Resolution of the Board of the National Bank of the Kyrgyz Republic No. 62/4 of October 14, 2015 On Amending and Supplementing the Resolution of the Board of the National Bank of the Kyrgyz Republic

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of October 14, 2015 No. 62/4

On Amending and Supplementing the Resolution of the Board of the National Bank of the Kyrgyz Republic

In accordance with Articles 7 and 43 of the Law "On the National Bank of the Kyrgyz Republic", the Board of the National Bank of the Kyrgyz Republic

RESOLVES:

1. To introduce amendments and supplements to the Resolution of the Board of the National Bank of the Kyrgyz Republic (attached) "On approval of the Regulation on minimum requirements for credit risk management when carrying out operations in accordance with Islamic principles of banking and financing" of September 25, 2013 No. 35/13.

2. This resolution enters into force upon the 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 commercial banks.

5. To assign control over the execution of this resolution to the Deputy Chairman of the National Bank L.J. Orozbaeva.

	Chairman	T. Abdygulov

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 when carrying out operations in accordance with Islamic principles of banking and financing" of September 25, 2013 No. 35/13

To introduce the following 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 when carrying out operations in accordance with Islamic principles of banking and financing" of September 25, 2013 No. 35/13:

in the Regulation on minimum requirements for credit risk management when carrying out operations in accordance with Islamic principles of banking and financing, approved by the above-mentioned resolution:

1. in point 11:

• after the words "credit risk" supplement with the words ", including credit risk arising from currency risk";

• supplement with a paragraph of the following content:

"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 control, analysis and monitoring of credit risk arising from currency risk.";

2. in point 12:

• in the second paragraph:

after the words "has the right to delegate this right" supplement with the words ", except for matters within the competence of the bank's Board of Directors";

replace the words "normative-legal acts" with the words "normative legal acts";

• in the fourth paragraph:

throughout the text of the paragraph, replace the words "large assets bearing credit risk" with the words "assets bearing large risk";

after the words "Issuance of large assets bearing credit risk and assets," exclude the words "bearing credit risk";

after the words "The bank's Board of Directors is responsible for approving decisions on the issuance of large assets," exclude the words "bearing credit risk";

3. supplement the Regulation with points 12-1 and 12-2 of the following content:

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

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

4. in point 25, restate the fifth sentence as follows:

"The information contained in the Journal should be stored in accordance with the period established in the "List of main documents generated in the activities of commercial banks and financial-credit institutions licensed by the National Bank of the Kyrgyz Republic, indicating storage periods", approved by resolution of the Board of the National Bank No. 22/9 of August 27, 2004.";

5. in point 29:

• in the first paragraph, replace the words "financing specialist" with the word "bank";

• restate the second paragraph as follows:

"- a completed questionnaire/application, which must indicate basic information about the client/partner (if the client/partner is a legal entity - main type of activity, approximate size of working capital), income (revenue) structure by currency (for assets in foreign currency), financing repayment plan, main business partners, etc.;";

• in the fourth paragraph, after the words "legislation of the Kyrgyz Republic and/or" supplement with the words "at the bank's discretion";

• in the sixth paragraph, after the words "on the basis of a certificate or patent" supplement with the words ", except for individuals who have been granted financing in an amount not exceeding 250,000 som";

• restate the seventh paragraph as follows:

"- business plan (if the client is a legal entity and the financing amount is more than 3,500,000 som), including the purpose of obtaining financing, an approximate forecast of the client's/partner's cash flow, sources of repayment by currency, terms and action plan for repayment of financing. At the same time, the bank, in order to minimize credit risks, must establish additional requirements for the business plan for investment financing, large financing and other types of financing requiring a more thorough assessment of the client's/partner's business;";

• in the eighth paragraph, after the words "confirming ownership rights" supplement with the words "(if the collateral is movable/immovable property) and usage rights";

• in the eleventh paragraph, exclude the words "(6 months - if the financing amount does not exceed 100,000 som),";

• restate the twelfth paragraph as follows:

"In addition to the above documents, the bank may request other documents that the bank needs, including for assessing the solvency of the client/partner (contracts, agreements, letters of recommendation, etc.).";

6. in the fifth paragraph of point 30, after the words "other collateral," supplement with the words "acceptable to both parties,";

7. in point 34:

• in the second and third paragraphs, replace the words "Financing specialist" with the word "Bank";

• restate the fourth paragraph as follows:

"- funds. The main question that a bank employee analyzing an application for an asset bearing credit risk must answer is: will the client/partner be able to receive sufficient funds in the form of income and cash flow, including in the currency in which he intends to receive financing, in order to repay the asset bearing credit risk. When assessing, the bank must find out whether there has been stable growth in profit or sales volume in the past, and whether such growth is likely to continue during the term of the agreement.

In addition, the bank must determine the sufficiency of the client's/partner's income (revenue) (including in foreign currency) taking into account exchange rate growth to ensure timely repayment by the client/partner of the asset.

If the client/partner's income (revenue) in the coming 12 months will be predominantly in the national currency, the bank must assess the appropriateness of issuing financing in foreign currency to such a client/partner, taking into account credit risk arising from currency risk as a result of an unfavorable change in the exchange rate for the client/partner, taking into account the requirements of normative legal acts of the National Bank, including on RPPU;";

• restate the seventh paragraph as follows:

"- guarantee of members of a joint liability group. At the same time, a joint liability group (hereinafter - JLG) means a voluntary association of participants - individuals (minimum 3 people) engaged in entrepreneurial activity aimed at making profit, while members of the JLG jointly guarantee the fulfillment of the obligations of each member of the group and bear responsibility for the full return of the funds received jointly and severally, under any circumstances, in accordance with the legislation of the Kyrgyz Republic.

When considering an application for an asset bearing credit risk from JLG participants, the bank must pay attention that members of the same family, living together and/or conducting joint business, are not participants of the same JLG.

It is necessary to take into account that the number of JLG participants who are not members of the same family but have a joint business does not exceed 20 percent of the total number of participants of this JLG. And the share of JLG participants who are not members of the same family but have a joint business does not exceed 20 percent of the total amount of the asset bearing credit risk issued to the JLG.

For the purposes of this Regulation, joint business means economic activity in which several entrepreneurs are involved (partners, co-owners, etc.). At the same time, their activity is aimed at making profit from joint production and/or sale of goods, provision of services, in which property, intangible assets, and labor of these entrepreneurs are used for this purpose. Participants of the joint business share the profit from the business proportionally and bear the risk of loss of all or part of the property.";

8. in point 35:

• replace the words "Financing specialist" with the word "Bank";

• supplement with a sentence of the following content:

"Responsibility for compliance with the requirements specified in point 34 of this Regulation shall be borne by persons authorized to make a decision on the issuance of an asset bearing credit risk.";

9. supplement the Regulation with point 38-1 of the following content:

"38-1. A bank may issue financing to a client for consumer purposes only if the ratio of planned monthly payments on the asset bearing credit risk (principal and markup/income) to the average monthly aggregate income of the client is less than 50 percent.";

10. restate point 43 as follows:

"43. When concluding a contract, all conditions under which the asset bearing credit risk is issued and will be repaid should be specified in order to avoid possible problems with repayment in the future. At the same time, the bank has no right to unilaterally change the initial terms of the contract, except in the case where this right is expressly stipulated in the contract with the establishment of a notification period for the client (at least 30 days), as well as with an indication of a limited list of specific articles, conditions and maximum/minimum boundaries of their changes. When drawing up, together with the client/partner, a schedule for planned repayment of the asset bearing credit risk and markup/income on it, it is advisable to focus on the purpose of the asset bearing credit risk and the specifics of the client's/partner's business, the business plan and approximate cash flow forecast presented by him and verified by the bank. The debt repayment schedule must at least include the asset amount, markup on the asset, date of issuance, dates of planned repayments indicating the amounts of planned repayments on the principal amount and on the markup, and balances of debt on the asset. The debt repayment schedule is an integral part of the financing agreement. A debt repayment schedule is not required for financing products for which its preparation is not envisaged (overdrafts on payment cards within salary projects, financing lines, etc.).";

11. restate point 44 as follows:

"44. The contract shall at least specify:

• names of the parties;

• subject of the contract;

• period of validity of the contract;

• main conditions for granting the asset bearing credit risk, amount, repayment term, security, markup/income on it and calculation methods, form of granting the asset: cash (through the cash desk) or non-cash (including to the client's/partner's account, through the use of bank payment cards, etc.);

• purpose of the asset bearing credit risk;

• rights and obligations of the parties;

• the client's right to early repayment of the asset bearing credit risk, subject to notification to the bank at least 30 days before the day of such return, including without applying penalties for early repayment after six months from the moment of receiving the credit. Early repayment by one JLG participant is possible with the written consent of the JLG participants;

• conditions for providing information about the client/partner to the credit bureau;

• sanctions for violation by either party of its obligations, cases and conditions of termination of the contract.

In case of early repayment of the asset bearing credit risk by one of the JLG participants in his part, he continues to bear joint liability under the guarantee agreement until full repayment of the asset received as part of this JLG. Subject to the consent of the JLG participants and the bank, as well as compliance with the conditions on the minimum number of JLG members, the participant who has repaid the asset bearing credit risk in his part may be released from joint liability.".

12. in point 45:

• restate the second paragraph as follows:

"The bank must provide and familiarize the client with the specified list, if necessary provide the client/partner with explanations on the procedure for calculating the asset bearing credit risk, penalty, fine, procedure for obtaining/repaying the asset, including using bank payment cards, and on possible risks, insolvency in conditions of growth of the foreign currency exchange rate, if the asset was received in foreign currency and the expected income (or part of it) - in national currency, etc., as well as obtain the client's/partner's consent, evidenced by his signature.";

• in the third paragraph, restate the second sentence as follows:

"In cases where the bank does not provide such services, the bank, for the client's/partner's awareness, must indicate the approximate cost (range) of such expenses as of the date of conclusion of the contract, indicating that these expenses are expenses in favor of third parties.";

• supplement the seventh paragraph with sentences of the following content:

". Penalties and fines may be applied in cases provided for by Sharia standards. The amount of the penalty (fine, late fee) must not exceed 20 percent of the outstanding financing amount. At the same time, funds received as a penalty (fine, late fee) must be directed to charitable purposes in organizations not affiliated with the financial-credit institution;";

13. recognize point 46 as lost force;

14. restate point 47 as follows:

"47. In the contract, it is important to provide for periodic submission by the client/partner of financial statements and/or other financial documents confirming the use by the client/partner of the asset bearing credit risk for the intended purpose.";

15. supplement the Regulation with point 50-1 of the following content:

"50-1. If the financing line agreement contains a provision according to which, after receiving the first part of the financing line, the client's/partner's right to receive the remaining part of the financing line is cancelled or the bank's obligation to issue the remaining part of the financing line is cancelled, and at the same time the bank does not create reserves to cover potential losses and damages on off-balance sheet obligations under the financing line, then the bank is obliged, starting from the issuance of the second part of the financing line and at each subsequent issuance of a part of the financing line, to collect a package of necessary documents (points 4, 5, 11, 15, 18 of Appendix 1 to this Regulation and a report on the intended use of the previous part of the financing line) for re-analysis, while previously submitted documents of the client/partner may be used if they were submitted not more than six months ago. At the same time, the issue of issuing the next part of the financing line must be decided by the authorized body/persons in accordance with the bank's financing policy. Along with this, the financing agreement must contain a signature that the client has familiarized himself with all the terms of the financing line, the terms of the agreement are clear and the client/partner agrees with them.";

16. in point 51, exclude the word "(blank)";

17. in point 53, after the words "client/partner" replace the words "(if the client/partner is a non-resident, his place of business must be located in the territory of the Kyrgyz Republic)" with the words ", including analysis of credit risk arising from currency risk (if financing is issued in foreign currency)";

18. in point 63:

• in the first paragraph, after the words "are considered blank" supplement with the words ", except for overdrafts on payment cards within salary projects,";

• in the second paragraph, after the words "(at least two years)" supplement with the words "(except for assets in the amount of not more than 250,000 som, the duration of which must be at least 12 months)";

19. in the second paragraph of point 66, replace the figures "150000" with the figures "250000";

20. restate point 68 as follows:

"68. The bank must, at least once a month (in case of a change in the official exchange rate of a foreign currency by 5 or more percent during the month - immediately), conduct an analysis of the impact of changes in foreign currency exchange rates against the som on assets exposed to credit risk arising from currency risk. Based on the analysis, the bank must determine possible losses (damages) from fluctuations in currency exchange rates, the impact of currency fluctuations on the solvency of the client/partner.";

21. supplement the Regulation with points 68-1, 68-2, 68-3, 68-4 of the following content:

"68-1. The bank must periodically monitor existing assets. The frequency of monitoring (including on-site) of an asset is established by the bank independently depending on the amount and type of the asset, as well as its classification category. At the same time, the bank must conduct on-site monitoring:

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

• at least once a year for other assets.

The asset monitoring report for the upcoming repayment period of the asset (in the case of a medium- and long-term asset - for the upcoming 12 months) must reflect changes in the expected income (revenue) of the client/partner (for assets in foreign currency), changes in the client's/partner's activities, the current status of the asset, compliance with the terms of the financing agreement, and during collateral monitoring - its condition, ensuring its preservation, as well as other events and factors in order to determine the client's/partner's ability to repay the asset in a timely manner.

68-2. A bank providing assets to other financial-credit institutions must conduct a thorough analysis of the reliability of information provided by the client/partner of these financial-credit institutions, as well as conduct thorough monitoring (including on-site) of such assets.

68-3. To make an appropriate decision, based on the results of consideration, a report with summarized information on the results of the analysis with corresponding proposals is submitted to the bank's management monthly, and quarterly - a report with summarized information on the results of monitoring with corresponding proposals.

68-4. Supporting documents must be attached to the monitoring report. If a problem is identified, the financing specialist must promptly inform the bank's management about it, if necessary, with a proposal to revise the classification category of this asset bearing credit risk. In case of overdue payments on an asset bearing credit risk or deterioration of the classification of an asset bearing credit risk, it is necessary to monitor such an asset (at least, analysis of the current financial position of the client/partner, contact with the client/partner) at least once a month.";

22. in point 70:

• in the fifth paragraph, after the words "client/partner" supplement with the words ", including if financing is issued in foreign currency;";

• in the eleventh paragraph:

after the words "(contracts, acceptance acts, invoices, waybills, etc.)" supplement with the words "if available,";

after the words "financing purposes" supplement with the words ", except for an asset in the amount of not more than 250,000 som.";

23. restate point 72 as follows:

"72. If a guarantee (suretyship) acts as the sole security, except for group assets, 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.";

24. restate the first paragraph of point 73 as follows:

"In order to constantly monitor the preservation of pledged property and identify possible changes in its current value, the bank must monitor the collateral at its storage and location places, the frequency of which depends on the type of collateral and the frequency of monitoring of the asset bearing credit risk, but not less than once a year. The frequency of collateral monitoring is determined by the bank independently in accordance with the collateral policy and depends on the quality of the asset and other factors, including the type of collateral taking into account the risk of loss, except for movable property, the monitoring frequency of which must be at least once every six months. At the same time, if the asset is secured by 40 percent or more in the form of goods in turnover - monitoring must be carried out 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 control over the preservation of the pledged property. At the same time, special attention must be paid to the following points:";

25. in point 74:

• in the seventh paragraph, replace the word "prolongation" with the word "restructuring";

• supplement with a paragraph of the following content:

"The relevant internal regulatory documents of the bank (policies, procedures, etc.) must reflect the procedure for working with problem assets, including the procedure for restructuring assets, and conducting an additional analysis of the client's/partner's ability to repay the financing, as well as, if necessary, preliminary conditions for restructuring the financing, if this does not worsen the rights and does not increase the obligations of the client/partner (for example, a minimum one-time contribution to repay the debt on the financing, provision by the client/partner of documentation evidencing its ability to repay the financing, additional collateral, etc.). The bank is prohibited from restructuring affiliates and insiders more than twice within one year.

The decision on repeated restructuring of an asset is made by the Bank's Board;";

26. in Appendix 1:

• the fourteenth paragraph of point 1 shall be stated in the following wording:

"- sources of repayment of the asset carrying credit risk (primary: by currency, secondary) and its repayment plan;";

• in point 5:

after the words "duration of work," add the words "as well as";

after the words "(if the client/partner is an individual)" add the words "by currency";

• point 8 shall be stated in the following wording:

"8. Business plan (if the client/partner is a legal entity and the amount of financing is more than 3,500,000 soms or if an investment project/business is being financed).";

• point 9 shall be stated in the following wording:

"9. A document from state bodies on registration (if the client/partner is a legal entity or an individual carrying out entrepreneurial activity on the basis of a certificate or patent), except for individuals to whom financing in the amount of not more than 250,000 soms has been issued.";

• in point 15, the word "Annual" shall be replaced by the word "Yearly";

• point 19 shall be stated in the following wording:

"19. A report on the targeted use of the financing, confirmed by documents (contracts, acceptance certificates, invoices, waybills, etc.) if available, depending on the purposes of the financing, except for financing in the amount of not more than 250,000 soms.";

• point 34 shall be stated in the following wording:

"34. The guarantor's financial statements for the last year (if the guarantee is the only collateral).";

27. in Appendix 6:

• the section "Rights of the bank's client/partner" of the List of rights, expenses (payments) of the bank's clients/partners and penalties shall be stated in the following wording:

"

Rights of the bank's client/partner
To refuse, on a gratuitous basis (except in the case of the bank acquiring assets within the framework of financing), to receive the asset carrying credit risk from the moment of signing the contract until receipt of the asset	The mandatory rights of the client/partner are specified in the contract without fail in accordance with the requirements of this Regulation
To receive a draft contract with all documents attached thereto and to seek legal advice outside the bank, while the time provided to the client/partner to review the contract must be not less than three days
To receive explanations on the procedure for calculating payments on the asset carrying credit risk, penalties, and penalties, and the procedure for receiving/repaying the asset carrying credit risk using bank payment cards
To receive an explanation of the risks associated with receiving an asset carrying credit risk in foreign currency when income is expected in national currency
To choose the language (state or official) in which the contract and this list will be drawn up (executed)

";

• in the section "Expenses (payments) of the bank's client/partner on the asset carrying credit risk" of the List of rights, expenses (payments) of the bank's clients/partners and penalties, the third paragraph shall be stated in the following wording:

"

Expenses (payments) of the bank's client/partner on the asset carrying credit risk
Payments in favor of third parties (payment for insurance services, notary, etc.)	Indicated in cases where these services are provided by the bank. In cases where the bank does not provide such services, the bank indicates the approximate cost (range) of such expenses as of the date of conclusion of the contract.

";

• the words "(Full name of the Bank's Financing Specialist)" shall be replaced by the words "(Full name of the bank's authorized employee)".