Resolution of the Board of the National Bank of the Kyrgyz Republic No. 47/6 of 30 November 2016 on Amending and Supplementing the Resolution of the Board of the National Bank of the Kyrgyz Republic of 23 December 2013 No. 52/7 "On Approval of the Regulation on Minimum Requirements for Credit Risk Management in Credit Unions Operating in Accordance with Islamic Principles of Banking and Finance"

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Date of creation: 2016-12-07

Resolution of the Board of the National Bank

of the Kyrgyz Republic

of 30 November 2016 No. 47\6

On Amending and Supplementing

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 Operating in Accordance

with Islamic Principles of Banking and Finance"

of 23 December 2013 No. 52/7

In accordance with Articles 7 and 43 of the Law "On the National Bank of the Kyrgyz Republic", Article 30 of the Law "On Credit Unions", the Board of the National Bank of the Kyrgyz Republic resolves:

1. To introduce into 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 Operating in Accordance with Islamic Principles of Banking and Finance" of 23 December 2013 No. 52/7 the supplements and amendments (attached).

2. This resolution enters into force upon expiry of fifteen days from the day of official publication.

3. To 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 Normative Legal Acts of the Kyrgyz Republic.

4. To the Supervision Methodology and Licensing Department to bring this resolution to the attention of credit unions, OJSC "Financial Company of Credit Unions" and the Legal Entity Association "National Association of Credit Unions and Cooperatives".

5. To assign control over the execution of this resolution to the member of the Board of the National Bank of the Kyrgyz Republic Dzhusupov T.Dzh.

Chairman T. Abdygulov

Annex

to the Resolution of the Board

of the National Bank

of the Kyrgyz Republic

of 30 November 2016 No. 47\6

Amendments and Supplements 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 Operating in Accordance

with Islamic Principles of Banking and Finance"

of 23 December 2013 No. 52/7

To introduce into 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 Operating in Accordance with Islamic Principles of Banking and Finance" of 23 December 2013 No. 52/7 the following amendments and supplements:

in the Regulation "On Minimum Requirements for Credit Risk Management in Credit Unions Operating in Accordance with Islamic Principles of Banking and Finance", approved by the above-mentioned resolution:

• paragraph 1 after the words "On Credit Unions" shall be supplemented with the words ", "On Credit Information Exchange";

• in paragraph 12 the word "current" shall be deleted;

• in paragraph 18:

the fifth paragraph of subparagraph 2 shall be restated as follows:

"- requirements for collateral and documentation (types of collateral, ratio of asset coverage by collateral, assessment of market value and its location, right to dispose of the collateral, methods of collateral valuation);";

subparagraph 3 shall be supplemented with a fifth paragraph of the following content:

"- analysis and monitoring of the intended use of financing;";

in subparagraph 4 the words "identification, analysis and resolution of situations related to 'problem' assets" shall be replaced with the words "work on identification, analysis and recovery of overdue and outstanding financing debt";

• The Regulation shall be supplemented with paragraph 18-1 of the following content:

"A credit union, for the purpose of organizing work on assessing the risk of performance of financing transactions, is obliged to conclude a credit information exchange agreement with one or more credit bureaus, and also to provide at least one credit bureau with the credit information available in the credit union.

Credit information must be reliable and updated, based on factual data.

The internal documents of the credit union on managing financing activity must contain the procedure and requirements regarding the organization of work on credit information exchange:

• on ensuring the storage and protection of credit information from unauthorized access, destruction, modification, use or disclosure;

• on prohibiting the disclosure of information by the credit union and its employees who have gained access to information in the process of credit information exchange, as well as after termination of their employment contract (contract).

In addition, the internal documents on managing financing activity shall reflect the main conditions and obligations when concluding a credit information exchange agreement with a credit bureau, including:

• timely notification of the credit bureau about changes and updates of credit information;

• making changes, at the request of the subject of credit information, to the credit information transferred to the credit bureau;

• ensuring uninterrupted functioning of the data transmission system to the credit bureau in accordance with the credit information exchange agreement.

A credit union shall be liable for the distortion of credit information transmitted to the credit bureau, as well as for the completeness of the transmitted information, including with respect to all clients, in accordance with the legislation of the Kyrgyz Republic and normative legal acts of the National Bank.";

• the second sentence of paragraph 20 shall be restated as follows:

"All issues concerning the issuance of assets bearing credit risk must be decided by the Financing Committee.";

• The Regulation shall be supplemented with paragraph 20-1 of the following content:

"20-1. A credit union is obliged to regularly improve the level of knowledge of its employees in the area of responsible lending.";

• paragraph 24 shall be supplemented with a second paragraph of the following content:

"The internal policies of the credit union must define the deadline for reviewing an application.";

• subparagraph 2 of paragraph 25 shall be restated as follows:

"2) character of the client. The financing officer must establish that the client takes a responsible approach to obtaining financing, gives complete answers to the credit union's questions and will make every effort to repay the debt. The analysis should also take into account whether the client has used assets bearing credit risk in other financial and credit institutions in the past, how repayment was carried out, his discipline, readiness to fulfill his obligations. His reputation, both professionally and in human terms, should also be taken into account, and the term and experience of the client's work in the given industry, his successes and achievements should be considered. In addition, with the client's consent, the credit union must request information about him from one or more credit bureaus.

The credit union must observe the confidentiality and safekeeping of the credit report received from the credit bureau, not disclose the credit information contained therein to third parties and use the credit report only for the purposes established by legislation.

The credit union shall be liable for the distortion of information contained in the credit report;";

• paragraph 27 shall be restated as follows:

"27. If the issue of issuing an asset bearing credit risk to a client is decided positively, then a financing file for the client is formed from the received documents.

In case of refusal to issue financing, the credit union must notify the client in writing of the decision taken, with justification of the reason for refusal.";

• in the second sentence of paragraph 27-1 the words "different from the currency of the credit agreement" shall be replaced with the words "different from the currency of the financing agreement";

• paragraph 28 shall be recognized as having lost force;

• paragraph 2 of chapter 5 shall be restated as follows:

"§ 2. Requirements for the financing agreement and the procedure for its conclusion.

29. The financing agreement concluded between the credit union and the client, with all annexes thereto, and other contracts/agreements, shall be drawn up in the state or official language (with the client being given the right to choose the language). The number of original copies of the financing agreement must be no less than the number of parties that concluded the agreement. The credit union must ensure the safekeeping of the original copies of the financing agreement in accordance with the legislation of the Kyrgyz Republic.

The text of the financing agreement must be accessible for perception and understanding by the client. The rights and obligations of the client arising from the terms of the financing agreement must be reflected in a separate section of the financing agreement. Throughout the text of the financing agreement and in all annexes thereto, the font must be the same and its size must be no less than 12.

30. When signing the financing agreement, all conditions under which the asset is issued and will be repaid should be clarified, in order to avoid possible problems with repayment in the future.

31. A credit union is not entitled to unilaterally change the initial terms of the financing agreement without the written consent of the client, if this worsens the client's rights and increases the client's obligations.

32. The financing repayment schedule is an integral part of the financing agreement; the repayment term is drawn up taking into account the client's financial capabilities and is signed by both parties.

33. The financing agreement shall at a minimum specify:

• the names of the parties;

• the subject of the agreement;

• the term of the financing agreement;

• the main conditions for the provision of financing, including indicating the amount, procedure and term of repayment, type of security, markup/income on financing;

• the rights and obligations of the client, including in case of non-performance or improper performance of obligations assumed by him under the financing agreement;

• the rights and obligations of the credit union;

• the conditions for providing information about the client to the credit bureau (if the given credit union is a participant thereof);

• the client's right to early repayment of the asset at any time, without any penalty sanctions, provided that the credit union is notified thereof no less than thirty days before the day of such repayment;

• the conditions of the relationship between the credit union and the client upon the occurrence of force majeure circumstances. Force majeure circumstances may include, but are not limited to, such events as: natural disasters (floods, earthquakes, fires and other natural or man-made catastrophes), epidemics, imposition of a state of emergency, mass riots, looting, military actions, etc.

34.

The credit union must familiarize the client with the list of the client's expenses (payments), which is drawn up in tabular form in accordance with Annex 2 to this Regulation and is an integral part of the financing agreement and is signed by both parties.

If necessary, the credit union must provide the client with explanations on the procedure for calculating payments on financing, penalties, fines, etc.

The credit union is not entitled to include in the terms of the financing agreement additional fees, commissions and other payments levied/paid in the credit union and related to the conclusion and performance of the financing agreement, other than those approved by the credit union's tariffs, as well as other related services on a paid basis, regardless of the arrangement with the client.

34-1. After concluding the financing agreement with the client and the client's receipt of funds, at a minimum the following documents must be given to the client:

• the financing agreement with the payment schedule signed by the parties;

• the list of expenses (payments) of clients of the credit union and penalty sanctions.

34-2.

The client's credit file (minimum requirements for the file are presented in Annex 1 to this Regulation) is formed from the moment the application is received from the client, and all relevant financing documents are filed therein.

34-3. When conducting monitoring of assets, the credit union should document and keep records of all measures carried out on them, including making an entry in the log of a brief summary of telephone conversations and meetings with the client. It is especially important to keep such records in work with problem assets.";

• in paragraph 40:

the sixth paragraph before the words "term of performance" shall be supplemented with the word "amount and";

in the ninth paragraph the word "provided" shall be replaced with the words "and obligations of the parties in relation to the collateral in accordance with";

• paragraph 50 shall be recognized as having lost force;

• subparagraph 3 of paragraph 53 shall be supplemented with a fifth paragraph of the following content:

"When providing financing services, the credit union, in accordance with the pledge agreement, which is an integral part of the financing agreement, must grant the client and the pledgor (if any) a preferential right to buy out the pledged property, according to which the client and/or the pledgor may buy out the pledged property at any time before the start of public auctions.";

• The Annex shall be restated as follows:

"Annex 1

to the Regulation "On Minimum Requirements for Credit Risk Management in Credit Unions Operating in Accordance with Islamic Principles of Banking and Finance

.

MINIMUM REQUIREMENTS

for the financing file of a client

I. General information about the client

1. Application for financing in the form established by the CU with information of the client about obligations received/repaid/outstanding earlier in the given CU and other financial and credit institutions, for the last six months preceding the submission of the application to the CU.

2. Credit report on the client from a credit bureau.

2-1. The client's consent to the provision of a credit report about himself (may be indicated in the application for financing).

3. Copy of an identity document by which the CU client can be identified.

4. Information about the client's income.

5. Inventory of the property being pledged (if any).

6. Consent of the spouse/h of the client to obtain financing (for financing over 50,000 soms per client and when obtaining financing, in the presence of existing obligations).

7. For a client (natural person) carrying out individual entrepreneurial activity without forming a legal entity, in addition to the above documents:

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

• copy of the patent (if any).

7-1. Notarized cards with specimen signatures of persons entitled to sign (if the client is a legal entity).

8. Assessment of sources of funds confirming the client's solvency.

9. Financing agreement in the state or official language, annexes thereto, as well as additionally concluded agreements with the client upon restructuring or prolongation, assignment of rights of claim.

10. Decision of the relevant body of the CU on the issuance of an asset bearing credit risk, as well as its prolongation or restructuring (if any).

11. Correspondence with the client (with attachment of all correspondence).

12. Legal documentation (copies of the client's documents on his activity, for example, waybills, invoices, contracts with partners, etc.).

13. Report on verification of the intended use of the asset.

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

II. Collateral documentation

15. Pledge agreement in the state or official language.

16. Certificates, attestations and other qualification documents on the pledged property (if any).

17. Documents confirming ownership of the pledged property.

18. (recognized as having lost force)

19. Collateral inspection act, which must reflect:

• date of collateral inspection;

• type of collateral;

• date of collateral valuation;

• valuation method;

• location of the collateral;

• condition of the collateral and conditions of its maintenance;

• appraised value of the collateral;

• schedule of periodic inspection of the collateral.

20. Documents confirming registration of the pledge agreement (if the pledge must be registered or the credit union requires registration).

21. Decision of the relevant body of the borrower on the provision of collateral (if the borrower is a legal entity).

III. Guarantees or sureties

22. Written guarantee/surety or surety indicating the relevant financing agreement, the amount for which the guarantee/surety is issued, the expiry date of the guarantee/surety.

23. Decision of the relevant body of the guarantor on the issuance of the guarantee (if the guarantor is a legal entity).

24. Copies of the constituent documents of the guarantor (if the guarantor is a legal entity).

25. Information about the income of the surety.";

• The Regulation shall be supplemented with Annex 2 of the following content:

"Annex 2

to the Regulation "On Minimum Requirements for Credit Risk Management in Credit Unions Operating in Accordance with Islamic Principles of Banking and Finance

LIST

of expenses (payments) of clients of the credit union and penalty sanctions

Expenses (payments) of the client of the credit union on the asset

Amount of the asset bearing credit risk

Indicated in the financing agreement

Markup/income on the asset bearing credit risk

Commission for reviewing the application (processing the asset bearing credit risk)

If there are commissions, their amounts are indicated in accordance with the approved tariffs in percentage or value terms

Commission for issuance and administration of the asset

Commission for opening (if the opening of an account is conditioned by the conclusion of a financing agreement) and servicing (if operations on the asset bearing credit risk are carried out in non-cash form) of loan and/or current accounts

Commission for settlement and cash services (including the client's deposit and receipt of cash through an ATM)

Payments in favor of third parties (payment for insurance services, notary, etc.)

Indicated approximate cost (range) of such expenses with an indication that these expenses may change in the future

Fee for providing statements from client accounts

Indicated in accordance with the approved tariffs of the credit union

Other expenses

Penalty sanctions and fines of the credit union

For late payment of payments on the principal amount of the asset bearing credit risk and on the markup/income of the credit union

Indicated in accordance with the approved amounts of penalty sanctions levied in the credit union on the basis of the financing agreement, in percentage or value terms

Conditions for termination of the financing agreement after receipt of the asset

Indicated on the basis of the financing agreement.

Other expenses

---

---

---

(full name of the authorized

specialist)"

(signature)

(date)

(full name of the client

of the credit union)

(signature)

(date)".

Contacts

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