Resolution of the Board of the National Bank of the Kyrgyz Republic No. 40/3 of October 12, 2012 on Amendments and Additions to Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of October 12, 2012 No. 40/3

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 of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic", the Board of the National Bank of the Kyrgyz Republic

RESOLVES:

1. Approve the following amendments and additions to the regulatory legal acts of the National Bank of the Kyrgyz Republic:

• to the "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", approved by Resolution No. 52/4 of the Board of the National Bank of the Kyrgyz Republic of June 30, 2010 (attached);

• to the "Regulation on Minimum Requirements for Country Risk Management in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic", approved by Resolution No. 19/3 of the Board of the National Bank of the Kyrgyz Republic of June 28, 2006 (attached);

• to the "Regulation on Classification of Assets and Corresponding Provisions for Coverage of Potential Losses and Damages", approved by Resolution No. 18/3 of the Board of the National Bank of the Kyrgyz Republic of July 21, 2004 (attached).

2. The Legal Department:

• publish this resolution on the official website of the National Bank of the Kyrgyz Republic and in the journal "Regulatory Acts 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 days have passed since its official publication.

4. The Supervision and Licensing Methodology Department shall bring this resolution to the attention of commercial banks, microfinance companies, and credit unions.

5. Control over the implementation of this resolution is entrusted to the Deputy Chairman of the National Bank of the Kyrgyz Republic Z.L. Chokoev.

For the Chairman Acting Chairman of the National Bank of the Kyrgyz Republic	Z. Chokoev

| | Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic of October 12, 2012 No. 40/3 |

AMENDMENTS AND ADDITIONS to certain regulatory legal acts of the National Bank of the Kyrgyz Republic

1. Make the following amendments and additions to the "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", approved by Resolution No. 52/4 of the Board of the National Bank of the Kyrgyz Republic of June 30, 2010:

a) Amend Paragraph 4 as follows:

"For the purposes of this Regulation, credits are understood as assets and off-balance sheet obligations, including factoring, leasing, and other assets carrying credit risk. Cross-border credits are credits issued to residents/non-residents for financing activities exclusively outside the Kyrgyz Republic, wherein the concept of resident/non-resident corresponds to the concept in the Law of the Kyrgyz Republic 'On Operations in Foreign Currency'."

b) Amend Paragraph 1 of Paragraph 12 as follows:

"The Bank's Board of Directors is obliged to review the credit policy and, if necessary, the bank's strategy, as changes occur in the bank's risk profile, the National Bank's regulatory legal acts, the complexity of the bank's operations, the organizational structure and staff of the bank, which have affected the lending process, as well as changes occurring in the economy of the republic and countries where the bank and its clients have partners, affecting the lending process, but no less frequently than once a year."

c) Amend Paragraph 5 of Paragraph 12 as follows:

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

d) Supplement Paragraph 12 with Paragraph 6 of the following content:

"Approval by the Bank's Board of Directors is required in cases where collateral located outside the Kyrgyz Republic serves as security for more than 20% of the loan amount. In this case, the cost of collateral is understood as its liquidation value."

e) Exclude Paragraph 52 (in connection with the inclusion of the specified paragraph in the 'Procedure for the Work of Commercial Banks and Microfinance Companies of the Kyrgyz Republic with Collateral').

2. Make the following amendments to the "Regulation on Minimum Requirements for Country Risk Management in Commercial Banks and Other Financial and Credit Institutions Licensed by the National Bank of the Kyrgyz Republic", approved by Resolution No. 19/3 of the Board of the National Bank of the Kyrgyz Republic of June 28, 2006:

a) Amend Paragraph 4.10 as follows:

"The Bank with significant cross-border activity is recommended to consider the possibility of establishing sub-limits for country risk exposure. Criteria for establishing sub-limits may include, among other things, maturity term (short-term and long-term); type of borrower (financial institutions, type of business); type of country risk (sovereign, transfer); type of product (trade credit, project financing); presence of collateral accepted outside the Kyrgyz Republic, etc."

b) In Paragraph 5.4 of Section 5, replace the word "quarter" with the word "year".

c) Amend Paragraph 6.2 as follows:

"The Board of Directors is responsible for ensuring compliance by the Board of Directors with the policy on country risk management and the implementation of appropriate measures to identify, monitor, and control country risk. The Board of Directors must review, at least annually, the bank's policy on country risk management and the creation of provisions to cover potential losses from cross-border credit operations of banks, in order to ensure their compliance with the scale and complexity taking into account country risk."

3. Supplement the "Regulation on Classification of Assets and Corresponding Provisions for Coverage of Potential Losses and Damages", approved by Resolution No. 18/3 of the Board of the National Bank of the Kyrgyz Republic of July 21, 2004, with a new chapter of the following content:

"11. Classification of cross-border credits and credits, which are secured by collateral located outside the Kyrgyz Republic

11.1. Cross-border credits and credits secured by collateral located outside the Kyrgyz Republic are classified as credits under supervision upon issuance.

11.2. Credits not falling under the definition of 'cross-border credits' are also classified as under supervision, for which collateral located outside the Kyrgyz Republic is not the sole security, and the quality and value of the collateral, including its ratio to the loan size within the Kyrgyz Republic, do not meet the corresponding requirements of the National Bank of the Kyrgyz Republic and the internal policies of financial and credit institutions."

Accordingly, consider Chapters 11 and 12 as Chapters 12 and 13.