Resolution of the Board of the National Bank of the Kyrgyz Republic No. 2023-P-12/22-3-(NPA) of April 5, 2023 on Amendments to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic on Credit Risk Issues

BOARD OF THE NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

dated April 5, 2023 No. 2023-P-12/22-3-(NPA)

On Amendments to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic on Credit Risk Issues

In accordance with Articles 5, 9 and 64 of the Constitutional Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic", the Board of the National Bank of the Kyrgyz Republic resolves:

1. Make amendments to the following resolutions of the Board of the National Bank of the Kyrgyz Republic (attached):

• "On Approval of the "Order for Applying Special Classification of Loans Meeting Certain Criteria" dated March 2, 2006 No. 5/6;

• "On Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic" dated June 30, 2010 No. 52/4;

• "On Approval of the "Order for the Operation of Commercial Banks and Other Financial and Credit Organizations Licensed and Regulated by the National Bank of the Kyrgyz Republic with Collateral" dated July 4, 2012 No. 28/7.

2. The Legal Department:

• from the day of receipt of the corresponding documents, within 3 (three) working days, 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.

3. This resolution enters into force after 15 (fifteen) days from the date of official publication.

4. The Supervision Methodology Department, within 3 (three) working days after official publication, bring this resolution to the attention of the Non-Commercial Joint Stock Company "Union of Banks of Kyrgyzstan", commercial banks, JSC "State Development Bank of the Kyrgyz Republic", JSC "Financial Company of Credit Unions", Non-Commercial Joint Stock Company "Association of Microfinance Organizations", Non-Commercial Joint Stock Company "National Association of Credit Unions and Cooperatives of the Kyrgyz Republic", microfinance organizations, credit unions, and housing savings credit companies.

5. The "Secretariat of the Board" Department, within 3 (three) working days, bring this resolution to the attention of structural subdivisions, 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 overseeing the Supervision Methodology Department.

Chairman	K. Bokontaev

	Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 5, 2023 No. 2023-P-12/22-3-(NPA)

AMENDMENTS to certain regulatory legal acts of the National Bank of the Kyrgyz Republic on credit risk issues

1. Make the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the "Order for Applying Special Classification of Loans Meeting Certain Criteria" dated March 2, 2006 No. 5/6":

in the "Order for Applying Special Classification of Loans Meeting Certain Criteria", approved by the aforementioned Resolution:

• in paragraph 2.1:

rephrase the first paragraph as follows:

"2.1. Special classification is applied to loans meeting the following criteria simultaneously:";

rephrase the second paragraph as follows:

"- the loan amount (in national or foreign currency at the official rate of the National Bank on the date of issuance) must not exceed 500,000 som;";

replace the digit "12" with the digit "24" in the third paragraph;

rephrase the fourth paragraph as follows:

"- the purpose of the loan is consumer purposes and/or development of an existing small business owned by the borrower and providing regular income;";

• supplement Chapter 2 with paragraph 2.3 of the following content:

"2.3. Special classification is also applied to loans meeting the following criteria:

• a loan issued based on a credit rating;

• a loan issued through a remote/distant service channel.";

• rephrase the first paragraph of paragraph 3.2 as follows:

"3.2. For loans, including loans issued based on a credit rating, as well as for loans issued through a remote service channel, to which special classification is applied, the following sizes of provisions to the RPPU are established depending on the number of days of delay in planned payments on the principal amount and/or interest:".

2. Make 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" dated June 30, 2010 No. 52/4:

in the Regulation "On Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial and Credit Organizations Licensed by the National Bank of the Kyrgyz Republic", approved by the aforementioned Resolution:

• rephrase paragraph 3-2 as follows:

"3-2. Blanket loans are loans that are not secured by real estate, movable property, guarantees, sureties, or other instruments considered as collateral in asset classification, with the exception of overdrafts on payment cards within salary projects, overdrafts on payment cards issued to pensioners, and are issued exclusively to a creditworthy borrower based on his reputation, assessment of his income level.";

• in paragraph 8.1:

rephrase the seventh paragraph as follows:

"- interest rates, including taxes established by the tax legislation of the Kyrgyz Republic, and methods of setting interest rates;";

rephrase the fifteenth paragraph as follows:

"- requirements for the bank to issue guarantee letters (Appendix 2);";

add a paragraph after the fifteenth paragraph of the following content:

"Note: except for microfinance companies attracting term deposits.";

• in paragraph 8.3:

rephrase the sixth paragraph as follows:

"- terms for restructuring overdue loans;";

add a twelfth paragraph of the following content:

"- frequency of monitoring the loan/financial condition of the borrower.";

• in the first paragraph of paragraph 9, after the words "interest rates", add the words ", including taxes established by the tax legislation of the Kyrgyz Republic";

• in paragraph 11, after the words "credit risk", add the words ", including credit risk arising from currency risk";

• in paragraph 12:

recognize paragraphs two and four as having lost force;

rephrase the third paragraph as follows:

"The Bank must ensure a comprehensive system for continuous identification, assessment, monitoring, and control of credit risk, as well as ensure a reporting system for carrying out control, analysis, and monitoring of credit risk, including that arising from currency risk.";

add a paragraph after the twenty-seventh paragraph of the following content:

"The Bank must constantly maintain the relevance of its own model developed within the framework of the credit rating, including the scoring model, as well as conduct the construction of automated scoring systems.";

rephrase the twenty-eighth paragraph as follows:

"The decision to issue loans according to the credit rating is made for loans to individuals and individual entrepreneurs who are applying to the bank for a loan for the first time (new clients), in an amount up to 250,000 som, and for bank clients who have previously received a loan in this bank (repeat clients - individuals and individual entrepreneurs with a positive credit history according to the legislation of the Kyrgyz Republic), - in an amount up to 500,000 som.";

in the twenty-ninth paragraph, replace the digit and word "100,000 som" with the digit and word "500,000 som";

• in paragraph 14, exclude the digit "(2)";

• supplement paragraph 16 with a sixth paragraph of the following content:

"- control over the execution of decisions by the Credit Committee by the corresponding department of the Bank.";

• rephrase paragraph 18 as follows:

"18. The Bank's risk manager provides reports on the level of credit risk to the Risk Committee at least on a monthly basis, and reports to the Board of Directors on a quarterly basis, including an assessment of risk on loans issued to persons associated with the bank and affiliated persons of the bank.";

• in paragraph 25:

in the sixth paragraph, replace the digits "250,000" with the digits "500,000";

in the ninth paragraph, after the words "for investment loans,", add the words "for loans with seasonality,";

rephrase the first sentence of the fifteenth paragraph as follows:

"The Bank must have internal procedures for working with client data, containing requirements for ensuring the preservation and protection of data.";

in the sixteenth paragraph, replace the words "written consent of the client(s)" with the words "consent of the client(s) in accordance with the legislation of the Kyrgyz Republic.";

• supplement paragraph 26 with a seventh paragraph after the sixth paragraph of the following content:

"- the right of the client to independently choose the order of distribution of his funds directed towards repayment of credit debt in the presence of several (more than one) overdue loans (including tranches within one or several credit lines).";

• rephrase the ninth paragraph of paragraph 30-1 as follows:

"The Bank is responsible for distortion of credit information transmitted to the credit bureau, for the completeness of transmitted information regarding all borrowers, for the timeliness of its transmission, including when correcting transmitted information due to technical errors, in accordance with the legislation of the Kyrgyz Republic and regulatory legal acts of the National Bank.";

• supplement paragraph 31 with a second paragraph of the following content:

"In addition, the bank must obtain written or electronic consent (signed by means of an electronic signature) from the borrower to transmit to third parties data on the loans received by the borrower in this bank and all information related to these loans, on each occasion of transmitting such information to third parties in accordance with the legislation of the Kyrgyz Republic. At the same time, obtaining the borrower's consent to transmit credit information to the credit bureau must comply with the requirements of the legislation of the Kyrgyz Republic.";

• rephrase paragraph 34.1 as follows:

"34.1. The Bank may issue a consumer loan to the borrower in national currency only if the ratio of planned monthly payments on the loan (principal and interest payments) to the borrower's average monthly total income is:

• no more than 50%, if the average monthly income is less than 1,000 calculation indicators;

• no more than 60%, if the average monthly income is from 1,000 to 2,000 calculation indicators;

• no more than 70%, if the average monthly income is more than 2,000 calculation indicators.";

• in paragraph 34-3:

rephrase the second paragraph as follows:

"The amount of the loan issued through a remote/distant service channel must not exceed 200,000 som (equivalent in foreign currency) under a contract signed with a simple electronic signature, and 300,000 som (equivalent in foreign currency) under a contract signed with an enhanced electronic signature.";

add a third paragraph of the following content:

"Loan amounts for clients identified remotely are established in the Order for identification and verification of clients in remote mode, approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated May 13, 2020 No. 2020-P-12/27-1-(NPA).";

• rephrase paragraph 36 as follows:

"36. In the event that the issue of issuing a loan to the borrower is resolved positively, a credit file of the borrower is formed from the documents received from him, into which all documents concerning both this loan and all subsequent loans, if any are issued to him in the future, must be subsequently attached (minimum requirements for the borrower's credit file are given in Appendix 1). Additionally, the bank may keep a credit file in electronic form.

For loans issued through a remote/distant service channel, the borrower's credit file may be kept in electronic form in a database (on electronic media) for at least the terms of storage of documents on paper media.

The Bank must have approved procedures for the formation, maintenance, storage, and access to credit files, including credit files in electronic format, while access to databases of electronic documents must be ensured in accordance with the legislation of the Kyrgyz Republic.";

• rephrase paragraph 39 as follows:

"39. The credit contract and the attached list of expenses (payments) of the bank client, concluded between the bank and the client, as well as other agreements concluded between the bank and the client by agreement, are drawn up at the choice of the client in the state or official language, the confirmation of which will be the written or electronic consent (signed by means of an electronic signature) of the client to draw up the credit contract in the language chosen by him (if necessary, the text of the contract may be translated into another language). This consent is attached/stored in the client's credit file. The text of the credit contract must be clear and accessible for perception and understanding by the borrower. The rights and obligations of the client arising from the terms of the credit contract must be reflected in a separate section. The font used in the credit contract with all appendices must be the same throughout the text of the contract. The font size must be no less than 12.

At the same time, contracts for loans issued through a remote/distant service channel in amounts established by regulatory legal acts of the National Bank may be signed by means of an electronic signature allowing to verify its belonging to the party to the contract.";

• rephrase paragraph 40 as follows:

"40. When concluding a credit contract, all conditions under which the loan is issued and will be repaid should be specified in order to avoid possible problems with repayment in the future; at the same time, the bank has no right to unilaterally change the initial terms of the credit contract if this worsens the rights, increases the obligations of the borrower and/or misleads the client. When drawing up a schedule of planned repayment of the loan and interest on it jointly with the borrower, it is advisable to focus on the purpose of the loan and the specifics of the borrower's business, the business plan and approximate forecast of cash flows presented by the borrower and checked by the bank. The repayment schedule must include at least the loan amount, the interest rate on the loan, the issuance date, dates of planned repayments with indication of the amounts of planned repayments on the principal amount and on accrued interest, and the remaining debt on the loan.

At the same time, taxes included in the interest rate on loans, established by the tax legislation of the Kyrgyz Republic, must be indicated separately in the repayment schedule for the purpose of informing borrowers.

The repayment schedule is an integral part of the credit contract. A repayment schedule is not required for credit products for which its compilation is not provided (overdrafts on payment cards within salary projects, overdrafts on payment cards issued to pensioners, credit lines, etc.).";

• rephrase the second paragraph of paragraph 44 as follows:

"Note: upon detection of facts of the borrower using the loan for non-purposeful purposes, the bank has the right to demand early repayment of the remaining amount of debt on the loan from the borrower, unless otherwise provided for in the credit contract.";

• rephrase the first paragraph of paragraph 46 as follows:

"46. Each page of the credit contract with all appendices must be signed by the client on paper media or in the form of a single electronic document signed by means of an electronic signature allowing to verify its belonging to the party to the contract, with the exception of cases of concluding a mixed contract or a separate additional agreement, in which the terms of obtaining a credit card holder or overdraft, the procedure and terms of their provision, methods of obtaining and other conditions are specified in accordance with the legislation of the Kyrgyz Republic.";

• rephrase paragraph 54 as follows:

"54. The pledge contract is drawn up in the state or official language (with the right to choose the language provided to the bank client, the confirmation of which will be the written or electronic (signed by means of an electronic signature) consent of the client to draw up the pledge contract in the language chosen by him (this consent is attached/stored in the client's credit file). At the same time, the text of the pledge contract must be clear and accessible for perception and understanding by the borrower/pledgor.";

• rephrase paragraph 61 as follows:

"61. The issuance of blanket loans should not be a widespread practice. The maximum risk size for blanket loans must not exceed 50% of the size of the bank's net aggregate capital. When issuing blanket loans, the bank must have access to high-quality financial reporting of the borrower and a credit history of working with the borrower for a long time (at least two years, with the exception of loans in an amount not exceeding 250,000 som, the duration of which must be at least 12 months) preceding the issuance of the blanket loan.

Note: the maximum risk size for blanket loans must also include all loans not secured by collateral issued before the date of entry into force of the Resolution of the Board of the National Bank of April 24, 2019 No. 2019-P-12/22-4-(NPA) and not complying with the requirements specified in this Resolution of the Board of the National Bank.

Exceptions to blanket loans are loans issued for an amount less than or equal to 250,000 som, with an annuity repayment schedule and a term of no more than 36 months, the interest rate on which must not exceed the value of the weighted average interest rate on consumer loans (at the end of the period), which is published monthly on the official website of the National Bank.

At the same time, the amount of loans meeting the above requirements must not exceed the annual net income of the borrower (taking into account the borrower's expenses).

The maximum risk size for loans excluded from the calculation of blanket loans must not exceed 20% of the net aggregate capital.";

• supplement paragraph 62 with a third paragraph of the following content:

"In the presence of several overdue loans (sub-loans within one or several credit lines) of the borrower in this bank, the bank is obliged to provide the client with the right to independently choose the order of distribution of his funds directed towards repayment of credit debt.";

• in paragraph 63-1:

rephrase the second paragraph as follows:

"- no less than once every six months for loans, the amount of which exceeds one percent of the net aggregate capital of the bank and loans identified by the bank as loans carrying large risk;";

in the third paragraph, replace the digit "100,000" with the digit "250,000";

• in paragraph 63-3, replace the words ", after consideration," with the words "after conducting monitoring of loans";

• rephrase the first paragraph of paragraph 63-4 as follows:

"63-4. Upon detection during monitoring of a problem with loan repayment due to deterioration of the financial condition of the borrower/guarantor/surety or the condition of the loan collateral, a bank employee must promptly report it to the bank management, if necessary - with a proposal to review the classification category of this loan.";

• rephrase paragraph 64 as follows:

"64. Loan classification is carried out based on an independent assessment conducted by persons not participating in the loan issuance process, in accordance with the requirements of regulatory legal acts of the National Bank on classification.";

• rephrase paragraph 78 as follows:

"78. In order to ensure timely repayment of the borrower's debt, the bank may indicate in the credit contract that repayment of debt from secondary sources is possible even before the expiration of the loan term.

If the borrower fails to fulfill the conditions of the credit contract regarding the purposeful use of the loan, the bank has the right to demand early repayment of the remaining amount of debt on the loan from the borrower, unless otherwise provided for in the credit contract.";

• in the first paragraph of paragraph 81, exclude the digit "(7)";

• after paragraph 83, recognize footnotes (1), (2), (6), (7) as having lost force;

• in Appendix 1:

in paragraph 1:

rephrase the third paragraph as follows:

"- full address of the place of stay of the borrower (if the borrower is an individual), phone number, fax;";

add a paragraph after the third paragraph of the following content:

"Note: it is not allowed for the client to indicate only the subscriber box number instead of the full address.";

in paragraph 1-1, replace the digit "250,000" with the digit "500,000";

rephrase paragraph 5 as follows:

"5. Credit contract in the state or official language (with the right to choose the language provided to the bank client, the confirmation of which will be the written or electronic (signed by means of an electronic signature) consent of the client to draw up the credit contract in the language chosen by him (consent is attached/stored in the client's credit file)).";

in paragraph 8, replace the digit "250,000" with the digit "500,000";

rephrase paragraph 17 as follows:

"17. Pledge contract in the state or official language (with the right to choose the language provided to the bank client, the confirmation of which will be the written or electronic consent of the client to draw up the pledge contract in the language chosen by him (this consent is attached/stored in the client's credit file)).";

in the eighth paragraph of paragraph 25, replace the words "market value" with the words "market (fair) and liquidation value";

after paragraph 32, recognize footnote (8) as having lost force.

3. Make the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the "Order for the Operation of Commercial Banks and Other Financial and Credit Organizations Licensed and Regulated by the National Bank of the Kyrgyz Republic with Collateral" dated July 4, 2012 No. 28/7":

rephrase the name of the aforementioned Resolution in the official language as follows:

On approval of "Order of the work of commercial banks and other financial and credit organizations licensed and regulated by the National Bank of the Kyrgyz Republic with collateral";

in the "Order of the work of commercial banks and other financial and credit organizations licensed and regulated by the National Bank of the Kyrgyz Republic with collateral", approved by the aforementioned Resolution:

• supplement Chapter 2 after paragraph 14 with paragraphs 14-1 and 14-2 of the following content:

"14-1. If the subject matter of a pledge agreement is things or rights that will arise in the future, including future stocks of the pledgor's produced products, then such collateral must constitute no more than 20% in the structure of security for the obligation. The subject matter of the agreement is determined in accordance with the requirements of legislation individually for each object upon compliance with the requirement established in this paragraph. At the same time, the pledge agreement for the above-mentioned collateral must provide for a period during which the pledgor must transfer ownership rights to the collateral specified in the pledge agreement. Such period must not exceed 3 (three) months.

14-2. In the event that pledge items/collateral, including claims, are accepted as security for which there is no developed market for conducting valuations or which require special knowledge/competencies for their valuation (precious stones, precious metals, specialized equipment, etc.), the borrower must in mandatory order confirm the value of the collateral, and an appraisal of this collateral by an appraiser (appraisal organization) must be conducted. Additionally, the borrower must provide documents on the quality and characteristic properties of the accepted collateral, which must be confirmed by a corresponding expert opinion.

In the absence of the above-mentioned documents, the bank cannot accept such pledge item as collateral. The bank must assess the risks of such collateral, including issues of its subsequent realization, in accordance with the legislation of the Kyrgyz Republic.".