Resolution of the Board of the National Bank of the Kyrgyz Republic No. 64/2 of November 16, 2011 on Amendments and Additions to the Regulation on Minimum Requirements for Credit Risk Management

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of November 16, 2011 No. 64/2

On Amendments and Additions to the Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial-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 of June 30, 2010 No. 52/4

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 amendments and additions to the Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial-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 of June 30, 2010 No. 52/4 (attached).

2. Publish this Resolution on the official website of the National Bank of the Kyrgyz Republic.

3. After official publication, send this Resolution to the Ministry of Justice of the Kyrgyz Republic for inclusion in the State Register of Legal Acts of the Kyrgyz Republic.

4. This Resolution shall enter into force upon the expiration of one month after official publication.

5. Assign control over the implementation of this Resolution to the Deputy Chairman of the National Bank of the Kyrgyz Republic Z.L. Chokoev.

| Chairman | Z. Asankozhoeva |

| | Approved by Resolution of the Board of the National Bank of the Kyrgyz Republic of November 16, 2011 No. 64/2 |

AMENDMENTS AND ADDITIONS

to the Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial-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 of June 30, 2010 No. 52/4

Make the following amendments and additions to the Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial-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 of June 30, 2010 No. 52/4:

1. Paragraphs 8.1 of Section 2 between paragraphs fifteen and sixteen are supplemented with paragraphs of the following content:

• ratio of the credit portfolio to assets;
• share of each type of loan in the credit portfolio;

2. Paragraph 12 of Section 2 is reworded as follows:

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

The Board of the bank is responsible for the implementation of the credit policy and credit strategy of the bank, for which it is obliged to develop and implement in the bank's activities policies and procedures for identifying, measuring, monitoring and controlling credit 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.
The right to issue loans must be divided among several levels of officials, and these persons are responsible in accordance with the legislation of the Kyrgyz Republic for violations committed by them in lending. The issuance of large loans and loans to insiders/affiliated persons of the bank must be approved by the Board of Directors of the bank. Members of the Board of Directors of the bank are responsible for approving decisions on the issuance of large loans and loans to insiders/affiliated persons of the bank, which are issued in violation of the requirements of regulatory legal acts of the National Bank and/or for which the bank incurred losses."

3. Paragraph 22 of Section 4 is deleted.

4. In paragraph 24 of Section 4:

• the words "In case of disagreement with the decision made by the bank, and in other cases" are deleted;

• supplemented with a sentence of the following content:

"It is allowed to keep the Book in electronic form, provided that the bank complies with all requirements for ensuring the bank's information security established in the regulatory legal acts of the National Bank, as well as in the presence of an automated provisioning system."

5. In paragraph 25 of Section 4:

• the second paragraph after the words "what the legal entity does, the experience of the manager," is supplemented with the words "type of activity, approximate size of working capital, main business partners";

• paragraphs fourth, fifth and sixth after the words "if the borrower is a legal entity" are supplemented with the words "or an individual engaged in entrepreneurial activity based on a certificate or patent".

6. In paragraph 30 of Section 4:

• the first sentence of the first paragraph after the words "In general, the analysis of the loan application should" is supplemented with the words "be based on the bank's policy approved by the Board of Directors, and";

• in the third sentence of the third paragraph, the words "about him in other credit institutions, if he was previously provided with loans" are replaced with the words "about the loans provided to him in other credit institutions, as well as in the credit bureau".

7. Paragraph 32 of Section 4 is reworded as follows:

"32. After conducting an analysis of the loan application, the bank's credit employee must prepare a conclusion in which it is necessary to justify the expediency of providing a loan to the borrower, submitted for consideration to the Credit Committee together with the client's loan application and other necessary documents provided by the client at the bank's request in accordance with the requirements of this Regulation and the bank's internal documents.

In case of refusal to issue a loan, the credit employee must justify this decision in the conclusion, indicating all reasons for this, as well as notify the borrower of the decision made in accordance with the procedure established by the bank."

8. Paragraph 35 of Section 4 is deleted.

9. In paragraph 39 of Section 4, the words "Contract with all documents attached to it" are replaced with the words "Contract and the attached list of rights, expenses (payments) of bank clients, concluded between the bank and the client, as well as other agreements concluded between the bank and the client".

10. In paragraph 40 of Section 4, the first sentence after the words "change the initial conditions of the credit agreement" is supplemented with the words "except in cases where this right is explicitly stipulated in the credit agreement by establishing a notice period for the client, as well as by indicating a limited list of specific articles, conditions and maximum/minimum boundaries of their changes".

11. Paragraph 41 of Section 4 between paragraphs six and seven is supplemented with a paragraph of the following content:

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

12. Paragraph 42 of Section 4 is reworded as follows:

"42. An integral part of the credit contract between the bank and the borrower is the list of rights, expenses (payments) of bank clients, which is compiled in tabular form in accordance with Appendix 6. 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, etc., and obtain the client's consent, the evidence of which will be his signature. The bank must indicate all expenses of the bank client associated with the provision, use and repayment of the loan, in accordance with the credit contract and the bank's internal procedures, including payments to third parties (payment for insurance services, notary, etc., if such 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 on the date of concluding the contract (or close to it) with the indication that these expenses are provided by third parties, as well as that this price may change in the future."

13. Paragraph 47 of Section 4 is supplemented with a sentence of the following content:

"The bank must obtain a receipt from the client confirming the client's receipt of the original contract."

14. In paragraph 50 of Section 4:

• the second sentence after the words "business of this client" is supplemented with the words "(if the client is a non-resident, his place of business must be located on the territory of the Kyrgyz Republic)";

• supplemented with a sentence of the following content:

"Cross-border activities are regulated by the regulatory legal acts of the National Bank."

15. Paragraph 52 of Section 4 is reworded as follows:

"52. Banks must mandatory have internal regulatory documents regulating the main principles of work with various types of collateral for loans, as well as disclosing the main risks associated with the corresponding types of collateral for loans. The bank is prohibited from accepting as collateral:

• goods in circulation located outside the Kyrgyz Republic as the sole collateral;
• documentary securities issued by non-resident issuers of the Kyrgyz Republic, except for highly rated, highly liquid securities included in the listings of stock exchanges, including international ones, and traded on the securities markets of developed countries(5-1);
• assets registered and/or located in offshore zones, the list of which is established by the National Bank."

5-1. By developed countries is meant countries included in the Standard & Poor's agency list "The S&P Global BMI (Broad Market Index)".

16. Paragraph 53 of Section 4 is supplemented with a paragraph of the following content:

"In the event of accepting from the borrower as collateral real estate - an apartment or a house owned by the borrower as his sole residence (according to the written information provided by the borrower, for example, in the borrower's loan application), in which family members also live and are registered, the bank should pay special attention to the employment and income of family members of the borrower who have reached working age, as well as to various risks associated with issuing loans in the specified case."

17. In paragraph 58 of Section 4, in the second paragraph, the second sentence after the words "At the same time, loan payments" is supplemented with the words "(including payments on the principal amount and on interest)".

18. Paragraph 59 of Section 4 is supplemented with a paragraph of the following content:

"In order to limit itself from possible claims from the borrower, dissatisfied with the realized value of the collateral, the bank is recommended to provide the client with the opportunity to independently search for a buyer for the collateral (real estate), within one or more months after the expiration of the term of voluntary fulfillment of obligations specified in the notice in accordance with the legislation of the Kyrgyz Republic."

19. In the first sentence of paragraph 61 of Section 4:

• the words "Bank loans without collateral (blank) do not imply collateral of the borrower's assets" are replaced with the words "Loans that do not imply collateral of assets are considered blank";

• after the words "are issued exclusively to a creditworthy borrower" the words "(only to a resident)" are added.

20. Paragraph 62 of Section 5 is supplemented with a paragraph of the following content:

"In the event that the loan is in the status of non-accrual of interest income in accordance with the requirements of the National Bank, payments on this loan are accepted, first of all, for repayment of the principal debt according to the Order on granting non-accrual of interest income, then - interest, according to the repayment schedule, and in the remaining part - penalties/fines."

21. In paragraph 63 of Section 5:

• in the first sentence after the words "The credit employee must periodically" is supplemented with the words ", but no less than once a quarter" and the footnote is deleted;

• the second sentence after the words "report it to the bank's management" is supplemented with the words "if necessary, with a proposed new classification of loans".

22. In paragraph 64 of Section 5, the words "must be carried out by persons" are replaced with the words "is carried out based on an independent assessment conducted by persons".

23. Paragraph 66 of Section 5 is reworded as follows:

"66. Independent assessment of the credit portfolio must be conducted by an independent department or a bank employee independent of the loan issuance process. The results of the independent assessment must be provided no less than once a month to the Credit Committee, the Board of Directors and the Board of Directors of the bank."

24. Paragraph 70 of Section 5 between paragraphs six and seven is supplemented with paragraphs of the following content:

• classification of loans;

• increase in reserves;

25. Paragraph 79 of Section 6 after the words "for consideration by the Credit Committee" is supplemented with the words "and any other collegial body (if any), authorized to make a decision on problem loans,".

26. In Appendix 1 to the Regulation:

• paragraph 1 of Section I:

• between paragraphs second and third are supplemented with paragraphs of the following content:

• full address(8) of the borrower's place of stay (if the borrower is an individual), telephone number, fax;

• taxpayer identification number (if available) - based on the certificate of registration with the tax authority;

• place of work and occupation (if the borrower is an individual);

• data of the document confirming the right of a foreign citizen or stateless person to stay (reside) in the Kyrgyz Republic;

• between paragraphs fourth and fifth is supplemented with a paragraph of the following content:

• full and abbreviated (if available) name of the legal entity and its name in a foreign language (if available);

• after paragraph ninth are supplemented with paragraphs of the following content:

• information on loans obtained/repaid previously in this/other banks, for the last two years preceding the submission of the loan application to the bank;

• other information at the bank's discretion;

8. It is not allowed for the client to indicate only the number of the subscriber's box instead of the full address.

• Section I is supplemented with paragraph 1-1 of the following content:

"1-1. Individuals engaged in individual entrepreneurial activity without forming a legal entity, in addition to the above documents, must present to the bank a copy of the document of the established form issued by the authorized body and confirming the fact of state registration (re-registration) as an individual entrepreneur, or a copy of the document confirming the fact of carrying out entrepreneurial activity without state registration in cases provided for by the legislation of the Kyrgyz Republic.";

• Paragraph 11 of Section I after the words "(if the borrower is an individual)," is supplemented with the words "passport of a foreign citizen in the Kyrgyz Republic (if the borrower is a non-resident),";

• Section I is supplemented with paragraph 11-1 of the following content:

"11-1. Copy of the document certifying the authority of the head of the legal entity to dispose of the funds of the legal entity (such a document may be both a protocol of the meeting of founders or shareholders on the election of the head of the legal entity, and a decision of the founders or shareholders on the appointment of the head of the legal entity, determining his authority, if they are not established by the Charter).";

• Section I is supplemented with paragraph 16-1 of the following content:

"16-1. Report on the targeted use";

• Section II is supplemented with paragraph 25-1 of the following content:

"25-1. Other information at the bank's discretion".

27. The title of Appendix 5 to the Regulation is supplemented with footnote 10 of the following content:

"10. At the same time, the bank does not guarantee the confidentiality of the information presented by the client, as this Book is available to all bank clients who also wish to record their comments and suggestions."

28. The Regulation is supplemented with Appendix 6 (attached).

	"Appendix 6 to the Regulation on Minimum Requirements for Credit Risk Management in Commercial Banks and Other Financial-Credit Institutions Licensed by the National Bank of the Kyrgyz Republic

LIST

of rights, expenses (payments) of clients

of the bank and penalties

┌─────────────────────────────────────────────────────────────────────┐

│ Rights of the bank client │

├──────────────────────────────────────┬──────────────────────────────┤

│Refuse free of charge (except in cases│Mandatory rights of the client │

| where the bank charges a fee according to the established | are indicated in the credit |

| tariff for considering the client's application) | contract in mandatory |

| from receiving a loan from the moment | order in accordance with |

| of signing the credit contract until | the requirements of this |

| receiving the funds | Regulation |

├──────────────────────────────────────┤ │

│Receive a copy of the contract with │ │

| all documents attached to it and | |

| seek legal advice outside the bank, at | |

| which time provided to the client for | |

| familiarization with the contract must be | |

| at least three days │ │

├──────────────────────────────────────┤ │

│Receive explanations on the order of │ │

| calculations of payments for the loan, | |

| penalties, | |

| fines | |

├──────────────────────────────────────┤ │

│Choose the language (state or │ │

| official), in which the | |

| credit contract and this list will be | |

| compiled (formatted) | │

├──────────────────────────────────────┴──────────────────────────────┤

│ Expenses (payments) of the bank client for the loan │

├──────────────────────────────────────┬──────────────────────────────┤

| Loan amount │ Indicated according to the contract │

├──────────────────────────────────────┤ │

| Interest payments on the loan │ │

├──────────────────────────────────────┼──────────────────────────────┤

| Fee for considering the application │ In the presence of fees │

| (loan processing) │ indicated in accordance with │

├──────────────────────────────────────┤ approved bank tariffs │

| Fee for issuing and administering │ in percentage or monetary |

| the loan │ expression │

├──────────────────────────────────────┤ │

| Fee for opening (if opening │ │

| account is conditioned by concluding | |

| a credit contract) and servicing │ |

| (if loan operations are conducted in | |

| non-cash form) the loan and/or │ |

| current accounts │ │

├──────────────────────────────────────┤ │

| Fee for cash and settlement services│ │

| (including depositing and receiving | |

| client's cash through an ATM) │ │

├──────────────────────────────────────┼──────────────────────────────┤

| Payments to third parties (payment for│ Indicated in cases if │

| insurance services, notary, etc.) │ these services are provided by │

| │ the bank. In cases where │

| │ the bank does not provide such │

| │ services, the bank indicates │

| │ approximate cost (range)│

| │ such expenses │

├──────────────────────────────────────┼──────────────────────────────┤

| Fee for providing statements from │ Indicated, depending on the │

| borrower's accounts │ quality of the client's credit history │

├──────────────────────────────────────┤ client, in accordance with │

| Commission and/or penalties for │ approved current │

| early repayment of the loan │ bank tariffs in percentage │

├──────────────────────────────────────┤ or monetary expression │

| Fee for currency conversion │ │

├──────────────────────────────────────┤ │

| Other expenses │ │

├──────────────────────────────────────┴──────────────────────────────┤

│ Bank penalties and fines │

├──────────────────────────────────────┬──────────────────────────────┤

| For delay in payment of payments on │ Indicated in accordance with │

| the principal amount and on interest │ approved sizes │

├──────────────────────────────────────┤ penalties charged in │

| For delay in replenishing the deposit,│ the bank based on the contract, │

| provided as collateral for the loan │ in percentage or monetary │

├──────────────────────────────────────┤ expression │

| Conditions for terminating the contract after │ │

| receiving the funds │ │

├──────────────────────────────────────┤ │

| Other expenses │ │

└──────────────────────────────────────┴──────────────────────────────┘

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(Full Name of the bank credit specialist) (signature) (date)

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(Full Name of the bank client) (signature) (date)".