Resolution of the Board of the National Bank of the Kyrgyz Republic No. 21/9 of 31 May 2017 on Amendments and Additions to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic

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Date of creation: 2017-06-12

Resolution of the Board

of the National Bank

of the Kyrgyz Republic

dated 31 May 2017 No. 21\9

On Amendments and Additions to Certain Regulatory Legal Acts

of the National Bank of the Kyrgyz Republic

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

1. To introduce amendments and additions 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 approval of the Regulation 'On Minimum Requirements for Credit Risk Management in Credit Unions'" dated 23 December 2009 No. 50/7;

• 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 Microfinance Organizations Not Attracting Deposits (Deposits)'" dated 25 September 2013 No. 35/14.

2. This resolution enters into force on 22 June 2017.

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 Supervision and Licensing Methodology Department shall bring this resolution to the attention of credit unions, microfinance organizations, 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 member of the Board of the National Bank of the Kyrgyz Republic Dzhusupov T.Dzh.

Chairman T. Abdygulov

Appendix

to the Resolution of the Board

of the National Bank

of the Kyrgyz Republic

dated 31 May 2017 No. 21\9

Amendments and Additions to Certain Regulatory Legal Acts

of the National Bank of the Kyrgyz Republic

1. To introduce the following amendments and additions 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 Credit Unions" dated 23 December 2009 No. 50/7:

in the Regulation "On Minimum Requirements for Credit Risk Management in Credit Unions" approved by the above-mentioned resolution:

• paragraph 1.1 shall be recognized as having lost force;

• paragraph 3.1 shall be supplemented with a second paragraph of the following content:

"The credit policy of a credit union must reflect issues concerning the possible provision of periodic training for employees in lending and monitoring on issues of analyzing and assessing the borrower's solvency, taking into account the methodology for assessing borrowers' solvency introduced in the credit union, work with problem loans, as well as on other lending issues, including communication with clients, and other requirements of the legislation of the Kyrgyz Republic and the principles of responsible lending.";

• in paragraph 5.1.3:

the first sentence of the paragraph shall be stated in the following wording:

"In general, each analysis of a loan application must be based on the credit union's policy and concentrate on the following key factors for conducting an analysis of the borrower's solvency:";

the last sentence of the third paragraph shall be stated in the following wording:

"and also request information (a credit report) about the borrower and, at the discretion of the credit union, about persons related to the borrower, subject to their consent in accordance with legislation, from one or several credit bureaus.";

• paragraph 5.1.4 shall be stated in the following wording:

"5.1.4. If the issue of granting a loan to the borrower is decided positively, then a borrower's credit file is formed from the documents received.

The credit union must have internal documents on working with data containing requirements for ensuring the preservation and protection of data in accordance with legislation. When collecting information and conducting conversations with clients, credit union employees must give a clear explanation of the cases in which, in accordance with legislation, client data may be used.

For the use of photographs or video recordings depicting the client(s), audio recordings and other information about them, in advertising, marketing materials and for other public purposes, the written consent of the client(s) must be obtained.

In the event of refusal to grant a loan, the credit union must notify the member in writing of the decision taken, with justification of the reason for refusal.";

• paragraph 7.3.2 shall be supplemented with a fourth paragraph of the following content:

"When carrying out work with 'problem' loans, holding meetings and conversations, credit union employees must strictly adhere to accepted business and professional etiquette of behavior.";

• paragraph 7.3.3 shall be supplemented with a sixth paragraph of the following content:

"If, at the time of enforcement against the subject of collateral, the pledged immovable property is the only dwelling of the borrower/pledgor, then enforcement against this property must be carried out by a court decision.".

2. To introduce the following amendments and additions 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 Microfinance Organizations Not Attracting Deposits (Deposits)" dated 25 September 2013 No. 35/14:

in the Regulation "On Minimum Requirements for Credit Risk Management in Microfinance Organizations Not Attracting Deposits (Deposits)" approved by the above-mentioned resolution:

• throughout the text of the Regulation, the word "insider" shall be replaced by the words "related persons" in the corresponding case forms;

• paragraph 1 shall be stated in the following wording:

"1. This Regulation applies to microfinance companies not attracting deposits (deposits), microcredit companies and microcredit agencies, including those carrying out operations under Islamic principles of banking and financing and having an 'Islamic window', taking into account special terminology (hereinafter – MFO).";

• throughout the text, the abbreviation "NBKR" shall be replaced by the words "National Bank" in the corresponding case forms;

• in paragraph 3, the words "On Banks and Banking Activity in the Kyrgyz Republic" shall be replaced by the words "On the National Bank of the Kyrgyz Republic, Banks and Banking Activity";

• the Regulation shall be supplemented with paragraph 5-1 of the following content:

• "5-1. The terms and definitions used in the part concerning Islamic principles of banking and financing correspond to the terms and definitions given in the legislation of the Kyrgyz Republic and regulatory legal acts of the National Bank regulating the activity of MFOs carrying out their activity under Islamic principles of banking and financing.";

• paragraph 12 shall be supplemented with a second paragraph of the following content:

"The MFO must ensure the possible periodic training of MFO employees in lending and monitoring on issues of analyzing and assessing the borrower's solvency, taking into account the methodology for assessing borrowers' solvency introduced in the MFO, work with problem loans, as well as on other lending issues, including communication with clients, and on other requirements of the legislation of the Kyrgyz Republic and the principles of responsible lending.";

• subparagraph 3 of paragraph 13 shall be supplemented with seventh and eighth paragraphs of the following content:

"Borrowers must, if necessary, be informed about the MFO's procedure for working with 'problem' loans, including the possibility of loan restructuring.

When carrying out work with 'problem loans', holding meetings and conversations, MFO employees must strictly adhere to accepted business and professional etiquette of behavior.";

• paragraph 19 shall be supplemented with second and third paragraphs of the following content:

"The MFO must have internal documents on working with data containing requirements for ensuring the preservation and protection of data. When collecting information and conducting conversations with clients, MFO employees must give a clear explanation of the cases in which, in accordance with legislation, client data may be used.

For the use of photographs or video recordings depicting the client(s), audio recordings and other information about them, in advertising, marketing materials and for other public purposes, the written consent of the client(s) must be obtained.";

• in paragraph 20:

the first sentence of subparagraph 2-1 shall be stated in the following wording:

"request from one or several credit bureaus information about the borrower (a credit report) and, at the discretion of the MFO, about persons related to the borrower, subject to their consent in accordance with legislation;";

• subparagraph 5 shall be stated in the following wording:

"5) conducting an assessment of the sources of monetary funds confirming the client's solvency, including for clients who have informal income;";

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

"The MFO, at the borrower's request, shall provide accurate information about the borrower's account (account statements, checks, confirmation of loan payment).";

• the second sentence of paragraph 52 shall be stated in the following wording:

"The financing policy must provide for a list of operations permitted for financing a GSO and other issues related to financing a GSO, including issues of informing group members of the rules for handling information about the date of issuance and repayment of the loan and possible problems with repayment of loan indebtedness).";

• the Regulation shall be supplemented with section 9 of the following content:

"9. Work with 'problem loans'

53. The purpose of constant monitoring of a loan and independent assessment of the loan portfolio is to identify 'problem' loans.

54. 'Problem' loans are understood to be loans for which the borrower fails to fulfill the terms of the agreement with the MFO, or for which, due to any circumstances (for example, external or financial), the fulfillment of obligations to the MFO and repayment of the loan is placed under threat.

55. The MFO must have internal documents on working with problem loans, which may contain:

• work with the borrower to identify problems and search for their solutions;

• obtaining additional collateral and guarantees, etc.;

• if necessary – development of a program to change the structure of indebtedness (revision of the schedule of payments for loan repayment and interest payment, change of lending forms, etc.).

56. Along with these measures, MFOs may carry out work with the borrower himself/herself, on notification and conducting negotiations with the borrower that he/she has violated the terms of the loan agreement, that the loan term is overdue and about possible problems associated with this.

57. When providing lending services, the MFO, in accordance with the pledge agreement, which is an integral part of the loan agreement, must grant the borrower and/or pledgor a preferential right to buy out the pledged property, according to which the borrower and/or pledgor may buy out the pledged property at any time before the start of public auctions.

If, at the time of enforcement against the subject of collateral, the pledged immovable property is the only dwelling of the borrower/pledgor, then enforcement against this property must be carried out by a court decision.

58. In the MFO, on a periodic basis, information on the work performed with proposals for further actions in relation to 'problem' loans shall be submitted for consideration by the management.

59. If the MFO's actions on working with 'problem' loans have not led to a positive result, the MFO may apply to court for the purpose of compulsory recovery of indebtedness.

60. After all legal possibilities for loan recovery have been exhausted, a decision may be taken to write off the loans.";

• Appendix 1 to the Regulation shall be stated in the following wording: "Minimum requirements for the borrower's credit file

I. General information about the borrower.

1. Documents for an individual:

1) a loan application in the form established by the MFO, signed by the client (for a group loan – the application is signed by each member of the GSO);

2) information (according to the written information submitted by the borrower, for example, in the borrower's loan application or another document) about loans previously received/repaid/outstanding in this MFO and other financial and credit institutions, for the last six months preceding the submission of the application to the MFO;

3) a credit report on the borrower from a credit bureau;

4) the client's consent to the provision of a credit report about himself/herself (may be indicated in the loan application);

5) a copy of the identity document by which the MFO client can be identified;

6) a certificate from the actual place of residence issued by an authorized body;

7) information about the client's income;

8) an inventory of the property being pledged (if any);

9) the consent of the client's spouse to obtain a loan (for loans over 50,000 soms per borrower and when obtaining a loan, if there are existing loans), and in the case of group lending to GSO members – a document confirming the spouse's consent, obtained via facsimile, electronic and other types of communication, with subsequent provision of the original document.

2. For an individual carrying out individual entrepreneurial activity without forming a legal entity, in addition to the above documents:

1) a copy of the certificate of state registration (re-registration) as an individual carrying out individual entrepreneurial activity without forming a legal entity (if any);

2) a certificate from the tax body, social body (if any);

3) a copy of the patent (if any).

3. Documents for a legal entity:

1) a loan application in the form established by the MFO, signed by the client;

2) information (according to the written information submitted by the borrower, for example, in the borrower's loan application, or another document) about loans previously received/repaid/outstanding in this MFO and other financial and credit institutions, for the last six months preceding the submission of the application to the MFO;

3) a copy of the document certifying the authority of the head of the legal entity to dispose of the legal entity's funds;

4) notarized cards with specimen signatures of persons entitled to sign;

5) copies of constituent documents;

6) a copy of the certificate of state registration (re-registration) of the legal entity;

7) a copy of the registration card issued by the tax body, if the taxpayer identification number is not indicated in the certificate of state registration (re-registration) of the legal entity;

8) an inventory of the property being pledged.

4. A statement of receipt of credit funds by GSO members – for a group loan or another document confirming the receipt or transfer of monetary funds to GSO members.

5. Assessment of sources of monetary funds confirming the client's solvency.

6. The loan agreement in the state or official language, appendices thereto, as well as agreements additionally concluded with the client upon restructuring or prolongation, assignment of rights of claim.

7. The decision of the relevant MFO body on granting the loan, as well as its prolongation or restructuring (if any).

8. Correspondence with the borrower (with attachment of all correspondence).

9. Legal documentation (copies of the borrower's documents on its activity, for example, waybills, invoices, contracts with partners, etc.).

10. Report on verification of the targeted use of the loan.

11. Client questionnaire drawn up in the standard form in accordance with the requirements of the authorized state body in the field of combating the legalization (laundering) of criminal proceeds and the financing of terrorist or extremist activity.

12. Information about the guarantor's income.

13. A credit report on the guarantor from a credit bureau.

II. Collateral documentation

14. Pledge agreement/Guarantee agreement.

15. Copies of certificates, attestations and other qualification documents on the pledged property (if any).

16. Copies of documents confirming ownership of the pledged property. The originals of documents confirming ownership of the pledged property must be kept in a safe.

17. Copies of documents confirming registration of the pledge agreement (if the pledge must be registered in accordance with the requirements of legislation).

18. The decision of the relevant body of the borrower on the provision of collateral (if the borrower is a legal entity).

19. The consent of the guarantor's spouse (if any) to issue a guarantee.".

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