Resolution of the Board of the National Bank of the Kyrgyz Republic No. 32/6 of July 16, 2014 on Amendments to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of July 16, 2014 No. 32/6

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

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

RESOLVES:

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

• Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Instruction on Determining Capital Adequacy Standards for Banks Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance" dated December 28, 2009 No. 51/4;

• Resolution of the Board of the National Bank of the Kyrgyz Republic "On the Regulation" On the Implementation of Islamic Principles of Finance in the Kyrgyz Republic within the Framework of a Pilot Project" dated October 30, 2006 No. 32/2.

2. This Resolution shall enter into force upon the expiration of fifteen days after its official publication.

3. The Legal Department:

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

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

4. The Supervision and Licensing Methodology Department shall bring this Resolution to the attention of commercial banks.

5. Control over the implementation of this Resolution shall be entrusted to the Deputy Chairman of the National Bank of the Kyrgyz Republic Z. Chokoyev.

Chairman	T. Abdygulov

	Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic dated "16" July 2014 No. 32/6

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

1. Make the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Instruction on Determining Capital Adequacy Standards for Banks Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance" dated December 28, 2009 No. 51/4:

in the Instruction on Determining Capital Adequacy Standards for Banks Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance, approved by the aforementioned Resolution:

• in sub-item "a" of part "Category 4 (credit risk degree - 50%)" of item 24, replace the words "assets placed in accordance with Islamic principles of banking and finance" with the words "financing provided to individuals";

• rephrase sub-item "c" of part "Category 5" (credit risk degree - 100%) of item 24 as follows:

"c) claims on the private sector (assets placed in accordance with Islamic principles of banking and finance):

• assets placed under Mudaraba and Musharaka contracts. In this case, as security for such contracts, there is a pledge - real and personal property, which must be realizable within the timeframes established by the regulatory legal acts of the National Bank of the Kyrgyz Republic. The value of the collateral upon its realization must be sufficient to pay the bank the principal amount of financing and possible costs associated with the realization of the collateral.

The value of the collateral is confirmed by the opinion of an independent appraiser in accordance with the property valuation standards mandatory for application by all subjects of appraisal activity in the Kyrgyz Republic, approved by the Resolution of the Government of the Kyrgyz Republic dated April 3, 2006 No. 217. Independent assessment of collateral property on an annual basis is a mandatory requirement for classifying an asset into this category. In the event of a decrease in the value of the collateral, deterioration of its quality, which may lead to difficulties in realizing the collateral, assets placed under Mudaraba and Musharaka contracts are indicated in Category 6 with a risk degree of 400%. Based on the practice of the bank's operations under Mudaraba and Musharaka contracts, the National Bank may establish additional requirements and restrictions on the bank's conduct of such operations, including regarding collateral security.

• other assets placed in accordance with Islamic principles of banking and finance, except for those specified in categories 3, 4, and 6.";

• rephrase part "Category 6 (credit risk degree - 400%)" of item 24 as follows:

"Category 6 (credit risk degree - 400%): assets placed under Mudaraba and Musharaka contracts, except for assets specified in categories 1-5.".

2. Make the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On the Regulation" On the Implementation of Islamic Principles of Finance in the Kyrgyz Republic within the Framework of a Pilot Project" dated October 30, 2006 No. 32/2:

in the Regulation "On the Implementation of Islamic Principles of Finance in the Kyrgyz Republic within the Framework of a Pilot Project", approved by the aforementioned Resolution:

• in the second paragraph of sub-item "a" of item 12 of Chapter 2.1, replace the words "credits with a risk degree of 100%" with the words "assets with a risk degree in accordance with the Instruction on Determining Capital Adequacy Standards for Banks Carrying Out Operations in Accordance with Islamic Principles of Banking and Finance, approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated December 28, 2009 No. 51/4 (hereinafter - Instruction on Determining Capital Adequacy Standards).";

• rephrase the second paragraph of item 35 of Chapter 2.2 as follows:

"When calculating the capital adequacy coefficient, assets placed under a Sharika transaction are equated to assets with a risk degree in accordance with the Instruction on Determining Capital Adequacy Standards."