Resolution of the Board of the National Bank of the Kyrgyz Republic No. 53/11 of September 16, 2015 on Amendments and Additions to Certain Resolutions of the National Bank of the Kyrgyz Republic

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of September 16, 2015 No. 53/11

On Amendments and Additions to Certain Resolutions of the National Bank of the Kyrgyz Republic

Guided by Article 43 of the Law "On the National Bank of the Kyrgyz Republic", Articles 11 and 39-1 of the Law "On Banks and Banking Activity in the Kyrgyz Republic", the Board of the National Bank of the Kyrgyz Republic

RESOLVES:

1. Make amendments and additions to the following resolutions of the National Bank of the Kyrgyz Republic (attached):

• "On Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic" dated June 30, 2010 No. 52/4;

• "On Temporary Rules "On Lending (Overdraft) via Bank Payment Cards" dated February 13, 2002 No. 8/6.

3. This resolution enters into force upon the expiration of one month from the day of its official publication.

4. 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.

5. The Supervision and Licensing Methodology Department to bring this resolution to the attention of commercial banks, the specialized financial-credit institution JSC "Financial Company of Credit Unions", and the State Development Bank of the Kyrgyz Republic.

6. Control over the execution of this resolution is entrusted to the Deputy Chairman of the National Bank of the Kyrgyz Republic L.Dj. Orozbayeva.

Chairman	T. Abdygulov

	Appendix to the resolution of the Board of the National Bank of the Kyrgyz Republic dated September 16, 2015 No. 53/11

Amendments and additions to certain resolutions of the National Bank of the Kyrgyz Republic

I. Make the following amendments and additions to the resolution of the Board of the National Bank of the Kyrgyz Republic "On Certain Regulatory Legal Acts of the National Bank of the Kyrgyz Republic" dated June 30, 2010 No. 52/4:

in the Regulation on minimum requirements for managing credit risk in commercial banks and other financial-credit institutions licensed by the National Bank of the Kyrgyz Republic, approved by the aforementioned resolution:

1. in paragraph 12:

• paragraphs 2 and 3 are to be worded as follows:

"The Bank Board is responsible for the implementation of the bank's credit policy and credit strategy, for which it is obliged to develop and implement bank policies and procedures for identifying, measuring, monitoring, and controlling credit risk, including credit risk arising from currency risk.

The bank must ensure a comprehensive system for continuous identification, assessment, monitoring, and control of credit risk arising from currency risk, as well as ensure a reporting system for carrying out control, analysis, and monitoring of credit risk arising from currency risk.

All issues related to the issuance of loans must be resolved only by the credit committee or persons to whom the committee delegates this right in accordance with regulatory legal acts, except for issues falling within the competence of the bank's Board of Directors.";

• throughout the text of paragraph 5, the words "large loans" are to be replaced with the words "loans carrying significant risk,";

2. Chapter 2 is to be supplemented after paragraph 12 with paragraphs 12-1 - 12-2 as follows:

"12-1. The bank must conduct an internal audit of the internal control system for credit risk arising from currency risk annually, including the classification of loans/assets.

12-2. The bank must ensure periodic training of bank employees involved in lending and monitoring processes on lending issues, including the requirements of the legislation of the Kyrgyz Republic and responsible lending principles.";

3. in paragraph 20, the last sentence is to be worded as follows:

"Information contained in the Journal should be stored in accordance with the term established in the List of basic documents formed in the activities of commercial banks and financial-credit institutions licensed by the National Bank of the Kyrgyz Republic, specifying storage terms, approved by the resolution of the Board of the National Bank of the Kyrgyz Republic dated August 27, 2004 No. 22/9.";

4. paragraph 25 is to be worded as follows:

"25. To determine the feasibility of providing a loan, the bank must request the following documents from the borrower:

• a completed questionnaire/application, which must contain basic information about the borrower (if the borrower is a legal entity - main type of activity, approximate size of working capital), income (revenue) structure by currency (for loans in foreign currency), loan repayment plan, main business partners, etc.;

• copies of charter documents (if the borrower is a legal entity), notarized or stamped by the legal entity and signed by the head, in cases where, in accordance with legislation, notarization of copies is impossible;

• financial statements for the last reporting year with an external auditor's conclusion, if the borrower is required to undergo annual audit in accordance with the legislation of the Kyrgyz Republic and/or at the bank's discretion, annual financial statements accepted by tax authorities (if the borrower is a legal entity or an individual conducting business activities based on a certificate or patent);

• financial statements, including a cash flow statement, for the previous quarter (if the borrower is a legal entity or an individual conducting business activities based on a certificate or patent);

• a document from state authorities on registration (if the borrower is a legal entity or an individual conducting business activities based on a certificate or patent), except for individuals to whom a loan of no more than 250,000 som is issued;

• a business plan (if the borrower is a legal entity and the loan amount exceeds 3,500,000 som), including the purpose of obtaining the loan, approximate forecast of the borrower's cash flow (annual revenue volume), repayment sources by currency, terms, and plan for loan repayment. In this regard, the bank, in order to minimize credit risks, must establish additional requirements for the business plan for investment loans, large loans, and other loans requiring more thorough assessment of the borrower's business;

• an inventory of pledged property, documents confirming ownership rights (if the collateral is movable/immovable property) and usage rights, and other documents in accordance with the bank's internal documents;

• guarantees (sureties) indicating the guarantor (surety), the amount of the guarantee (surety), the guarantor's financial statements, etc. (if the bank requires the provision of a guarantee (surety));

• a personal identification document (if the borrower is an individual);

• a salary certificate for the last 12 months, or other documents confirming income information (if the borrower is an individual);

• other documents necessary for the bank, including for assessing the borrower's solvency (contracts, agreements, recommendation letters, etc.).";

5. paragraph 5 of paragraph 26 is to be supplemented after the words "other collateral," with the words "acceptable to both parties,";

6. in paragraph 30:

• in paragraphs 2 and 3, the words "Credit officer" are to be replaced with the word "Bank";

• paragraph 4 is to be worded as follows:

"- monetary funds. The main question that a bank employee analyzing a loan application must answer is: will the borrower be able to obtain sufficient monetary funds in the form of income and cash flow, including in the currency in which he intends to obtain the loan, in order to repay the loan. In its assessment, the bank must find out whether there was stable growth in profit or sales volume in the past, and whether there is a probability that such growth will continue during the term of the loan agreement.

In addition, the bank must determine the sufficiency of the borrower's income (revenue) (including in foreign currency) taking into account the growth of exchange rates in order to ensure timely repayment of the loan by the borrower.

In the event that the client's income (revenue) in the next 12 months will be primarily in the national currency, the bank must assess the feasibility of issuing a loan in foreign currency to such a client, taking into account the credit risk arising from currency risk due to unfavorable changes in the exchange rate for the borrower, taking into account the requirements of regulatory legal acts of the National Bank, including on RPPU.";

• paragraph 6 is to be supplemented after the words "If as" with the word "sole";

7. in paragraph 31:

• in the first sentence, the words "Credit officer" are to be replaced with the word "Bank";

• supplemented by the following sentence:

"Responsibility for compliance with the requirements specified in para. 30 of this Regulation when approving a loan is borne by persons authorized to make a decision on the issuance of the loan.";

8. paragraph 40 is to be worded as follows:

"40. When concluding a loan agreement, all conditions under which the loan is issued and will be repaid should be specified in order to avoid possible problems with recoverability in the future; at the same time, the bank has no right to unilaterally change the initial conditions of the loan agreement, except in cases where this right is explicitly specified in the loan agreement with the establishment of a notification period (not less than 30 days), as well as with the indication of a limited list of specific articles, conditions, and maximum/minimum boundaries of their changes. When compiling a schedule of planned loan and interest repayments together with the borrower, it is advisable to focus on the purpose of the loan and the specifics of the borrower's business, the business plan and approximate cash flow forecast presented by the borrower and verified by the bank. The repayment schedule must include at least the loan amount, the interest rate on the loan, the issuance date, dates of planned repayments with the amounts of planned repayments for the principal and accrued interest, and the remaining loan balances. The repayment schedule is an integral part of the loan agreement. A repayment schedule is not required for loan products for which its compilation is not provided (overdrafts on payment cards within salary projects, credit lines, etc.).";

9. in paragraph 41:

• paragraph 4 is to be worded as follows:

"- main loan conditions - amount, repayment term, collateral, annual interest rate, form of loan issuance: cash (through the cash desk) and/or non-cash (including to the client's account, by means of using bank payment cards, etc.);";

• paragraph 7 is to be worded as follows:

"- the client's right to early repayment of the loan, provided that the bank is notified at least thirty days before the day of such repayment, including without the application of penalty sanctions after early repayment after six months from the date of receiving the loan. Early repayment by one participant of a GSO is possible with the written consent of the GSO participants;";

10. in paragraph 42:

• paragraph 2 is to be worded as follows:

"The bank must familiarize the client with the specified list, if necessary, provide the client with explanations on the order of loan calculations, penalties, fines, the order of obtaining/repaying the loan, including using bank payment cards, and about possible risks, insolvency in the event of a growth in the exchange rate of foreign currency, if the loan was obtained in foreign currency, and the expected income (or part of it) is in the national currency, etc., and also obtain the client's consent, the evidence of which will be his signature.";

• paragraph 7 is to be worded as follows:

"- the bank's obligation to cease accruing penalties (fines, late fees) after 15 days from the moment of sending a notice about the start of the recovery procedure on the collateral object of the loan of an individual client, including an individual entrepreneur without forming a legal entity, at the same time, the amount of penalties (fines, late fees) accrued for the entire period of the loan action must not exceed 20 percent of the amount of the issued loan.";

11. paragraph 43 is to be recognized as having lost force;

12. Chapter 4 is to be supplemented after paragraph 47 with paragraph 47-1 as follows:

"47-1. If a credit line agreement contains a provision according to which, after receiving the first part of the credit line, the borrower's right to receive the remaining part of the credit line is annulled or the bank's obligation to issue the remaining part of the credit line is annulled, and at the same time the bank does not create reserves to cover potential losses and losses on off-balance sheet obligations for the credit line, then the bank is obliged, starting from the issuance of the second part of the credit line and with each subsequent issuance of the part of the credit line, to collect a full package of necessary documents (paragraphs 3, 4, 10, 13 of Appendix 1 to this Regulation and a report on the targeted use of the previous part of the credit line) for re-analysis, at the same time, previously submitted documents of the borrower may be used if they were submitted no more than six months ago. In this case, the issue of issuing the next part of the credit line must be resolved by the authorized body/persons in accordance with the bank's credit policy. At the same time, the loan agreement must contain a signature stating that the client has familiarized himself with all the conditions for providing the credit line, the contract conditions are clear, and the client agrees with them.";

13. paragraph 50 is to be worded as follows:

"50. When issuing a loan, one must focus primarily on the primary source and never rely solely on the secondary source of repayment. Therefore, in the process of considering a loan application, primary attention must be paid to the analysis of the client's cash flows, including the analysis of credit risk arising from currency risk (if the loan is issued in foreign currency), prospects for the development of the industry and business of this client, the state of the client's relations with suppliers and buyers. Cross-border activities are regulated by regulatory legal acts of the National Bank.";

14. in paragraph 61, the last sentence is to be worded as follows:

“When issuing blank loans, the bank must have access to high-quality financial statements of the borrower and a credit history of working with the borrower for a long time (at least two years, except for loans of no more than 250,000 som, the duration of which must be at least 12 months) preceding the issuance of the blank loan.";

15. paragraph 2 of paragraph 61-3 is to be worded as follows:

"- the amount of the loan issued to each separate member of the credit group does not exceed 250,000 som, and the total amount of the loan issued to the GSO does not exceed 1,500,000 som;";

16. paragraph 63 is to be worded as follows:

"63. The bank must conduct an analysis of the impact of changes in exchange rates of foreign currencies relative to the som on loans subject to credit risk arising from currency risk at least once a month (in the event of a change in the official exchange rate of foreign currency by 5 percent or more within a month - immediately). Based on the conducted analysis, the bank must determine possible losses (losses) from currency exchange rate fluctuations, the influence of currency fluctuations on the borrower's solvency.";

17. Chapter 5 is to be supplemented after paragraph 63 with paragraphs 63-1 - 63-4 as follows:

"63-1. The bank must periodically monitor existing loans. The frequency of monitoring (including on-site visits) of the loan is established by the bank independently depending on the amount and type of loan, as well as its classification category. At the same time, the bank must conduct on-site monitoring:

• at least once every six months for loans whose amount exceeds one percent of the bank's net total capital;

• at least once a year for other loans.

The loan monitoring report for the upcoming loan repayment period (in the case of medium- and long-term loans - during the upcoming 12 months) must reflect changes in expected income (revenue) of the borrower (for loans in foreign currency), changes in the borrower's activities, the current status of the loan, compliance with the terms of the loan agreement, and, in the case of collateral monitoring - its condition, ensuring its safety, as well as other events and factors in order to determine the client's ability to repay the loan on time.

63-2. The bank providing loans to other financial-credit institutions must conduct a thorough analysis of the reliability of information provided by the borrower of these financial-credit institutions, as well as conduct more thorough monitoring (including on-site visits) of such loans.

63-3. To make the appropriate decision, based on the review results, the bank's management is presented with a report containing summarized information about the analysis results with corresponding proposals monthly, and a report containing summarized information about the monitoring results with corresponding proposals quarterly.

63-4. Upon identification of a problem, the bank must promptly report it to the bank's management, if necessary, with a proposal to review the classification category of this loan.

In the event of loan payment arrears or deterioration of the loan classification, monitoring of such an asset (at least, analysis of the current financial position of the borrower, contact with the borrower) must be conducted at least once a month.";

18. in paragraph 65:

• paragraph 5 is to be supplemented with the words ", including if the loan is issued in foreign currency";

• paragraph 10 is to be worded as follows:

"- assessment of the targeted use of the loan, confirmed by documents (contracts, acceptance acts, invoices, waybills, etc.) if available, depending on the lending purposes, except for a loan of no more than 250,000 som;";

19. paragraph 67 is to be worded as follows:

"67. In the event that a guarantee (surety) serves as the sole collateral, except for group loans, the bank must conduct a thorough analysis of the financial condition of the guarantor (surety) in order to determine the ability to fulfill the guarantee obligation.";

20. paragraph 1 of paragraph 68 is to be worded as follows:

"68. In order to constantly monitor the safety of pledged property and identify possible changes in its current value, the bank must conduct collateral monitoring at the places of its storage and location. The frequency of collateral monitoring is determined by the bank independently in accordance with the credit/collateral policy and depends on the quality of the loan and other factors, including the type of collateral taking into account the risk of loss, except for movable property, the frequency of monitoring of which must be at least once every six months. At the same time, if the loan is secured by 40 percent or more in the form of goods in circulation - monitoring must be conducted at least once a month, and if less than 40 percent - at least once a quarter. At the same time, a mandatory condition must be the bank's provision of control over the safety of the pledged property. At the same time, special attention must be paid to the following points:";

21. in paragraph 69:

• paragraph 7 is to be worded as follows:

"- request for restructuring;";

• paragraph 8 is to be recognized as having lost force;

• the paragraph is to be supplemented with paragraphs 15 and 16 as follows:

"The relevant internal regulatory documents of the bank (policies, procedures, etc.) must reflect the procedure for working with problematic loans, including the procedure for loan restructuring, and conducting additional analysis of the borrower's ability to repay the loan, as well as, if necessary, preliminary conditions for loan restructuring, if this does not worsen the rights and does not increase the obligations of the borrower (for example, a minimum one-time payment towards loan repayment, provision by the borrower of documents confirming his ability to repay the loan, additional collateral, etc.). The bank is prohibited from restructuring affiliated persons and insiders more than twice within one year.

The decision on repeated loan restructuring is made by the Bank Board.";

22. in Appendix 1:

• paragraph 13 of paragraph 1 of the Minimum Requirements for the Borrower's Credit File is to be worded as follows:

"- loan repayment sources (primary: by currency, secondary) and its repayment plan;";

• paragraph 1-1 is to be worded as follows:

"1-1. Individuals conducting individual entrepreneurial activities without forming a legal entity, in addition to the above documents, must submit to the bank a copy of a document of the established form issued by the authorized body and confirming the fact of passing state registration (re-registration) as an individual entrepreneur, or a copy of a document confirming the fact of conducting entrepreneurial activities without state registration in cases provided for by the legislation of the Kyrgyz Republic, except for individuals to whom a loan of no more than 250,000 som is issued.";

• paragraph 4 is to be worded as follows:

"4. Salary certificate for the last 12 months, the name of the organization where the borrower works, position, duration of work, as well as other documents confirming income information (if the borrower is an individual) by currency.";

• paragraph 7 is to be worded as follows:

"7. Business plan (if the borrower is a legal entity and the loan amount exceeds 3,500,000 som).";

• paragraph 8 is to be worded as follows:

"8. Document from state authorities on registration (if the borrower is a legal entity or an individual conducting activities based on a certificate of state registration of an individual engaged in entrepreneurial activity or a patent), except for individuals to whom a loan of no more than 250,000 som is issued.";

• in paragraph 13, the word "Quarterly" is to be replaced with the word "Annual";

• paragraph 16-1 is to be worded as follows:

"16-1. Report on targeted use, confirmed by documents (contracts, acceptance acts, invoices, waybills, etc.) if available, depending on the lending purposes, except for a loan of no more than 250,000 som.";

• paragraph 30 is to be worded as follows:

"30. Financial statements of the guarantor for the last year (if the guarantee is the sole collateral).";

23. in Appendix 6:

• the section "Rights of the bank's client" of the List of rights, expenses (payments) of bank clients and penalty sanctions is to be worded as follows:

"

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Client's Bank Rights
To refuse to receive a loan free of charge (except in cases where the bank charges a fee according to the established tariff for considering the client's application) from the moment of signing the loan agreement until the receipt of funds	Mandatory client rights must be specified in the loan agreement in accordance with the requirements of this Regulation
To receive a copy of the draft agreement with all attached documents and to seek legal advice outside the bank, provided that the time allowed for the client to review the agreement is at least three days
To receive explanations regarding the procedure for calculating loan payments, penalties, fines, and the procedure for obtaining/repaying the loan using bank payment cards
To receive an explanation of the risks associated with obtaining a loan in foreign currency when income is expected in national currency
To choose the language (state or official) in which the loan agreement and this list will be drafted (prepared)

• the words "(Full Name of the Bank Credit Specialist)" are replaced with the words "(Full Name of the Authorized Bank Employee)".

II. Make the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Temporary Rules 'On Lending (Overdraft) by Bank Payment Cards' dated February 13, 2002 No. 8/6":

• in the title and throughout the text, the words "Temporary Rules" in various cases are replaced with the word "Rules" in the corresponding cases;

in the Temporary Rules on Lending (Overdraft) by Bank Payment Cards, approved by the aforementioned resolution:

• in the title and throughout the text, the words "Temporary Rules" in various cases are replaced with the word "Rules" in the corresponding cases.