiate the procedure for foreclosure on pledged immovable property under an asset bearing credit risk in the event of systematic default by the client/partner for more than 3 (three) consecutive months (according to the current repayment schedule under the client/partner's agreement) preceding the date of sending notice of the commencement of the out-of-court foreclosure procedure on the subject of pledge.";

• in Appendix 1 to the Regulation:

paragraph 2 shall be restated as follows:

"2. Individuals engaged in individual entrepreneurial activity without forming a legal entity must, in addition to the above documents, submit to the bank a copy of a document in the established form issued by the authorized body confirming state registration (re-registration) as an individual entrepreneur, or a copy of a document confirming the fact of carrying out entrepreneurial activity without state registration in cases provided for by the legislation of the Kyrgyz Republic, except for individuals who have been granted financing in an amount not exceeding 250,000 soms with the submission of documents certifying the right to land use, or documents on the presence of livestock, as well as individuals who have been granted assets bearing credit risk under government programs aimed at agricultural development.";

paragraph one of paragraph 9 shall be restated as follows:

"A document from state bodies on registration (if the client/partner is a legal entity or an individual carrying out entrepreneurial activity on the basis of a certificate or patent), except for individuals who are agricultural producers who have been granted financing in an amount not exceeding 250,000 soms with the submission of documents certifying the right to land use, or documents on the presence of livestock, as well as persons who have been granted assets bearing credit risk under government programs aimed at agricultural development.";

in paragraph 25, replace the words "appraised value of the pledge" with the words "market value of the pledge (if necessary, taking into account the application of established coefficients)";

in paragraph 28, replace the words "appraised value of the pledge" with the words "market value of the pledge (if necessary, taking into account the application of established coefficients)";

• in Appendix 2 to the Regulation:

paragraph 7 shall be declared void;

• Appendix 5 shall be declared void;

• Appendix 6 shall be restated as follows:

Note of the IC "Toktom": The number of paragraphs in paragraph 2 of this appendix does not correspond to the number of paragraphs in paragraph 2 of the text in the state language.

		"Appendix 6 to the Regulation "On Minimum Requirements for Credit Risk Management when Conducting Operations in Accordance with Islamic Principles of Banking and Financing"

LIST of expenses (payments) of clients/partners of the bank and penalty sanctions

Expenses (payments) of the client/partner of the bank on an asset bearing credit risk
Amount of the asset bearing credit risk	Stated in accordance with the agreement
Markup/income on the asset bearing credit risk
Fee for reviewing an application (processing an asset bearing credit risk) in the event of refusal to receive the asset from the moment of signing the financing agreement until the moment of receiving funds or making a payment for property under leasing	If there are fees, their amounts are stated in accordance with the approved bank tariffs in percentage or value terms
Fee for opening (if opening an account is conditioned by the conclusion of an agreement) and servicing (if operations on the asset bearing credit risk are carried out in non-cash form) a settlement (current) account/demand deposit account
Fee for settlement and cash services (including deposit and receipt by the client/partner of cash through an ATM)
Fee for amending the terms of the agreement upon the client/partner's application (except for cases of asset restructuring in accordance with the requirements of regulatory legal acts of the National Bank)
Fee for reserving funds (for the unused part of the financing line), if the agreement provides for an unconditional obligation of the bank to provide funds
Payments in favor of third parties (payment for insurance services, notary, the State Registration Service under the Government of the Kyrgyz Republic, the State Agency for Land Resources under the Government of the Kyrgyz Republic, etc.)	The approximate cost (range) of such expenses is stated, indicating that these expenses may change in the future
Penalty sanctions and penalties of the bank
For late payment of payments on the principal amount of the asset bearing credit risk and on the bank's markup/income	Stated in accordance with the approved amounts of penalty sanctions collected at the bank on the basis of the agreement, in percentage or value terms
For a delay of more than 30 calendar days in replenishing a deposit provided as pledge for an asset bearing credit risk
For untimely return of the package of original documents on collateral security (except for cases of untimely return due to force majeure circumstances and other objective reasons, which must be considered by the bank)
Terms of termination of the agreement after receipt of the asset bearing credit risk
Other expenses