Resolution of the Board of the National Bank of the Kyrgyz Republic No. 45/16 of November 27, 2013 on Amendments to Certain Regulatory Acts

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of November 27, 2013 No. 45/16

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

Guided by 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 attached amendments and additions to the following regulatory legal acts of the National Bank of the Kyrgyz Republic:

• The Regulation "On Minimum Requirements for Credit Risk Management in 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. 52/4 of June 30, 2010;

• The Temporary Procedure for the Application of Special Classification of Loans Meeting Certain Criteria, approved by Resolution of the Board of the National Bank of the Kyrgyz Republic No. 5/6 of March 2, 2006, registered in the Ministry of Justice of the Kyrgyz Republic on April 7, 2006, registration number 35-06;

• The Regulation "On Minimum Requirements for Credit Risk Management in Microfinance Organizations Not Attracting Deposits (Deposits)", approved by Resolution of the Board of the National Bank of the Kyrgyz Republic No. 35/14 of September 25, 2013;

• The Temporary Regulation on General Principles of Asset Classification and Formation of Reserves to Cover Potential Losses and Expenses by Microfinance Organizations in the Kyrgyz Republic Not Having the Right to Accept Deposits from Individuals and Legal Entities, approved by Resolution of the Board of the National Bank of the Kyrgyz Republic No. 31/3 of October 22, 2003.

2. This Resolution shall enter into force upon the expiration of fifteen days from the date of 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, the State Development Bank, and microfinance organizations.

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

| Chairman | Z. Asankozhoeva |

| | Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic of November 27, 2013 No. 45/16 |

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

1. Make the following 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 of the Board of the National Bank of the Kyrgyz Republic No. 52/4 of June 30, 2010:

1. In paragraph 30, add the following sentence to the sixth paragraph:

"When considering an application for a loan from participants of a Group of Borrowers (GSO), the credit specialist must ensure that members of the same family, living together and/or conducting joint business, are not participants of the same GSO."

2. Add the following paragraphs to paragraph 30:

"It must be taken into account that the number of GSO participants who are not members of the same family but have joint business shall not exceed 20 percent of the total number of participants of that GSO. And the share of GSO participants who are not members of the same family but have joint business shall not exceed 20 percent of the total amount of loans issued by the GSO.

For the purposes of this Regulation, joint business is understood as economic activity involving several entrepreneurs (partners, co-owners, etc.). Their activity is aimed at obtaining profit from joint production and/or sale of goods, provision of services, in which, for this purpose, property, intangible assets, and the labor of these entrepreneurs are used. Participants in joint business proportionally divide the profit from the business among themselves and bear the risk of loss of all or part of the property."

3. Add the following paragraph to paragraph 41 between paragraphs 6 and 7:

"- the client's right to early repayment of the loan, provided that the bank is notified at least thirty days before the date of such repayment."

4. Add the following paragraph to paragraph 41:

"In the event of early repayment of the loan by one of the GSO participants in their share, they continue to bear joint and several liability under the guarantee agreement until the full repayment of the loan obtained as part of that GSO. Provided that the GSO participants and the bank agree, and the conditions for the minimum composition of the GSO are met, the participant who repaid the loan in their share may be released from joint and several liability."

2. Make the following additions to the Regulation "On Minimum Requirements for Credit Risk Management in Microfinance Organizations Not Attracting Deposits (Deposits)", approved by Resolution of the Board of the National Bank of the Kyrgyz Republic No. 35/14 of September 25, 2013:

1. Add paragraphs 3, 4, and 5 to paragraph 18 as follows:

"3) participants of one GSO are not members of the same family, living together and/or conducting joint business;

4. the number of GSO participants who are not members of the same family but have joint business shall not exceed 20 percent of the total number of participants of that GSO;

5. the share of GSO participants who are not members of the same family but have joint business shall not exceed 20 percent of the total amount of loans issued by the GSO.

For the purposes of this Regulation, joint business is understood as economic activity involving several entrepreneurs (partners, co-owners, etc.). Their activity is aimed at obtaining profit from joint production and/or sale of goods, provision of services, in which, for this purpose, property, intangible assets, and the labor of these entrepreneurs are used. Participants in joint business proportionally divide the profit from the business among themselves and bear joint and several risk of loss of all or part of the property."

2. Rewrite the first paragraph of paragraph 29 as follows:

"The credit contract concluded between the MFO and the client, along with all its attachments and other contracts/agreements, shall be drawn up in the state or official language (with the right to choose the language provided to the client). The number of original copies of the credit contracts must be no less than the number of parties to the contract. In group lending, when one of the parties is a GSO, the number of original copies of the credit contract for the GSO must be no less than the number of GSO participants who signed the contract. The MFO must ensure the preservation of all original documents related to the credit contract in accordance with the legislation of the Kyrgyz Republic."

3. Add the following fifth paragraph to paragraph 35:

"5) the right of each GSO participant to early repayment of the loan in their share, without any penalty fees, provided that the MFO is notified at least thirty days before the date of such repayment.

In the event of early repayment of the loan by one of the GSO participants in their share, they continue to bear joint and several liability under the guarantee agreement until the full repayment of the loan obtained as part of that GSO. Provided that the GSO participants and the MFO agree, and the conditions for the minimum composition of the GSO are met, the GSO participant who repaid the loan in their share may be released from joint and several liability."

4. In paragraph 38, replace the words "other loan of this borrower" with the words: "other credit product issued to this borrower";

5. In paragraph 41, after the words "guarantee (guarantee)", add the words "joint and several liability of GSO participants";

6. In sub-item 7 of paragraph 1 of Appendix 1, add the following words:

"And in group lending of GSO participants - a document confirming the consent of the spouse, obtained via facsimile, electronic, and other types of communication, with subsequent submission of the original document."

3. Make the following additions to the Temporary Procedure for the Application of Special Classification of Loans Meeting Certain Criteria, approved by Resolution of the Board of the National Bank of the Kyrgyz Republic No. 5/6 of March 2, 2006:

1. Rewrite paragraph 1.2 as follows:

"This Procedure defines the minimum conditions and requirements, compliance with which allows banks/financial and credit institutions (FCIs) to apply special classification of loans and make corresponding allocations to reserves to cover potential losses and expenses (hereinafter - RPPU)."

2. Add sub-item 2-1.5 to paragraph 2-1 of Section 2 as follows:

"2-1.5. Loans issued to GSO participants having joint business must be classified as 'assets under supervision' in the absence of overdue debt on them.

In the event of overdue debt on the principal amount and/or interest on loans obtained in this bank/FCI by GSO participants having joint business, classification must be applied depending on the number of days of overdue debt in accordance with this Procedure. In the event of overdue debt on the principal amount and/or interest on the loan of one of the GSO participants for more than 30 days, the classification category assigned to the loan of that GSO participant in accordance with this Procedure must be applied to all loans issued to participants of that GSO."

4. Make the following change to the Temporary Regulation on General Principles of Asset Classification and Formation of Reserves to Cover Potential Losses and Expenses by Microfinance Organizations in the Kyrgyz Republic Not Having the Right to Accept Deposits from Individuals and Legal Entities, approved by Resolution of the Board of the National Bank of the Kyrgyz Republic of October 22, 2003 No. 31/3:

1. Exclude the fifth paragraph from paragraph 3.6.