Resolution of the Board of the National Bank of the Kyrgyz Republic No. 40/3 of 23 December 2005 on Amending and Supplementing the Regulation on Lending in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic

Registered in the Ministry of Justice of the Kyrgyz Republic

26 January 2006. Registration number 12-06

Bishkek

of 23 December 2005 No. 40/3

RESOLUTION OF THE BOARD OF THE NATIONAL BANK

OF THE KYRGYZ REPUBLIC

On Amending and Supplementing the Regulation

on Lending in Commercial Banks and Other

Financial and Credit Institutions Licensed

by the National Bank of the Kyrgyz Republic

Having considered the draft amendments and supplements to the Regulation on Lending in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic, the Board of the National Bank of the Kyrgyz Republic resolves:

1. To approve the attached amendments and supplements to the Regulation on Lending in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic, approved by Resolution of the Board of the National Bank of the Kyrgyz Republic No. 12/7 of 27.04.2005 (registration number of the Ministry of Justice of the Kyrgyz Republic 69-05 of 03.06.2005).

2. In paragraph 1 of Resolution of the Board of the NBKR "On Approving the Regulation on Lending in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic" No. 12/7 of 27.04.2005 (registration number of the Ministry of Justice of the Kyrgyz Republic 69-05 of 03.06.2005), replace the title "Regulation on Lending in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic" with "Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic".

3. The Supervision Methodology and Licensing Department, together with the Legal Department, shall carry out, in the established procedure, state registration of this resolution with the Ministry of Justice of the Kyrgyz Republic, with subsequent official publication.

4. This resolution shall enter into force from the moment of official publication after state registration with the Ministry of Justice of the Kyrgyz Republic.

5. After publication of the registered normative legal act, inform the Ministry of Justice of the Kyrgyz Republic of the source of publication (name of the publication, its number and date).

6. Control over the execution of this resolution shall be assigned to the Deputy Chairman of the National Bank of the Kyrgyz Republic, S.E. Dzhanybekova.

Chairman of the Board of the National

Bank of the Kyrgyz Republic U. Sarbanov

Approved

by resolution of the Board

of the National Bank

of the Kyrgyz Republic

of 23 December 2005 No. 40/3

AMENDMENTS AND SUPPLEMENTS

to the Regulation on Lending in Commercial

Banks and Other Financial and Credit Institutions

Licensed by the National Bank

of the Kyrgyz Republic

I. Replace the title of the Regulation on Lending in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic with "Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic" (hereinafter - the Regulation).

II. State paragraph 1.2 of section 1 of the Regulation in the following wording:

"1.2. The purpose of this Regulation is to define minimum requirements for the formation in banks of an adequate credit risk management system".

III. Supplement section 1 of the Regulation with paragraph 1.3 of the following content:

"1.3. Credit risk is the risk of clients failing to fulfill their obligations in accordance with the terms and conditions of the contract.

Credit risk is present in all types of the bank's activities where a positive result depends on the fulfillment by the borrower or client of obligations to the bank provided for by agreements and/or contracts.

The purpose of credit risk management is to determine the degree of the bank's exposure to credit risk, identify the causes of its occurrence and determine internal and external trends of increasing risk, on the basis of which it is possible to forecast credit risk, and take necessary measures to minimize it to an acceptable level.

IV. Paragraph 1.3 of section 1 of the Regulation shall be considered paragraph 1.4.

V. Supplement subparagraph 2.3.1 of paragraph 2.3 of section 2 of the Regulation with paragraph 5:

"- lending terms";

VI. In paragraph 12 of subparagraph 2.3.1 of section 2 of the Regulation, after the word "value" add the words "and acceptability".

VII. Supplement subparagraph 2.3.3 of paragraph 2.3 of section 2 of the Regulation with paragraph 5:

"- frequency of collateral monitoring".

VIII. State subparagraph 2.3.4 of paragraph 2.3 of section 2 of the Regulation in the following wording:

"2.3.4. Separation of powers for granting loans, indicating the maximum amount and type of loan. The right to grant loans and assume off-balance-sheet obligations of the bank must be divided into several levels of officials who bear responsibility in accordance with the legislation of the Kyrgyz Republic for violations committed in lending".

IX. State subparagraph 2.3.5 of paragraph 2.3 of section 2 of the Regulation in the following wording:

"2.3.5. Duties for the transfer of rights and provision of information between structural subdivisions involved in the lending process".

X. Supplement paragraph 2.3 of section 2 of the Regulation with subparagraph 2.3.6 of the following content:

"Assessment of risks for new banking products. Risks for all new products must be identified, assessed and under control before the bank enters the market for such products".

XI. Subparagraph 2.3.6 of paragraph 2.3 of section 2 of the Regulation shall be considered subparagraph 2.3.7.

XII. State paragraph 3.2 of section 3 of the Regulation in the following wording:

"3.2. All issues concerning the granting of loans, guarantees of obligations, sureties, and other assets and liabilities that are essentially credit operations and carry the risk of credit loss must be decided only by the Credit Committee. The Credit Committee may delegate this right to other persons, except for issues within the competence of the bank's Board of Directors. The Credit Committee also considers issues concerning the separation of powers for granting loans in accordance with the credit policy. The Credit Committee submits to the Board of Directors for consideration proposals on the sale and write-off of loans carrying large risk ((1) see note). The bank's Management Board is responsible for executing the decisions of the Board of Directors on these issues".

XIII. State paragraph 3.4 of section 3 of the Regulation in the following wording:

"3.4. The Regulation on the Credit Committee must determine:

• the organization of the work of the Credit Committee - composition, procedure for holding meetings, list of documents necessary for making decisions;

• the powers and responsibility of the Credit Committee;

• accountability to the Board of Directors and the procedure for interaction with the Management Board and structural subdivisions of the bank on lending issues".

XIV. Exclude section 4 of the Regulation with a corresponding change in the numbering of subsequent sections.

XV. Supplement paragraph 4 of subparagraph 5.1.4 of paragraph 5.1 of section 5, after the words "... in accordance with the legislation of the Kyrgyz Republic", with the words "and/or annual financial statements accepted by the tax authorities".

XVI. Supplement paragraph 7 of subparagraph 5.1.4 of paragraph 5.1 of section 5, after the words "... borrower's funds", with the words "sources, terms and plan of measures for repayment of the loan".

XVII. Exclude paragraphs 8 and 9 of subparagraph 5.1.4 of paragraph 5.1 of section 5.

XVIII. State paragraph 12 of subparagraph 5.1.4 of paragraph 5.1 of section 5 in the following wording:

"- identity document (if the borrower is an individual)".

XIX. In the first sentence of paragraph 6.2 of section 6 of the Regulation, add a footnote to the word "periodically" of the following content:

"(*) the frequency of preparing the report on the current status of the loan must be determined by the bank depending on the term for which the loan is granted".

XX. State the first sentence of paragraph 6.7 of section 6 of the Regulation in the following wording:

"For the purpose of constant control over the safety of the pledged property and identification of possible changes in its current value, the bank must periodically, but not less than once a year, conduct monitoring of the collateral at its places of storage and location. The frequency of collateral monitoring is determined by the bank in accordance with the credit policy and depends on the type of collateral, the quality of the loan and other factors. At the same time, a mandatory condition must be the bank's ensuring control over the safety of the pledged property".

XXI. State paragraph 7.5 of section 7 in the following wording:

"7.5. The head of the structural subdivision of the bank responsible for working with problem loans must, on a monthly basis, submit to the Credit Committee for consideration a report on the work done with proposals for further actions in relation to "problem" loans. Copies of the report are sent to the Management Board and the Board of Directors of the bank".

XXII. Exclude paragraph 7.7 of section 7 of the Regulation.

XXIII. Paragraph 7.8 of section 7 of the Regulation shall be considered paragraph 7.7 and stated in the following wording:

"7.7. After exhausting all legal possibilities for loan recovery, the decision to write off loans carrying large risk ((2) see note) is taken by the Board of Directors of the bank, and other loans - by the Management Board of the bank with mandatory notification of the Board of Directors".

XXIV. Paragraphs 7.9 and 7.10 of section 7 of the Regulation shall be considered paragraphs 7.8 and 7.9, respectively.

XXV. Exclude paragraph 11 of section 1 of Appendix 1 to the Regulation with a corresponding change in the numbering of subsequent paragraphs.

XXVI. In paragraph 12 of section 1 of Appendix 1 to the Regulation, replace the words "copy of passport" with "copy of identity document".

Notes:

(1) According to the Instruction "On Restrictions on Lending", approved by resolution of the Board of the NBKR No. 24/4 of 15.09.2004, registration number of the MJ KR 109-04 of 7.10.04, the aggregate debt of one borrower exceeding 10% of the bank's NCA is considered a large risk.

(2) See footnote 1.