Resolution of the Board of the National Bank of the Kyrgyz Republic No. 64/5 of October 28, 2015 on Amendments and Additions to Certain Resolutions of the Board of the National Bank of the Kyrgyz Republic

NATIONAL BANK OF THE KYRGYZ REPUBLIC

RESOLUTION

of October 28, 2015 No. 64/5

On Amendments and Additions to Certain Resolutions of the Board 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 Board of the National Bank of the Kyrgyz Republic (attached):

• On Approval of the "Regulation on Certain Transactions/Operations of Commercial Banks and Microfinance Companies of the Kyrgyz Republic with Real Estate" dated August 29, 2012 No. 36/2;

• On Approval of the "Procedure for the Work of Commercial Banks and Other Financial and Credit Institutions Licensed and Regulated by the National Bank of the Kyrgyz Republic with Collateral" dated July 4, 2012 No. 28/7;

• On Approval of the new edition of the "Regulation on Asset Classification and Corresponding Provisions to the Reserve for Coverage of Potential Losses and Damages" dated July 21, 2004 No. 18/3.

2. This Resolution shall enter into force upon the expiration of fifteen days from the date of its official publication.

3. The Legal Department:

• publish this Resolution on the official website of the National Bank of the Kyrgyz Republic;

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

4. The Supervision and Licensing Methodology Department shall bring this Resolution to the attention of commercial banks, the specialized financial and credit institution JSC "Financial Company of Credit Unions", the State Development Bank of the Kyrgyz Republic, microfinance organizations, and credit unions.

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

Chairman	T. Abdygulov

Appendix

AMENDMENTS AND ADDITIONS in Certain Resolutions of the Board of the National Bank of the Kyrgyz Republic

1. Make the following amendments and additions to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the Regulation 'On Certain Transactions/Operations of Commercial Banks and Microfinance Companies of the Kyrgyz Republic with Real Estate' dated August 29, 2012 No. 36/2":

in the Regulation "On Certain Transactions/Operations of Commercial Banks and Microfinance Companies of the Kyrgyz Republic with Real Estate" approved by the aforementioned Resolution:

• in paragraph 3:

in sub-paragraph a), exclude the word "disposal";

supplement sub-paragraph b) with the words ", provided that amortization of such assets must be discontinued.";

supplement paragraph 7 with the following sentence:

"In the event that the property is not realized at auction, the fair value is considered to be the value established in the manner provided for by the current legislation of the Kyrgyz Republic.";

• in paragraph 5, replace the words "three years" with the words "two years from the moment the right of ownership arises";

• in sub-paragraph a) of paragraph 6, after the word "right", add the word "of ownership";

• supplement sub-paragraph g) of paragraph 8 with the words ", if they exist;";

• rephrase the first sentence of paragraph 11 as follows:

"The Bank has the right to conclude a lease agreement (a form of agreement under which real estate is transferred for temporary possession and/or temporary use) for other real estate to cover expenses related to its maintenance, for a period not exceeding the term specified in paragraph 5 of this Regulation.";

• rephrase paragraph 12 as follows:

"12. Additional expenses for improving the general condition of other real estate, which will lead to the emergence of future economic benefits and an increase in its value, may be approved only if the Bank's actions are not aimed at generating profit from real estate transactions.";

• rephrase paragraph 20 as follows:

"20. Real estate specified in sub-paragraph a) of paragraph 3 of this Regulation, when accepted into the 'Other Property' category within the framework of out-of-court enforcement of claims on collateral, must be recognized on the balance sheet at the fair value of the property (except for accepting real estate onto the balance sheet as a result of failed public auctions) minus estimated expenses for the sale of real estate on the date of acceptance into the 'Other Property' category in accordance with Section 5 of this Regulation.";

• rephrase paragraph 22 as follows:

"22. Within the framework of out-of-court enforcement of collateral, the excess of the amount at which real estate is accepted onto the Bank's balance sheet over the loan debt is the Bank's obligation to return the surplus of funds to the pledgor. This difference must be paid to the pledgor upon the sale of this real estate.";

• in paragraph 23, replace the word "or" with the word "and";

• in paragraph 27:

in the first paragraph, replace the words "enforcement of collateral" with the words "enforcement of claims on collateral";

supplement with sub-paragraph g) as follows:

"g) there are results of failed public auctions.";

• exclude the second sentence of paragraph 28;

• rephrase sub-paragraph v) of paragraph 31 as follows:

"v) the Bank has transferred to the buyer the majority of the risks and rewards associated with ownership of the property, i.e., transferred the right to use and possess the property. The degree of the Bank's participation in the ownership of the property is an important factor for the purpose of determining the transaction as a 'sale'.

When all the above conditions are met simultaneously, the Bank may account for the asset on the balance sheet as a loan to a client.";

• rephrase paragraph 37 as follows:

"37. The Bank has the right to lease/sublease both standalone unused bank premises and part of the areas of unused bank premises. At the same time, bank premises in which the Bank and its subdivisions are located must be isolated, meet the requirements of technical strengthening, and other established requirements for the safe operation of non-residential premises. Banks must notify the External Supervision Department of the National Bank in writing about each case of leasing/subleasing unused bank premises and/or replacing tenants, indicating information about the tenant/subtenant and the lease term.".

2. Make the following amendments and additions to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the 'Procedure for the Work of Commercial Banks and Other Financial and Credit Institutions Licensed and Regulated by the National Bank of the Kyrgyz Republic with Collateral' dated July 4, 2012 No. 28/7":

in the Procedure for the Work of Commercial Banks and Other Financial and Credit Institutions Licensed and Regulated by the National Bank of the Kyrgyz Republic with Collateral, approved by the aforementioned Resolution:

• throughout the text, replace the word "market" with the word "fair" in the appropriate cases;

• rephrase paragraph 23 as follows:

"23. Relations between the Bank/FCI (pledgee) and the borrower (pledgor) are documented by a pledge agreement, and if necessary:

• a pledge agreement or agreement containing conditions on the procedure for enforcement of claims on the subject of pledge out-of-court with respect to movable property;

• a notarized agreement on the procedure for enforcement of claims on the subject of pledge out-of-court with respect to immovable property, if the legislation of the Kyrgyz Republic and the legislation of another country where the collateral is located provides for an out-of-court procedure for enforcement of claims on the subject of pledge.";

• supplement the Procedure with paragraph 23-1 as follows:

"23-1. The agreement on satisfaction of the pledgee's claims out-of-court must include a provision according to which it is provided that the real estate be valued by an independent professional appraiser, after the decision to hold auctions for the sale of real estate accepted in satisfaction of the borrower's debt is made, but before the start of the aforementioned auctions to determine its fair value, in accordance with the requirements of the Regulation 'On Certain Transactions/Operations of Commercial Banks and Microfinance Companies of the Kyrgyz Republic with Real Estate' approved by the Resolution of the Board of the National Bank dated 29.08.2012 No. 36/2.".

3. Make the following amendments to the Resolution of the Board of the National Bank of the Kyrgyz Republic "On Approval of the new edition of the Regulation 'On Asset Classification and Corresponding Provisions to the Reserve for Coverage of Potential Losses and Damages' dated July 21, 2004 No. 18/3":

in the Regulation "On Asset Classification and Corresponding Provisions to the Reserve for Coverage of Potential Losses and Damages" approved by the aforementioned Resolution:

• in sub-paragraph b) of paragraph 9.2, replace the words "three years" with the words "two years from the moment the right of ownership arises.".