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Approved by  

Resolution No.35/13 

of the National Bank 

of the Kyrgyz Republic Board 

as of September 25, 2013  

  

 

 

REGULATION 

on Minimum Requirements 

for Credit Risk Management in Conducting Operations  

under the Principles of Islamic Banking and Finance  

 

(Amendments and addenda are approved by the Resolutions of the NBKR Board No. 22/7 as of April 15, 2015, No. 62/4 as of October 14, 2015, No. 7/3 as of February 10, 2016, No. 35/4 as of August 24, 2016, No.40/6 as of September 28, 2016, No. 6/4 as of February 22, 2017, No. 21/11 as of May 31, 2017) 

 

Chapter 1. GENERAL PROVISIONS 

1. This Regulation is applied to the commercial banks, including the banks having an “Islamic window”, and microfinance companies that attract fixed-term deposits and carry out operations under the principles of Islamic banking and finance (hereinafter referred to as the banks).  

(As amended by Resolutions of the National Bank of the Kyrgyz Republic Board No. 40/6 as of September 28, 2016 and No. 21/11 as of May 31, 2017)  

2. The purpose of this Regulation is to establish an adequate credit risk management system in carrying out operations under the principles of Islamic banking and finance in the banks.  

2-1. This Regulation is also applied to other assets that bear a credit risk.  

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

3. Credit risk is the risk of failure to fulfill the obligations by the clients/suppliers/partners (hereinafter referred to as a client) in accordance with the terms and conditions of the agreement, which may have a negative impact on the banks capital or its profit.  

Credit risk is present in all types of the banks activities, where the positive result depends on the fulfillment by the client his/her/its obligations to the bank, stipulated by the agreements and/or contracts.  

The purpose of credit risk management is to determine the extent of the banks exposure to credit risks, to identify the causes of occurrence thereof and to reveal internal and external risk factors that can be used to forecast credit risks and to implement the necessary measures to minimize it to an acceptable level.  

3-1. Refinancing is entering into a relevant new agreement for the full or partial repayment of an active asset.  

(As amended by Resolution No. 6/4 of the National Bank of the Kyrgyz Republic Board as of February 22, 2017) 

4. For the purposes of this Regulation, assets bearing credit risk are the assets allocated under the principles of Islamic finance. Cross-border assets bearing credit risk are the assets issued to the residents/non-residents for financing activities exclusively outside the Kyrgyz Republic, while the term of a resident/non-resident is consistent with the concept defined in the Law of the Kyrgyz Republic “On foreign currency operations”.  

Due to the unique characteristics of each type of assets bearing the credit risk, non-binding nature of certain agreements, the credit risk shall be assessed separately for each type of asset in order to implement appropriate internal control and risk management.  

5. The requirements of this Regulation, as well as other regulatory legal acts of the National Bank of the Kyrgyz Republic (hereinafter referred to as the NBKR), shall be fully reflected in the internal documents of the bank that regulate credit risk management.  

 

Chapter 2. POLICY OF THE BANK FOR IMPLEMENTATION OF OPERATIONS UNDER THE PRINCIPLES OF ISLAMIC FINANCE 

6. All types of products and standard agreements entered into under the principles of Islamic finance that the bank intends to implement shall be initially approved by the Shariah Council of the bank in terms of their compliance with the Shariah Standards. 

7. The banks operations implemented under the principles of Islamic finance are carried out in accordance with its internal policy approved by the Board of Directors of the bank.  

8. The policy of the bank on implementation of the operations under the principles of Islamic finance (hereinafter referred to as the Policy) determines the strategy, criteria, parameters and procedures that the bank employees shall follow in implementation, execution of the transactions, monitoring and risk management.  

The policy of the bank shall also be based on the principles of responsible financing: fairness, transparency, credibility, partnership with clients/partners, taking into account their economic interests and financial possibilities.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

9. The Policy shall reflect the following provisions relating to the issuance of assets bearing credit risk:  

1) general provisions including the following:  

- composition of potential clients/partners, including restrictions on the number of investors;  

- types of assets bearing credit risk, depending on the purposes of financing and other conditions; 

- quantitative limits of financing; 

- terms of financing; 

- criteria for assessing the solvency of the clients/partners; 

- markup/income on the assets bearing credit risk, and methods for calculating thereof; 

- requirements for financial information of the clients/partners; 

- geographical restrictions; 

- procedure for establishing the currency of issue and limitation; 

- maximum concentration of the assets bearing credit risk (by the groups of clients/partners, geographical feature, industry, currency and other factors); 

- restrictions on the assets bearing credit risk provided by the bank and affiliated parties; 

- criteria for assessment of the value and acceptability of a pledge, including assessment of the risks associated with the fact that the pledged item is the only housing of a client/partner/pledger at the time of lending documentation; 

- monitoring compliance with the procedure of preparing for provision of the assets bearing credit risk; 

- requirements for issue of the letters of guarantee by the bank (Appendix 2); 

- ratio of the maximum financing portfolio to the assets; 

- maximum share of each type of the assets in the financing portfolio; 

- other; 

2) procedure for documentation of the assets bearing credit risk, including: 

- forms of documents; 

- procedure for provision of the assets bearing credit risk; 

- the procedure for approval of the assets bearing credit risk; 

- requirements for financial analysis; 

- requirements for a pledge and documentation (types of a pledge, the ratio of a pledge to the asset bearing credit risk, assessment of the market value and location thereof); 

- procedure of control over correct documentation of the assets bearing credit risk; 

3) requirements for management of the assets bearing credit risk, including:  

- procedure for management of the assets bearing credit risk; 

- requirement to maintain an adequate client/partner file; 

- arrangement of control over implementation of the agreements; 

- frequency of pledge monitoring; 

- conditions for extension or renewal of overdue assets bearing credit risk; 

- requirements for classification and formation of loan loss provision (LLP); 

- process of independent evaluation of the assets bearing credit risk; 

- requirements for information systems (reporting); 

- requirements for arrangement of control over management of the asset bearing credit risk; 

- requirements for carrying out stress testing to assess potential losses related to credit risk (Appendix 3); 

4) separation of powers to provide assets bearing credit risk, indicating the maximum amount and type of the asset bearing credit risk. The right to provide the assets bearing credit risk and to take off-balance liabilities of the bank shall be divided into several levels of the officials who are liable in accordance with the legislation of the Kyrgyz Republic for violations made in financing;  

5) responsibilities for transfer of the rights and exchange of the information between the structural units involved in the financing process;  

6) risk assessment procedure for new banking products. Risks for all new products shall be identified, evaluated and controlled before the bank enters the market of such products;  

7) procedure for identifying, analyzing and resolving the situations related to “bad” assets bearing credit risk;  

 Within the limits of the requirements established by the legislation of the Kyrgyz Republic, including the NBKR regulatory legal acts, the bank independently determines the circle of future clients, the types of assets bearing credit risk, and establishes markup/income on the assets bearing credit risk.  

8) the principles of responsible financing, which contain the requirements for development and implementation of the assessment and reporting system aimed at preventing high debt ratio (when a client/partner has parallel obligations, including in more than one financial institution (hereinafter referred to as the FI), therefore the debt load of a client/partner may exceed the ability of a client/partner to service his/her/its liabilities).  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

10. A clear and detailed Policy of the bank shall facilitate proper handling of assets bearing credit risk and ensure profitability of the bank.  

11. The Management Board of the bank is responsible for implementation of the banks Policy and strategy, for this purpose it shall ensure development and implementation of the policy and procedure for identification, measurement, monitoring and control of credit risk, including credit risk conditioned by currency risk in the process of the banks activities.  

The Bank shall provide an integrated system for permanent detection, assessment, monitoring and control of credit risk conditioned by currency risk, and provide a reporting system for control, analyzing and monitoring credit risk conditioned by currency risk.  

12. The Board of Directors of the bank shall review the banks Policy for its adequacy, the systems of limits, instruments and procedures for credit risk management, the internal audit system for credit risk management, and also revise the Policy as necessary, as changes in the banks risk profile, the NBKR regulatory legal acts, in complexity of the banks operations, in the organizational structure and personnel of the bank, which affect the financing process, as well as changes occurring in the economy of the republic and the countries, where there are business relations with the bank and its clients/partners that affect the financing process, but at least once a year.  

All problems related to issue of assets bearing credit risk shall be resolved only by the banks Finance Committee or by the persons to whom the Committee is entitled to delegate this right in accordance with the regulatory legal acts, excluding the issues falling within the competence of the banks Board of Directors.  

The right to issue assets bearing credit risk shall be divided into several levels of the officials, and these persons shall be liable in accordance with the legislation of the Kyrgyz Republic for violations committed by them in financing.  

Issue of assets bearing high risk and assets related to the bank/affiliated entities of the bank shall be approved by the banks Board of Directors and comply with the requirements of the NBKR regulatory legal acts. The banks Board of Directors shall be responsible for approving decisions on the issue of assets carrying major risk, the assets related to the bank/affiliated entities of the bank, cross-border assets, including the assets secured by a pledge that is outside the Kyrgyz Republic, issued with violations of the requirements of the NBKR regulatory legal acts and/or the assets in relation of which the bank incurred a loss.  

The approval of the banks Board of Directors is also required in cases where a pledge located outside the Kyrgyz Republic is used as collateral for an asset bearing credit risk by more than 20% of the amount of the asset bearing credit risk. At the same time, the value of a pledge is its liquidation value in accordance with the NBKR regulatory legal acts.  

In addition, the financing policy shall specify the powers of the Finance Committee and/or the Management Board on writing off and restructuring the financing provided that the restrictions are described.  

The Bank can develop the internal risk rating system for credit risk management. The internal risk rating system shall correspond to the nature, size and complexity of the banks activities. In addition, the bank shall maintain a database and keep a register of assets bearing credit risk, for which non-standard decisions (individual markups, pledge structure, etc.) were taken at issue.  

The internal policies of the bank shall stipulate the requirements for verifying the facts, which demonstrate that pledged item is the only housing of a client/partner/pledger at the time of the decision to recover thereof. If, at the moment of claim to pledged item, the pledged real estate is the only housing of a client/partner/pledger, therefore the claim of property shall be effected by a court decision.  

(As amended by Resolutions of the National Bank of the Kyrgyz Republic Board No. 35/4 as of August 24, 2016 and No. 21/11 as of May 31, 2017)  

12-1. The bank shall at least annually conduct an internal audit of the system of internal control over credit risk conditioned by currency risk, including asset classification.  

12-2. The bank shall provide periodic training for the banks employees involved in financing and monitoring processes, training on analysis and assessment of the clients/partners solvency, taking into account the clients/partners solvency assessment policies implemented in the bank, on work with “bad” assets bearing credit risk, and also on other issues of financing, including communication with the clients/partners, and other requirements of the legislation of the Kyrgyz Republic and the principles of responsible financing.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

 

Chapter 3. ROLE OF THE SHARIAH COUNCIL 

13. When carrying out activities in accordance with the principles of Islamic financing, the general conditions for provision of all products and standard agreements shall be approved by the Shariah Council for compliance with the Shariah Standards. If amendments and additions, as well as changing terms of the agreement are introduced into the terms of a specific agreement, they shall be approved by the Shariah Council.  

The agreement with regard to clarifying terms thereof, taking into account the specifics and details of the transaction on funds placement, can be amended and supplemented by the bank without additional arrangement with the banks Shariah Council, provided that all the essential (basic) terms of the standard agreement, approved by the banks Shariah Council, remain unchanged.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

14. In performing its functions, the Shariah Council shall be independent of the banks administration. 

15. The activity of the Shariah Council is governed by the Regulation on the Shariah Council, which shall be approved by the banks Board of Directors. 

16. The Regulation on the Shariah Council shall determine 

- arrangement of the Shariah Council operation (regulations) - the composition of the Council, the procedure for holding meetings; 

- powers and responsibility of the Shariah Council; 

- procedure for interaction with the banks Board of Directors, the Management Board, the banks Finance Committee, the Corporate Governance Committee and the Audit Committee. 

17. The Shariah Council shall include specialists who meet the requirements of the legislation of the Kyrgyz Republic, including the NBKR regulatory legal acts.  

 

Chapter 4. FINANCE COMMITTEE OF THE BANK 

18. The banks Finance Committee appointed by the Board of Directors is body that implements the banks financing policy.  

19. All issues related to issue of the assets, guarantees, obligating documents, sureties and other assets and liabilities that are essentially financial transactions and bear the risk of credit loss shall be resolved by the banks Finance Committee. The Finance Committee may delegate this right to other persons, excluding the issues falling within the competence of the banks Board of Directors. The Finance Committee also considers the issues related to separation of the powers for issuing, writing-off and restructuring of the assets in accordance with the Policy. At the same time, the decisions of the Finance Committee on writing-off and restructuring of financing shall be brought to notice of the Management Board at least once a month and to the Board of Directors at least once a quarter. The Finance Committee submits consideration of the Board of Directors the proposals for selling and writing-off the assets bearing significant credit risk. The Management Board of the bank is responsible for implementation of the Board of Directors decisions on these issues.  

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

20. The activities of the Finance Committee are regulated by the Regulation on the banks Finance Committee, which shall be approved by the banks Board of Directors. 

21. The Regulation on the banks Finance Committee shall determine 

- arrangement of the Finance Committee operation - composition, procedure for holding meetings, a list of documents required for decision-making;  

- powers and responsibilities of the Finance Committee; 

- accountability to the Board of Directors and the procedure for interaction with the Management Board, the Shariah Council and the banks structural subdivisions on financing issues; 

- responsibility of each member of the Finance Committee for decisions made and signed by him/her. 

22. The banks Finance Committee shall consist of at least five people and be headed by the Chairman of the Management Board or one of the Deputy Chairmen of the banks Management Board. 

The Finance Committee shall include: 

- the head of the banks finance subdivision;  

- the head of the banks legal service; 

- other employees of the bank whose functional duties do not cause a conflict of interest with their participation in operation of the Finance Committee.  

The risk manager may participate in operation of the Finance Committee to express an expert opinion, however without the right to vote when the decision is made by the aforementioned collegial body. 

Each member of the Committee participating in the decision shall: 

- be aware of substance of the issue being considered; 

- realize the influence of decisions made by him/her on the activities of the bank; 

- assess the possibility of risks and consequences of decisions made by him/her. 

The opinion of the Committee member, who has comments and suggestions on the issue under consideration and who does not agree with the decision taken, shall be expressed in the vote and reflected in the minutes. The minutes shall be signed by all members of the Committee who attended the meeting and the secretary of the committee. The members of the Committee who did not attend the meeting shall review the minutes and the decisions taken with signature confirmation.  

23. The risk manager of the bank shall provide reports at least on a monthly basis on the level of credit risk to the Board of Directors, including the risk assessment on the assets bearing credit risk issued to the entities related to the bank and to the affiliated entities of the bank.  

 

Chapter 5. ARRANGEMENT OF WORK ON PROVIDING ASSETS CARRYING CREDIT RISK 

§1. Analysis of applications for provision of an asset bearing credit risk.  

24. Work on provision of the assets bearing credit risk begins from the moment when a bank receives from a client/partner an application for provision of an asset bearing credit risk, an application shall contain the purpose of obtaining the asset bearing credit risk, the required amount, term and conditions under which it will be received, information on the source of its return and on the pledge (in cases when this is provided for by the NBKR regulatory legal acts and the internal documents of the bank).  

25. The banks shall register information about received applications of the clients/partners for obtaining assets bearing credit risk, regardless of the decision taken in respect of an application, including information about a client/partner in the Register of applications for provision of assets bearing credit risk by the clients/partners (hereinafter referred to as the Register). Information about notification of a client/partner in case of refusal shall also be reflected in the Register. The Register shall be numbered, tied and sealed with a bank seal (Appendix 4). The Register can be kept electronically, provided that the banks have a security system that ensures information security, its archiving and impossibility of its traceless correction. The information contained in the Register shall be kept in accordance with the deadline set in the “List of basic documents formed in the course of activity carried out by the commercial banks and financial institutions licensed by the National Bank of the Kyrgyz Republic, specifying the terms of storage” approved by the Resolution of the NBKR Management Board No. 22/9 as of August 27, 2004.  

26. Each bank shall have a certain procedure of processing applications for obtaining assets that bear credit risk, as well as the requirements for a person applying for provision of an asset bearing credit risk.  

27. If a finance specialist or any person involved in making a decision on issuing an asset bearing credit risk has a conflict of interest with a potential client, therefore this person shall not be involved in making a decision on issue of an asset bearing credit risk.   

28. The Client shall be entitled to register his/her comments and suggestions in the Book of complaints and suggestions of the banks clients (hereinafter referred to as the Book), which shall be numbered, bound, and also certified by the Chairman of the Management Board or one of the Deputy Chairmen of the banks Management Board and sealed with the banks seal. The Book shall be kept for at least five years (Appendix 5). The Book can be keep electronically, provided that a bank has met all the requirements for ensuring the information security of a bank, established in the NBKR regulatory legal acts, and also provided that there is an automated reservation system.  

The specified period of storage of the Book is established in accordance with the Resolution of the NBKR Management Board No. 22/9 as of August 27, 2004 “On the List of basic documents formed in the course of activity carried out by the commercial banks and financial institutions licensed by the National Bank of the Kyrgyz Republic, specifying the terms of storage”.  

At the same time, a bank does not guarantee the confidentiality of the information provided by a client, since this Book is available to all banks clients who also wish to record their comments and suggestions.  

29. In order to determine compliance with the established requirements and reasonability of providing an asset bearing credit risk, as well as carrying out an analysis of a clients/partners solvency, the bank shall request the following documents from a client/partner:  

- completed application/request, which shall contain basic information about a client/partner (if a client/partner is a legal entity - the main type of activity, the approximate amount of working capital), the revenue (proceeds) structure in terms of currencies (for the assets in foreign currency), a plan for repayment of financing, key business partners, etc.;  

- copies of the constituent documents (if a client/partner is a legal entity) certified by a notary or by a seal of a legal entity and a signature of a manager in the case when in accordance with the legislation it is impossible to notarize such copies;  

- financial statements of a client/partner (if a client/partner is a legal entity) for the last reporting year. If a client/partner-legal entity shall undergo an annual audit in accordance with the legislation of the Kyrgyz Republic, the financial statements shall be confirmed by an external auditor. At the same time, if a legal entity shall provide interim financial statements in accordance with the legislation of the Kyrgyz Republic, a bank shall request such statements from a legal entity;  

- (Became invalid in accordance with the Resolution of the National Bank of the Kyrgyz Republic Board No. 7/3 as of February 10, 2016);  

- a registration document issued by the state bodies (if a client/partner is a legal entity or an individual which/who carries out entrepreneurial activity on the basis of a certificate or a patent), excluding individuals who have received funding in the amount exceeding KGS 250,000;  

- a business plan (if a client is a legal entity and the amount of financing is more than KGS 3,500,000, excluding financing provided for working capital replenishment), which includes the purpose of obtaining financing, an approximate forecast for the clients/partners funds flow, the sources of repayment by currencies, the terms and plan of measures on financing repayment. At the same time, in order to minimize credit risks, the bank shall establish additional requirements for a business plan on investment financing, large-scale financing and other types of financing that require a more thorough assessment of a clients/partners business;  

- inventory of the property to be pledged (if available), indicating the market value, the valuation date, the individual/legal entity who conducted evaluation, the proof of registration, the location of the pledge, the documents confirming the right of ownership (if a pledge is movable/immovable property) and the rights of use, and other documents in accordance with the internal documents of a bank;  

- guarantees (sureties) with indication of a guarantor (pledger), the amount of a guarantee (surety), etc. (if a bank requires a guarantee (surety), as well as the financial statements of a guarantor (if a guarantee is the only financing security and a guarantor is a legal entity);  

- an identity document (if a client/partner is an individual);  

- a salary certificate for the last 3-12 months (meanwhile, a bank shall be entitled to independently determine the period within which a salary certificate shall to be submitted) or other documents confirming the information on income (if a client/partner is an individual).  

In addition to the documents listed above, a bank may also request other documents that are necessary for a bank, as well as for assessment of a clients/partners solvency (contracts, agreements, recommendation letters, etc.).  

The bank shall implement internal procedures for working with the clients/partners data, which contain requirements for ensuring the security and protection of data. In collecting the information and conducting interviews with the clients/partners, the employees of a bank shall give clear explanation to the clients/partners, in which cases a clients/partners data can be used in accordance with the laws.  

In order to use the photographs or video recordings with the images of the clients/partners, audio recordings and other information about them in advertising, marketing materials and for other public purposes, it is necessary to obtain the written consent of the clients/partners for this.  

(As amended by Resolutions of the National Bank of the Kyrgyz Republic Board No. 35/4 as of August 24, 2016 and No. 21/11 as of May 31, 2017) 

30. When providing banking services, a bank shall ensure observance of the clients/partners rights, including the following rights:  

- the right of a client/partner to refuse from receiving an asset bearing credit risk from the moment of signing an agreement till the moment of receiving money or making payments for property within the framework of leasing on a free-of-charge basis (except for the case when a bank acquires assets under financing); 

- the right of a client/partner to receive a draft agreement with all documents attached to it and apply for legal advice outside the bank before signing an agreement, meanwhile the time given to a client/partner for acquaintance with an agreement shall be at least one day, however not more than three days;  

- the right of a client/partner to apply to the bank for prolongation or restructuring of an asset bearing credit risk; 

- the right of a client/partner, if more than 50% of the principal amount of the asset bearing credit risk is repaid, to provide instead of available pledge another pledge acceptable to both parties, the value of which covers the remaining amount of the debt on the asset bearing credit risk, in accordance with the internal documents of a bank.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

31. In order to increase the transparency of the banks activities in financing and improving the clients/partners awareness about the terms of financing, the stands with public information on the terms and procedure of financing, on the list of necessary documents for obtaining the asset bearing credit risk, the list of the NBKR main regulatory legal acts regulating the financing process shall be placed in the clients/partners service points of a bank. Moreover, the stands shall contain information on the clients/partners rights, on availability of the Book of complaints and suggestions in the bank and other useful information for the clients/partners.  

32. The employees of a bank shall interact with the clients only within the scope of their functional duties. Moreover, the employees of a bank shall not be entitled to assist a client/partner in issuing an asset bearing credit risk, or as an intermediary for a fee.  

33. The bank, in assuming the risks associated with provision of an asset bearing credit risk, shall check the completeness and reliability of the information provided by a client/partner, including the information on the income of a client/partner, who has incomes that were not documented prior to issuing the asset bearing credit risk, and thereafter - until full repayment of the banks funds.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

34. In general, the analysis of an application for provision of an asset bearing credit risk shall be based on the banks policy approved by the Board of Directors and focus on the following key factors:  

- the right to receive financing. The bank shall ensure that a client/partner has the right to receive an asset bearing credit risk and to sign an agreement;  

- the nature of a client/partner. The bank shall ensure that a client/partner is serious about obtaining financing, gives full answers to the banks questions and will make every effort to repay the debt. In the course of analysis, it is necessary to take into account whether a client/partner used credits (loans) or assets bearing credit risk in this bank or other financial institutions in the past, how the repayment was made, a clients/partners discipline, willingness to fulfill his/her/its obligations. Moreover, it is necessary to take into account his/her/its reputation both professionally and in terms of the general human values, and consider the term, the experience of the borrower in the industry, his/her/its successes and achievements. The information about the assets bearing credit risk provided to him/her/it in other credit institutions shall also be requested. In addition, it is necessary to request information (credit report) about the persons/entities connected with a client/partner, subject to their consent in accordance with the laws, in one or more credit bureaus;  

The bank shall respect the confidentiality and safety of the credit report received from the credit bureau, not disclose the credit information contained in it to third parties and use the credit report only for the purposes established by the legislation on the exchange of credit information.  

The bank shall be responsible for misrepresenting the information contained in the credit report received from the credit bureau.  

- funds. The main question, to which the bank employee who is analyzing an application for provision of an asset bearing credit risk shall answer, is as follows: whether a client/partner will be able to receive sufficient funds in the form of income and cash flow, including in the currency in which he/she/it intends to obtain financing in order to repay an asset bearing credit risk, or not. In the course of assessment a bank shall find out whether there has been a stable growth in profit or sales in the past, is it likely that such growth will continue during the term of the agreement.  

In addition, the bank shall determine the adequacy of a clients/partners income (revenues) (including in foreign currency), taking into account growth of the exchange rates in order to ensure timely repayment of the asset by a client/partner.  

If a client/partner has income (revenues) predominantly in the national currency during the coming 12 months, the bank shall assess the reasonability of issuing funds in foreign currency to such client/partner, taking into account the credit risk due to currency risk as a result of exchange rate change negative for a client/partner, provided that the requirements of the NBKR regulatory legal acts, including the LLP, are observed;  

- collateral. When assessing the collateral, a finance specialist shall determine whether a client/partner has sufficient quality assets to provide the necessary collateral for the asset bearing credit risk. A bank may decide to conduct an independent assessment of a pledge;  

- a guarantee (surety). If the guarantee (surety) is used as the only collateral for the asset bearing credit risk, work shall be carried out to study the guarantor (pledger), his/her professional reputation, solvency, responsible attitude and readiness to fulfill his/her obligations;  

- surety of the members of the joint liability group. Meanwhile, the joint liability group (hereinafter referred to as the “JLG”) is a voluntary association of participants - individuals (at least 3 persons) engaged in entrepreneurial activities aimed at making profit, meanwhile the JLG members jointly assure fulfillment of the obligations of each member in the group and are responsible for the full joint repayment of received funds, under any circumstances, in accordance with the legislation of the Kyrgyz Republic.  

When considering an application for obtaining an asset bearing credit risk submitted by the JLG participants, a bank shall pay attention to the fact that the members of the same family living together and/or doing a joint business cannot be the participants of one JLG.  

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

For the purposes of this Regulation, joint business shall be an economic activity, in which several entrepreneurs (partners, co-owners, etc.) are involved. At the same time, their activity is aimed at obtaining profits from joint production and/or sale of the goods, service rendering; in this activity, property, intangible assets, labor of these entrepreneurs are used for this purpose. The participants in the joint business share proportionately the profit from doing business and bear the risk of losing all or part of the property.  

(As amended by Resolutions No. 40/6 of the National Bank of the Kyrgyz Republic Board as of September 28, 2017, No. 6/4 of the National Bank of the Kyrgyz Republic Board as of February 22, 2017, No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

34-1. In order to organize work on risk assessment in the process of concluding, changing and monitoring the execution of financing transactions, a bank shall enter into an agreement on exchange of credit information with one or several credit bureaus, as well as provide the credit information available in the bank to at least one credit bureau.  

Credit information shall be reliable, relevant and based on factual data, and the terms of the agreement concluded between a bank and a client.  

The internal documents of a bank for management of credit activities shall contain the procedure and requirements for arrangement of work on exchange of the credit information, as well as the basic conditions, rights and obligations when entering into an agreement on exchange of the credit information with the credit bureau, including:  

- on ensuring the storage and protection of the credit information against unauthorized access, destruction, change, use or disclosure;  

- on prohibiting the disclosure of information by the bank and its employees who have access to information in the process of exchanging the credit information, as well as after termination of their employment agreement (contract);  

- on timely notification of the credit bureau about changes and updates of credit information a bank is liable for;  

- on introduction of amendments to the credit information given to the credit bureau in case of distortion of the information provided, as well as at the request of the subject of credit information;  

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

A bank shall be responsible for misrepresentation of the credit information transmitted to the credit bureau, as well as for completeness of the information transmitted, for timeliness of the transfer thereof, including the information about all clients/partners, in accordance with the legislation of the Kyrgyz Republic and the NBKR regulatory legal acts.  

(As amended by Resolution No. 40/6 of the National Bank of the Kyrgyz Republic Board as of September 28, 2017) 

35. A bank shall also conduct an interview with a potential client/partner in order to explain the consequences of failure to fulfill or improper fulfillment of its obligations under the financing agreement (in this respect a client/partner shall put his/her/its signature in the financing agreement) and to determine and/or clarify the factors specified in paragraph 34 of this Regulation. Responsibility for compliance with the requirements specified in paragraph 34 of this Regulation shall be borne by the persons authorized to make a decision to issue of an asset bearing credit risk.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

36. After analyzing an application for provision of an asset bearing credit risk, a banks finance specialist shall compose a conclusion in which it is necessary to justify the reasonability of providing a client/partner with an asset bearing credit risk and to submit it for consideration by the Finance Committee together with the application of a client/partner for provision of an asset bearing credit risk and other necessary documents provided by a client/partner at the request of a bank in accordance with the requirements of the present Regulation and the internal documents of a bank.  

In case of refusal to issue an asset bearing credit risk, a finance specialist in his/her conclusion shall justify this decision specifying the reasons for refusal, and also notify a client/partner of this decision in accordance with the procedure established in the bank.  

37. If the amount specified in the application does not exceed the amount, which the employees entering the first level of responsibility are authorized to issue, in the case of a positive decision, the process of documenting the provision of an asset bearing credit risk is initiated.  

38. If the amount specified in an application exceeds the amount, which the first-level employees are authorized to issue, the conclusion of the first-level employee shall be submitted for consideration to the employees or a collegial body of an appropriate level, whose/which powers include resolving the issue of providing assets bearing credit risk for such amount. Based on this recommendation, the employees of this authorized level shall finally resolve the issue of providing this asset. If necessary, the conclusion may be sent for improvement, or additional information about a client/partner may be requested, or a clients/partners own study may be conducted, including carrying out additional conversations with him/her.  

The decision to issue an asset bearing credit risk shall be made after full examination of all documents.  

38-1. A bank may provide a client with the finds in the national currency for consumer purposes only if the ratio of the planned monthly payments for the asset bearing credit risk (principal debt and markup/income) to the average monthly aggregate income of a client is less than 50 percent.  

38-2. A bank may not provide financing for mortgage (purchase/construction of housing under Murabaha, Istisnaa, etc.) and consumer purposes in foreign currency to an client - individual, except for the persons engaged in entrepreneurial activity on the basis of a certificate or a patent, as well as overdrafts on payment cards in the framework of salary projects and financing limits for payment cards in foreign currency on deposit security. Meanwhile, if the deposit is in the same currency as the financing, it shall provide 100% cover of the financing amount, and the deposit in the currency other than the financing currency shall provide at least 120% cover in KGS equivalent. Indexing of payments is not allowed for such financing in relation to a currency other than the currency of the financing agreement.  

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

39. If an issue of providing an asset bearing credit risk to a client/partner is resolved positively, a clients/partners dossier shall be formed from the documents provided on this asset, all documents relating to this asset bearing credit risk, and all subsequent assets bearing credit risk, if any are issued to a client/partner in the future shall be attached to such dossier (the minimum requirements for a clients/partners dossier are given in Appendix 1).  

40. A clients/partners dossier shall also contain the records of all meetings, interviews and telephone conversations with a client/partner, all attached conclusions on the availability and condition of a pledge, summary and results of the negotiations specified in it, as well as all correspondence related to this asset bearing credit risk.  

 

§2. Conclusion of a financing agreement  

41. After making a positive decision to provide a client/partner with an asset bearing credit risk and upon discussing all conditions with a client/partner, an agreement, which meets the requirements of the legislation of the Kyrgyz Republic, shall be concluded.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

42. An agreement with attached list of rights, expenses (payments) of the banks clients/partners concluded between a bank and a client/partner, as well as other agreements concluded between a bank and a client/partner, shall be drawn up as may be agreed in the state or official language (if necessary, the text of an agreement can be translated into another language). The rights and obligations of a client/partner arising from the terms of an agreement shall be reflected in a separate section. The font used in the agreement with all attached appendices shall be the same throughout the text of an agreement. The font size shall be at least 12.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

43. When concluding an agreement, it is necessary to stipulate all the conditions under which an asset bearing credit risk shall be issued and repaid in order to avoid possible problems with repayment in the future. At the same time, a bank shall not be entitled to unilaterally change the original conditions of an agreement, if it aggravates the rights and/or increases the obligations of a client/partner, except for the case when this right is expressly stipulated in the agreement with the established term for notification of a client/partner (at least 30 days), as well as indicating a limited list of specific articles, conditions and maximum/minimum boundaries for introduction of amendments. When drawing up a schedule for planned repayment of an asset bearing credit risk and markup/income thereon together with a client/partner, it is advisable to focus on the purpose of the asset bearing credit risk and the specifics of the clients/partners business presented by them, as well as the business plan and approximate cash flow forecast checked by the bank. The debt repayment schedule shall at least include the asset amount, the markup for the asset, the date of issue, the scheduled repayment dates with the amounts of planned repayments on the principal debt and markup, and the balances of debt on the asset. The debt repayment schedule is an integral part of the financing agreement. The schedule for debt repayment in respect of financing products, for which this schedule is not stipulated (overdrafts on payment cards within the framework of salary projects, financing lines, etc.), shall not be drawn up.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

44. An agreement shall contain at least the following information:  

- the names of the parties; 

- the subject of an agreement; 

- the validity period of an agreement; 

- the main conditions for provision of an asset bearing credit risk, the amount, maturity, collateral, markup/income on it and settlement methods, the form of the asset provision: cash (through the cashier) or non-cash (including to the clients/partners account, through bank payment cards, etc.); 

- the purpose of an asset bearing credit risk; 

- the rights and obligations of the parties; 

- the clients right for early repayment of the asset in full or in parts at any time without charging fines (commissions and other fees), if a bank is provided with thirty days prior notification. Early repayment by one JLG participant is possible with the written consent of other JLG participants; 

- the conditions for providing information about a client/partner to the credit bureau, as well as other cases of using the clients data in accordance with the laws; 

- sanctions for violation by any party of its obligations, cases and conditions for termination of an agreement. 

In the event of early repayment of an asset bearing credit risk by one participant of the JLG in its part, he/she/it continues to incur joint liability under the surety agreement until the asset received as part of this JLG is fully repaid. If the JLG participants and the bank have provided their consent, as well as the conditions for the minimum number of the JLG members are complied with, the participant who has repaid in its part the asset bearing credit risk, may be relieved of joint liability.  

(As amended by Resolutions No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016, No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

45. The list of expenses (payments) of the banks clients/partners and the penalties, which is compiled in tabular form in accordance with Appendix 6 is an integral part of an agreement between a bank and a client/partner.  

The financing agreement prohibits inclusion of additional fees, commissions and other payments, other than those published or established by the bank, in accordance with Appendix 6, as well as other related services on a fee basis, regardless of the arrangement with a client/partner.  

A bank shall provide and familiarize a client with aforementioned list and, if necessary, provide a client/partner with explanations on the procedure for calculating the asset bearing credit risk, penalties, fines, the procedure for obtaining/repayment of the asset, as well as using the bank payment cards, and on possible risks, insolvency under the conditions of increasing exchange rate of foreign currency, if the asset is received in foreign currency, and the income (or part thereof) is expected in the national currency, etc., and also obtain the consent of a client/partner, confirmation thereof shall be his/her signature.  

In case of delay in repayment of the markup on the principal amount of financing and/or delay in repayment of the principal amount of financing, the forfeit (penalty, fee) shall be charged on the amount of overdue debt and for the actual period of overdue debt.  

A bank shall indicate all expenses of the banks client/partner related to provision, use and repayment of the asset bearing credit risk, in accordance with the contract and internal procedures of the bank. The cost of expenses for third party services (payment for insurance services, notary services, etc.) for the client/partners awareness is specified by the bank at the current tariffs of third parties on the date of the agreement conclusion, indicating that these expenses may change in the future.  

Moreover, an agreement shall contain:  

- the obligation of the banks to submit, within 3 (three) working days, at the request of a client/partner, the information about the receipt of an asset bearing credit risk and compliance with the terms of an agreement by a client/partner in respect of the asset bearing credit risk for provision of this information in other financial institution, as well as to provide clear and accurate information about the clients/partners account (statements of an account, cheque, balance sheet status, confirmation of payment for financing and other necessary information);  

- enforcement of pledge exclusively through the court, if the subject of a pledge has a significant historical, artistic or other cultural value for the society or is the only housing owned by an individual;  

- enforcement of pledge exclusively through the court, if the subject of a pledge: has a significant historical, artistic or other cultural value for the society, or is the only housing owned by an individual;  

- the banks obligation to terminate accrual of forfeits (fines, penalties) after 15 (fifteen) days from the date of sending a notice of initiating the procedure of pledge enforcement for an asset bearing credit risk of a client/partner - an individual, including an individual entrepreneur without formation of a legal entity. Penalties and fines may be applied in cases stipulated by the Shariah Standards. The amount of forfeits (fines, penalties) accrued for the entire validity period of financing shalld not exceed 20 (twenty) percent of the amount of provided financing. At the same time, cash received in the form of a forfeit (fine, penalty) shall be directed for charitable purposes to the organizations that are not affiliated with the financial institution.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

46. (became invalid in accordance with Resolution of the National Bank of the Kyrgyz Republic Board No. 62/4 as of October 14, 2015).  

47. An agreement shall stipulate periodic provision by a client/partner of the financial statements and/or other financial documents confirming the use by a client/partner of the asset bearing credit risk for the intended purpose.  

48. An agreement shall stipulate the conditions for the onset of the circumstances of insuperable force (force majeure) and the procedure for taking actions in this case.  

Force majeure circumstances may include, but not be limited to, the events such as: natural disasters (floods, earthquakes, fires and other natural or man-made disasters), epidemics, state of emergency, riots, military actions, etc.  

49. Each sheet of an agreement with all appendices shall be signed by a client/partner; an agreement shall be bound, numbered and sealed by the bank seal and by the signature of a client/partner.  

A bank shall obtain a receipt from a client/partner or a client/partner shall write an inscription on the agreement that the client/partner has become acquainted with all the terms of the agreement, the terms of the agreement are clear to him/her and the client/partner agrees with them. The receipt (if it was received) shall be attached to the clients/partners dossier.  

50. The number of copies of the concluded agreement shall be no less than the number of parties that conclude it. Each contracting party shall receive the original copy of the agreement signed by all parties. The agreement shall not contradict the legislation of the Kyrgyz Republic, including the regulatory legal acts of the National Bank of the Kyrgyz Republic. The bank shall obtain a receipt from a client/partner containing information that a client/partner has been provided with the original agreement.   

50-1 If the financing line agreement contains a rule that, upon receipt of the first part of the financing line, the clients/partners right to receive the remaining part of the financing line shall be canceled or the banks obligation to issue the remaining part of the financing line shall be canceled, and the bank does not create loan loss provision for the off-balance liabilities related to the financing line, the bank shall be obliged, starting with the issue of the second part of the financing line and at each next issue of a part of the financing line (paragraphs 4, 5, 11, 15, 18 of Appendix 1 to this Regulation and the report on the targeted use of the previous part of the financing line), to carry out reanalysis, meanwhile, the documents previously submitted by the client/partner may be used if they were provided not more than six months ago. At the same time, the issue of providing the next part of the financing line shall be decided by the authorized body/persons in accordance with the banks financing policy. Meanwhile, the financing agreement shall have a signature that the client has become acquainted with all the terms of the financing line, the terms of the agreement are clear and a client/partner agrees with them.  

 

§3. Provision of repayment of an asset bearing credit risk  

51. The banks assets bearing credit risk can be secured or provided without collateral.  

52. For the purposes of this Regulation, sources for repayment of an asset bearing credit risk are divided into primary and secondary:  

1) the primary source is the funds sent by a client/partner to repay the asset bearing credit risk, and in the normal course of events, received in the process of production, provision of services, works, etc.: incomes in cash and non-cash forms - for legal entities and salary or other income - for individuals;  

2) the secondary source is the funds received from the sale of the pledged property, the property of the bank (the asset bearing credit risk) acquired by the bank within the financing of a client/partner, the transfer of funds by a pledger or a guarantor.   

53. When considering an application for financing and approving the conditions for providing financing, it is necessary to focus first of all on the primary source and never rely on the secondary source of repayment. Therefore, in the process of considering an application for obtaining an asset bearing credit risk, the focus shall be on analyzing the clients/partners cash flows, including the analysis of the credit risk conditioned by the currency risk (if financing is issued in foreign currency), the prospects for development of the industry and business of this client/partner (if a client/partner is a non-resident, the place of his/her business shall be located in the territory of the Kyrgyz Republic), the state of a clients/partners relationship with the suppliers and buyers. Cross-border activities are regulated by the NBKR regulatory legal acts.  

54. The secondary sources are necessary to provide additional guarantees for repayment of an asset bearing credit risk if there are problems with repayment. Such additional guarantees include: the banks ownership right for an asset acquired by the bank within the framework of the clients financing, pledged property and rights, assignment of claims and rights, guarantees and sureties, joint liability of a group of persons on the basis of a written agreement and other means of security provided for by the legislation of the Kyrgyz Republic or an agreement.  

In order to reduce credit risk, the banks Finance Committee can apply to the Shariah Council, which in each individual case can give recommendations on securing the repayment of an asset bearing credit risk.  

55. Pledged property, as a secondary source of repayment of an asset bearing credit risk, shall be documented by a pledge agreement signed by the parties and confirming the banks right when a client fails to fulfill his/her/its obligations to obtain a pre-emptive right to satisfy the claims from the value of the pledged property. 

If immovable property such as an apartment or house owned by a client on the basis of the ownership right and being the only clients housing (according to written information provided by the client, for example, in the clients application), in which his/her family members also live and are registered, is accepted from the client as pledged property, the bank shall pay special attention to the employment and income of the clients family members, who have reached employable age, as well as various risks associated with the issuance of the assets bearing credit risk in the aforementioned case.  

56. A pledge agreement shall be drawn up in the state or official language (with the right to choose a language for a banks client), meanwhile the text of the pledge agreement shall be clear, comprehensible and understanding for the clients.  

57. A pledge agreement shall contain at least as follows:  

- the subject of a pledge and its estimated value; 

- the parties to an agreement; 

- if immovable property or property subject to registration is pledged, - the right by virtue of which such property belongs to the pledger, indicating the requisites of the entitling document; 

- the amount and term of fulfillment of the obligation secured by the pledge; 

- indication, which of the parties has the pledged property; 

- the conditions and procedure for transferring a pledge to the ownership of a bank if a client/partner does not repay the asset bearing credit risk; 

- other requirements and obligations of the parties with respect to a pledge in accordance with the legislation of the Kyrgyz Republic. 

58. Full inventory of the pledged property shall be attached to the pledge agreement with indication of the value. Certificates, identity documents and other necessary technical documentation can be attached to the pledge agreement. The pledge agreement shall be executed in accordance with the legislation of the Kyrgyz Republic, and in cases, where the pledge secures obligations under the agreement subject to notarial certification; it shall be certified by a notary. The number of authentic copies shall be not less than the number of the parties to the agreement.  

59. If an asset bearing credit risk is issued against security of the clients/partners deposit held in the same bank, it is advisable to take deposits as security in the amount equal to the amount of the asset bearing credit risk (and the estimated markup/income on it), as well as stipulate in the pledge agreement that the bank is entitled to exercise security without notice if the client/partner fails to fulfill his/her obligations.  

60. If the condition for granting an asset bearing credit risk is the simultaneous placement of a part of an asset bearing credit risk in the form of a deposit in the bank, which is collateral for an asset bearing credit risk, and the markup/income are calculated and collected by the bank from the total amount of the asset bearing credit risk, without deduction of the amount of the placed deposit, the clients income on such deposit shall be at the level of the markup/income of the asset bearing the credit risk.  

This deposit shall be used by the bank to repay payments on the asset bearing credit risk, which shall be provided for in the deposit pledge agreement. At the same time, payments on the asset bearing credit risk (including payments of the principal amount and on the markup/income) shall not be considered overdue and the bank shall not be entitled to impose penalties on the client if payments for the asset bearing credit risk are not paid by the client within the period not exceeding 30 days.  

61. Use of a pledge implies the presence of a certain system of administration thereof: examination of the state of a pledge shall be conducted, its assessment shall be carried out, a plan for control over the conditions of the pledge maintenance and its monitoring shall be developed, and appropriate documentation shall be available. (The minimum requirements for pledge documentation are given in Appendix 1).  

In order to limit oneself from possible claims on the part of a client/partner unsatisfied with the realization value of a pledge, the bank is recommended to provide the opportunity for the client/partner to independently search for a buyer of a pledged item (immovable property), within one or more months after expiration of the voluntary fulfillment of the obligations, specified in the notice in accordance with the legislation of the Kyrgyz Republic.  

61-1. When providing financing services, a bank, in accordance with the pledge agreement, which is an integral part of the financing agreement, shall provide a client/partner and/or a pledger with the pre-emptive right to repurchase pledged property, according to which the client/partner and/or the pledger can repurchase pledged property at any time before the public auction begins.  

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

62. If guarantees and sureties are used as collateral for an asset bearing credit risk, then the third party is usually financially liable for a client/partner in case he/she/it is not able to pay. When issuing an asset bearing credit risk and secured by a guarantee or surety, the bank shall have full information about the financial position of the guarantor or the pledger to assess its ability to repay the debt if necessary. Also, the authenticity of signatures and the eligibility of the persons who have affixed their signatures shall be carefully verified.  

63. The assets bearing credit risk that do not require a pledge shall be considered as blank (unsecured) assets, excluding overdrafts on the payment cards within the framework of the salary projects, and issued only to the solvent clients/partners (residents only) on the basis of his/her reputation and assessment of his/her income level. Issue of blank assets bearing credit risk shall not be a common practice. The maximum risk on the assets unsecured by a pledge shall not exceed 50% of the net total capital of the bank in accordance with the Regulation on economic standards and requirements mandatory for execution by the commercial banks and the financial institutions licensed by the National Bank of the Kyrgyz Republic approved by the Resolution of the NBKR Management Board No. 18/1 as of July 21, 2004, registration number of the Ministry of Justice of the Kyrgyz Republic 93-04 as of August 23, 2004.  

When issuing the blank assets bearing credit risk, a bank shall have access to the quality financial statements of a client that complies with the legislation of the Kyrgyz Republic, his/her/its credit history and have a history of financing this client/partner for a long period (at least two years, with the exception of assets in the amount of not more than KGS 250,000, the duration of which shall be at least 12 months) of time preceding the issuance of a blank asset bearing credit risk.  

Exceptions from the blank assets bearing credit risk are the assets that are issued to the amount less than or equal to KGS 150,000, with an annuity repayment schedule and for a period not exceeding 24 months. The amount of such asset shall not exceed the annual net solvency of a client/partner (all incomes and expenses of a client/partner). The maximum amount of risk for the assets excluded from calculation of the blank assets shall not exceed 20 (twenty) percent of the blank assets.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

64. The Bank shall be entitled to issue assets bearing credit risk, under a guarantee of the JLG members (hereinafter - group assets bearing credit risk) only:   

- if there is a policy (it may be an integral part of the policy) to finance group assets bearing credit risk approved by the Shariah Council and the banks Board of Directors and other internal documents (procedure for reviewing/approving/rejecting the applications, financing the group assets bearing credit risk, monitoring conditions, classification of group assets bearing credit risk, providing information to the members of the group about the rules of handling information on the date of issue and repayment of financing and possible problems with repayment of debt on the asset). At the same time, the policy shall contain information that an asset shall be issued to the persons/entities whose/which income is sufficient to cover payments for an asset bearing credit risk according to the repayment schedule. The internal documents of the bank regulating work with the group assets bearing credit risk shall describe the potential risks common to this type of the banking product, and also provide methods for reducing these risks and ensuring high repayment of group assets bearing credit risk;   

- upon approval by the National Bank of the Kyrgyz Republic in writing of the banks intention to issue group assets bearing credit risk;  

- provided that there is qualified personnel with experience in this financing sector.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

65. A bank shall be entitled to calculate the maximum risk for the group financing in accordance with paragraph 66 of this Regulation, provided that all following conditions are observed: 

- if a bank has a positive experience of at least two years in providing group assets bearing credit risk, under the guarantee of the JLG members; 

- if the share of overdue group assets bearing credit risk from the total volume of group assets bearing credit risk within two years did not exceed 5 percent.  

66. When calculating the maximum risk limit for unsecured assets bearing credit risk, the group assets bearing credit risk provided under the joint responsibility of the JLG members shall be excluded, if they meet all of the following criteria:  

- the amount of the asset bearing credit risk issued to each individual member of the group does not exceed KGS 250,000, and the aggregate amount of financing granted to the JLG does not exceed the amount of KGS 1,500,000;  

- the JLG participants who received financing from the bank are not affiliated entities or the bank-related persons/entities;  

- a bank applies to the group assets bearing credit risk a special classification of the assets and calculation of the corresponding deductions to the loan loss provision in accordance with the Procedure for applying a special classification of the loans that meet certain criteria, approved by the Resolution of the Management Board of the National Bank of the Kyrgyz Republic No. 5/6 as of March 2, 2006.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

 

Chapter 6. MONITORING OF ASSETS BEARING CREDIT RISK 

67. After entering into an agreement and receipt by a client/partner of the asset bearing credit risk, a bank shall carry out constant monitoring of the asset bearing credit risk and the clients/partners state. The main objective of monitoring is to ensure timely repayment of the asset bearing credit risk, markup/income payments and identifying the problems at an early stage.  

The amount of payment made, which is insufficient to fulfill the obligation on financing in full, shall be used to repay, first of all, the principal amount of the debt, then the creditors expenses for provision of fulfillment, and in remaining amount shall be used for markup/income and forfeit.  

68. A bank shall carry out at least once a month (if the official exchange rate of foreign currency changes by 5 percent or more within a month - immediately) an analysis of the effect of changes in the exchange rates of foreign currencies in respect of KGS on the assets subject to credit risk conditioned by the currency risk. Based on the analysis results, the bank shall determine the possible losses from fluctuations in the exchange rates of currencies, the effect of currency fluctuations on the solvency of a client/partner.  

68-1. A bank shall periodically monitor the current assets. The frequency of monitoring (including on-site monitoring) of the asset is independently determined by the bank, depending on the amount and type of the asset, as well as on its classification category. At the same time, the bank shall carry out on-site monitoring:  

- at least once every six months for the assets the amount of which exceeds one percent of the net total capital of the bank;  

- at least once a year for the remaining assets.  

The report on asset monitoring for the upcoming asset repayment period (in case of the medium- and long-term assets - within the next 12 months) shall contain changes in the expected income (revenue) of a client/partner (for the assets in foreign currency), changes in the activities of a client/partner, the current status of the asset, compliance with the terms of the financing agreement, and in the course of monitoring a pledge - its state, ensuring its safety, as well as other events and factors in order to determine the ability of a client/partner to repay an asset in due time.  

68-2. A bank that provides assets to other financial institutions shall thoroughly analyze the reliability of the information provided by a client/partner of these financial institutions, and also conduct close monitoring (including on-site monitoring) of such assets.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

68-3. In order to take an appropriate decision based on the results of the review, the administration of a bank receives a monthly report with summarized information on the results of the analysis with the relevant proposals, and quarterly - a report with summarized information on the monitoring results with the relevant proposals.  

 68-4. Confirming documents shall be attached to the monitoring report. If a problem is identified, the financing specialist shall promptly report about it to the banks administration, if necessary, with a proposal to reconsider the classification of this asset bearing credit risk. In case of delay in payments for an asset bearing credit risk or in case of deterioration in classification of an asset bearing credit risk, it is necessary to monitor such asset (at least an analysis of the current financial situation of a client/partner, agreement with a client/partner) at least once per month.  

69. Classification of the assets bearing credit risk shall be carried out on the basis of an independent assessment conducted by the persons not involved in the asset issuance process.  

70. A bank shall develop and implement an independent valuation system for the assets bearing credit risk, which shall be based on:  

- real payment schedule of a client/partner and its compliance with the planned schedule;  

- quality and condition of collateral for an asset bearing credit risk;  

- completeness of the relevant documentation and the possibility to obtain at its disposal any collateral provided and to exercise the right to judicial protection of violated rights and interests;  

- assessment of changes in the financial status of a client/partner, as well as if financing is provided in foreign currency;  

- correct assessment of the quality of the asset bearing credit risk, including its classification;  

- compliance with the limits of issued assets bearing credit risk;  

- the quality and reliability of information systems (reporting to the administration, the Board of Directors of the bank and the Shariah Council);  

- assessment of the compliance of the provided asset bearing the credit risk with the banks policy, procedures and regulatory requirements of the National Bank of the Kyrgyz Republic;  

- assessment of compliance with the Shariah Standards;  

- assessment of the targeted use of an asset bearing credit risk, confirmed by the documents (agreements, acceptance certificates, invoices, consignment bills, etc.), if any, depending on the purpose of financing, with the exception of an asset in the amount not exceeding KGS 250,000. 

71. An independent assessment of the assets bearing credit risk shall be carried out by a separate department or a bank employee independent of the process of providing assets bearing credit risk. Independent assessment of the assets for compliance with the Shariah Standards shall be carried out by a department responsible for monitoring compliance with the Shariah Standards (or by an authorized internal auditor who verifies compliance with the Shariah Standards). The results of independent assessment shall be provided at least once a month to the Finance Committee, the Management Board, the Board of Directors of the bank and the banks Shariah Council. 

72. If the guarantee (surety) is the only collateral, with the exception of the group assets, a bank shall conduct a thorough analysis of the guarantors (pledgers) financial status in order to determine the ability to fulfill the guarantee obligation.  

73. In order to continuously monitor the security of the pledged property and to identify possible changes in its current value, a bank shall carry out monitoring of a pledge in the places of storage and location thereof. The frequency of pledge monitoring shall be determined by the bank independently in accordance with the financing and collateral policy and depends on the quality of an asset and other factors, as well as on the type of a pledge taking into account the risk of loss. Monitoring of pledged movable property shall be carried out at least once a year based on an asset bearing credit risk, the amount of which is less than KGS 250,000.  

For an asset bearing credit risk, the amount of which is KGS 250,000 or more, monitoring of pledged movable property shall be conducted:  

- at least once every six months, if the asset is secured by 30 or more percent by the movable property; 

- at least once a year, if the asset is secured by less than 30 percent of the movable property.  

A bank shall mandatorily carry out control over the safety of the mortgaged property. In this case, special attention shall be paid to the following points:  

- whether the market value of a pledge has decreased or not; 

- whether there are any factors that have reduced the liquidity of a pledge since the last inspection or not; 

- whether the security of a pledge is ensured or not. 

All these measures will help a bank to identify possible deterioration trends of the clients/partners status, and, consequently, the status of an asset bearing credit risk. The faster these trends are identified and determined, the more quickly a bank will be able to take the necessary measures to remedy the situation and ensure the protection of its interests. 

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

74. The signs that indicate deterioration in the condition of an asset bearing credit risk include: 

- evasion on the part of a client/partner from entering into an agreement with a bank; 

- untimely, incomplete and reluctant provision of information on the financial standing, as well as suspicions of possible unreliability of the information provided; 

- deterioration of a clients/partners financial status; 

- discrepancies with submitted forecast for cash flow and with a business plan; 

- untimely payment of the principal amount or the markup/income; 

- request for restructuring; 

- misuse of an asset bearing credit risk; 

- transfer and sale of the property; 

- negative information received about a client/partner from any sources; 

- changes in the economic, political and other areas where a client/partner placed funds; 

- signs of an increase in the conflict within the clients/partners enterprise; 

- change of administration in the clients/partners enterprise; 

- and other, which may indicate potential problems.  

The relevant internal regulatory documents of a bank (policies, procedures, etc.) shall reflect the procedure for dealing with “bad” assets, including the procedure for asset restructuring, and conducting an additional analysis of a clients/partners ability to repay financing, and, if necessary, preliminary conditions for restructuring of financing if it does not worsen the rights and does not increase the obligations of a client/partner (for example, a minimum lumpsum payment for repayment of debt on financing, submitting by a client/partner of the documents evidencing his/her/its ability to repay the financing, additional collateral, etc.). A bank is prohibited to restructure the financing of affiliated entities and bank-related parties more than two times within one year.  

In case of problems with the asset repayment, a client/partner shall be informed about the banks policy for dealing with “bad” assets bearing credit risk, including the possibility of restructuring their assets.  

A bank shall analyze the defaulting clients/partners for success (sufficiency of accumulated funds for debt servicing) of the measures taken, asset restructuring through enhanced monitoring.  

(As amended by Resolutions No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016, No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

75. If any of the characteristics indicated in paragraph 74 of this Regulation are revealed, a bank shall clarify the reason for occurrence thereof. If, in the opinion of the bank, these characteristics and/or the reasons for their occurrence may result in deterioration or significant decrease in the value of an asset bearing credit risk, the bank shall take this asset under special control and take all appropriate measures to ensure protection of its interests, such as:  

- additional verification of availability and conditions for the pledge storage; 

- attraction of additional collateral; 

- precautionary discussions; 

- suspension of regular payments on the financing line until the situation is finally clarified; 

- more detailed systematic study of a client/partner and the state of the industry in which he/she/it placed funds; 

- change in classification of the assets bearing credit risk; 

- increase in the reserve; 

- other measures of protection. 

When working with “bad” assets bearing credit risk, conducting meetings, conversations and other events, the bank employees shall strictly adhere to the accepted business and professional etiquette of behavior, the standards thereof shall be regulated in the internal documents of the bank. 

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

76. When working with an asset bearing credit risk, it is necessary to document and keep records of all activities carried out with it, including recording a brief content of telephone conversations and meetings with the clients in the log, taking minutes of conversations with the clients, concluding agreements with the client, etc. Such accounting shall be particularly maintained in dealing with “bad” assets.  

 

Chapter 7. WORK WITH “BAD” ASSETS BEARING CREDIT RISK 

77. Constant monitoring of the assets bearing credit and independent assessment of the financing portfolio are aimed at revealing “bad” assets.  

78. The “bad” assets are the assets bearing credit risk, in respect of which the client does not fulfill the conditions of an agreement made with a bank or due to any circumstances (for example, external or financial) fulfillment of obligations to the bank and repayment of an asset are undermined.  

79. If an asset is recognized as a “bad” asset it is necessary to develop an action plan of the bank aimed at asset repayment, which includes several events. At the same time, a bank shall study the financial status of a client/partner by conducting an extensive monitoring of the accumulated funds adequacy.  

(As amended by Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017) 

80. Arrangements for organizational, financial and other assistance to a defaulting client, which help to overcome the crisis and fulfill the clients obligations to the bank, may include: 

- work with a client (his/her/its administration) to identify problems and find solutions thereof; 

- appointment with the consent of a clients/partners managers, consultants to work with a clients/partners enterprise on behalf of a bank; 

- assistance in increasing the companys equity capital at the expense of the owners or other parties; 

- if necessary, the development of a program for changing the debt structure (review of the payment schedule for repayment of the asset bearing credit risk, and repayment of markup/income on it, changing the forms of financing, etc.). 

81. In addition to these activities, it is necessary to work with a client; this work can consist in the following:  

- sending a notice to a client that he/she/it has violated the terms of an agreement, the assets period is overdue, and about the possible problems associated with it;  

- conducting negotiations; 

- call a client to the bank. 

82. In order to ensure the direct repayment of an asset bearing credit risk, the following activities are carried out within the shortest terms: 

- sale (sale to a third party) of an asset purchased by the bank under a financing agreement and owned by the bank; 

- enforcement of pledge; 

- sale of a clients/partners debt to a third party, on terms permitted by the Shariah. At the same time, a debtor and a buyer of debt shall be in the same geographical location, the debt can be sold only at face value, the debt cannot be sold with a deferred payment, but only for cash with an immediate settlement; 

- appeal to guarantors and pledgers; 

- judicial recourse; 

- other measures. 

83. In order to ensure timely repayment of the clients debt, a bank may stipulate in the agreement that the repayment of the debt from secondary sources is possible even before expiration of the financing period, in case of improper fulfillment of the secured obligation by the client. In this case, the bank may reflect in the agreement the circumstances that determine the possibility of debt early repayment through the secondary sources of repayment or in another way.  

84. A bank shall stop charging forfeits (fines, penalties) upon expiration of 15 days from the date of sending a notice of the initiation of the procedure for pledge enforcement on the “bad” asset of a client/partner - an individual, including an individual entrepreneur without formation of a legal entity.  

85. The head of the banks structural subdivision responsible for dealing with “bad” assets bearing credit risk shall submit on a monthly basis for consideration of the Finance Committee and other collegial body (if any) authorized to make decisions on “bad” problem assets:  

1) a consolidated report on the “bad” assets bearing credit risk; 

2) a detailed report on the work done with each “bad” asset bearing credit risk, which exceeds 1% of the net total capital, with proposals for further action. The report shall reflect information on each “bad” asset bearing credit risk, including: 

- the work done (meeting, conversation on the phone, etc.), the results of the work done; 

- the plan for further work on repayment of the asset bearing credit risk for the next month and the expected results. 

In respect of the “bad” assets bearing credit risk, which amount less than 1% of the net total capital, a bank independently determines the structure of the report. Meanwhile, the structure of the report shall be registered in the banks internal documents for dealing with “bad” assets bearing credit risk, or approved by a decision of the banks authorized body. 

Copies of the reports shall be sent to the Management Board and the Board of Directors of the bank. 

 (As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

86. If the actions of a bank provided for in this chapter do not lead to a positive result, the bank shall apply to the court for the purpose of enforced collection of the debt. If enforced collection does not ensure repayment of debts, the bank may initiate a bankruptcy process in accordance with the legislation of the Kyrgyz Republic.  

87. In case of objective impossibility of repayment of the asset bearing credit risk (including possible in case of death of the banks client/partner), the decision on writing off the assets bearing major risk shall be made by the Board of Directors of the bank, and the decision on writing off the remaining assets bearing credit risk shall be made by the Management Board or the banks Finance Committee in accordance with their authority.  

The Management Board or the banks Finance Committee (within the limits of the delegated amounts) may decide to write off the financing debt without enforced collection thereof in a judicial procedure/in an arbitration procedure in respect of financing the individuals, individual entrepreneurs and/or the JLG participants, in the following cases:  

- death, serious illness of the banks client, complete loss of business and/or property due to natural disasters, fires;  

- in the absence of economic expediency to repay the debt for this financing, as well as when the banks expenses related to debt collection in respect of financing in a judicial procedure/in an arbitration procedure exceed the balance of the financing debt.  

Decisions on debt cancellation, adopted by the Management Board or the Finance Committee, shall be obligatorily brought to the attention of the Board of Directors. 

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

88. After writing off the assets bearing credit risk, they shall be taken into account out of system for at least five years in case of possible debt repayment.  

89. Regardless of the deadline for non-systematic accounting, if any information is found that allows one to believe that debt can be repaid, the bank shall take measures envisaged by the legislation aimed at debt repayment.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Appendix 1  

to the Regulation on minimum  

requirements for credit risk management  

in conducting operations under  

the principles of Islamic banking and finance  

  

MINIMUM REQUIREMENTS to the Clients/Partners Dossier  

I. General information   

1. An application for provision of an asset bearing credit risk signed by the client/partner shall contain the following information:  

- the name of a client/partner (surname, name, patronymic, if a client/partner is an individual);  

- full address of the client/partners place of residence (if a client/partner is an individual), telephone, fax number; 

Only the post office box number shall not be specified instead of the clients/partners full address;  

- identification number of a taxpayer (if any) - on the basis of the certificate of registration with a tax authority;  

- place of work and occupation (if a client/partner is an individual); 

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

- full name of the head (if a client/partner is a legal entity); 

- address (legal address), telephone/fax, e-mail address; 

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

- type of legal form (if a client/partner is a legal entity); 

- amount, currency and a period for which an asset bearing credit risk is claimed; 

- the purpose of an asset bearing credit risk; 

- the sources of repayment of an asset bearing credit risk (primary source: in terms of currencies, secondary source) and a plan of repayment thereof; 

- offered pledge; 

- information on the loans/assets bearing credit risk received/repaid earlier in this/other banks for the last two years preceding an application for provision of an asset bearing credit risk filed to the bank; 

- the clients consent to provide a credit report about himself/herself/itself; 

- other information at the banks discretion. 

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

2. Individuals carrying out individual entrepreneurial activities without formation of a legal entity, in addition to the above-mentioned documents, shall submit to a bank a copy of the standard document 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 laws of the Kyrgyz Republic, except for individuals who have been granted funding in the amount of not more than KGS 250,000.  

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

2-1. Credit report for a client from the credit bureau. 

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

3. Analysis of the clients/partners solvency.  

4. Financial statements of a client/partner (if a client/partner is a legal entity) for the last reporting year. If a client/partner-legal entity shall undergo an annual audit in accordance with the legislation of the Kyrgyz Republic, the financial statements shall be confirmed by the external auditor. At the same time, if a legal entity shall provide interim financial statements in accordance with the legislation of the Kyrgyz Republic, a bank shall request such statements from a legal entity.  

5. A salary certificate for the last 3-12 months (meanwhile, a bank is entitled to independently determine the period for which the salary certificate is to be submitted), the name of the organization in which a client/partner works, the position, the length of employment or other documents, confirming information on income (if a client/partner is an individual) in terms of currencies.  

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

6. Financing agreement in the state or official language (providing the right to the banks client/partner to choose a language). 

7. Constituent documents (if a client/partner is a legal entity). 

8. Business plan (if a client/partner is a legal entity and the amount of financing is more than KGS 3,500,000, excluding financing provided for working capital replenishment) 

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

9. A document from the state bodies on registration (if a client/partner is a legal entity or an individual carrying out entrepreneurial activity on the basis of a certificate or a patent), with the exception of the individuals who have received funding in the amount not more than KGS 250,000.  

10. A document on registration from the tax authorities (if a client/partner is a legal entity).  

11. Decision of the relevant clients/partners body to receive an asset bearing credit risk (if a client/partner is a legal entity).  

12. A copy of an identity document (if a client/partner is an individual), a passport of the foreign citizen in the Kyrgyz Republic (if a client/partner is a non-resident), on which it is possible to identify a client/partner of the bank.  

13. A copy of a document certifying the authority of the head of a legal entity to dispose of the funds of a legal entity (such document can be the minutes of the meeting of founders or shareholders on election of the head of a legal entity, and the decision of the founders or shareholders on appointment of the head of a legal entity, which determines this/her authority, if it is not established by the Charter).  

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

14. The decision of the relevant body of the bank to issue an asset bearing credit risk. 

15. (Became invalid in accordance with the Resolution of the National Bank of the Kyrgyz Republic Board No. 7/3 as of February 10, 2016). 

16. Accounting of the agreements with a client/partner, in which the following information for each agreement shall be reflected: 

- date of an agreement; 

- type of an agreement (talk, telephone conversation, e-mail address); 

- terms of an agreement (employees full name, content of the conversation); 

- result.  

17. Correspondence with a client/partner (with the attachment of all correspondence). 

18. Legal documentation (copies of a clients/partners contracts with the suppliers, etc.). 

19. Report on the purposeful use of funding, confirmed by the documents (agreements, acceptance certificates, invoices, consignment bills, etc.), if any, depending on the purpose of financing, with the exception of financing in the amount of not more than KGS 250,000. 

II. Pledge documentation  

20. The pledge agreement in the state or official language (with provision of the right to the banks client/partner to choose the language).  

21. Certificates, licenses and other qualification documents of the pledged property.  

22. Documents confirming the ownership of the pledged property, and the consent of a pledger with the terms of the pledge agreement.  

23. Notarized cards with the samples of signatures of the authorized signatories (if a client/partner is a legal entity).  

A sample signature card with a sample of the clients/partners signature and an imprint if available (if a client is an individual entrepreneur).  

24. Documents confirming the purchase price (if the bank finances purchase of a pledge, for example, equipment, consumer goods, etc.). 

25. Documents confirming the assessment of a pledge with the following information specified in them:  

- estimated value of a pledge; 

- date of assessment; 

- a person/entity who/which carried out the assessment; 

- method of assessment.  

26. Documents confirming registration of the pledge agreement (if a pledge is to be registered, or a bank requires registration).  

27. The decision of the relevant body of a client/partner to provide collateral (if a client/partner is a legal entity). 

28. An act of pledge examination, in which the following information shall be specified:  

- the date of pledge examination; 

- the type of a pledge; 

- the date of pledge assessment; 

- the method of assessment; 

- the location of a pledge; 

- the status of a pledge and the conditions of its maintenance; 

- estimated value of a pledge; 

- Schedule of periodic examination of a pledge. 

29. Other information at the banks discretion.  

III. Guarantees or sureties  

30. Written guarantee or surety with indication of the relevant agreement, the amount for which the guarantee is issued, the expiry date of a guarantee.  

31. Decision of the relevant guarantor body on issuing a guarantee.  

32. Consent of the pledgers spouse (if any) about issuing a guarantee.  

33. Constituent documents of a guarantor.  

34. Financial statements of a guarantor for the last year (if a guarantee is the only security).  

35. The salary certificate for the last 3-12 months (meanwhile, a bank shall be entitled to independently determine the period within which a salary certificate shall to be submitted) or other documents confirming the information on income (if a guarantor is an individual).  

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

36. Analysis of the guarantors or pledgers solvency.  

Appendix 2  

to the Regulation on minimum  

requirements for credit risk management  

in conducting operations under  

the principles of Islamic banking and finance  

  

MINIMUM REQUIREMENTS to providing the letters of guarantee  

The banks Financing Policy shall define all the main provisions concerning providing the letters of guarantee:  

1. The issue of providing a letter of guarantee by the bank shall be considered at the meeting of the Finance Committee. Provision of a letter of guarantee will be considered valid only if there is an appropriate decision of the Finance Committee.  

2. Clear division of the powers and responsibility of the banks officials and its branches for signing and accounting of the letters of guarantee.  

3. The original of a letter of guarantee shall be executed in the state or the official language of the Kyrgyz Republic. If necessary, a letter of guarantee can be additionally executed in a foreign language, subject to the condition specified in the first sentence of this paragraph.  

(As amended by Resolution No. 35/4 of the National Bank of the Kyrgyz Republic Board as of August 24, 2016) 

4. A letter of guarantee shall be issued on a numbered letterhead, signed by the authorized officials of the bank or a branch, and also certified by the banks round seal.  

5. A banks letter of guarantee shall be registered in the log for the letters of guarantee (or in the outgoing correspondence book).  

6. Accounting of the letters of guarantee shall be implemented in accordance with the accounting standards.  

7. An obligatory requirement for the bank that issued a letter of guarantee is the official confirmation of the guarantor of received letter of guarantee.  

8. If fictitious guarantees are found, a bank shall inform the law enforcement agencies about it, and information on cancelled guarantees shall be placed in the mass media.  

Appendix 3  

to the Regulation on minimum  

requirements for credit risk management  

in conducting operations under  

the principles of Islamic banking and finance 

  

 

STRESS TESTING  

Stress testing is an analytical tool for assessing the potential losses of a bank, if the trends of increasing risk occur and are identified in the external environment (for example, economic downturns, deterioration in the quality of the financing portfolio, changes in the market value of a pledged item, changes in legislation, etc.) and in the activities of the banks clients (for example, bankruptcy of the banks large clients/suppliers/partners, outflow of deposits, etc.).  

Stress testing is carried out by modeling a scenario of events that are based on the presence of an economic, political and/or other events (for example, an event related to deterioration of the banks image, change of administration, etc.) and can result in bank losses, affecting, respectively, the amount of capital.  

At the initial stage of stress testing, it is necessary to verify the reliability and relevance of the information on the basis of which the scenario is modeled. Meanwhile, it is necessary to be ensured that the reporting used meets the consistency criteria (continuous series of reporting data) and comparability (the invariability of the indicators calculation methodology), and also to verify the reliability, objectivity and appropriateness of the sources of other information used (for example, information from the mass media).  

The scenario for development of an adverse event shall be sufficiently real, relevant and justified. The reality of the scenario means that it shall have a high probability of occurrence of such an event.  

Scenario modeling can involve changing both the internal and external factors and be carried out in two versions:  

- a historical scenario - the stress test scenario is based on observing the consequences of an event occurred in the past; 

- a hypothetical scenario - the stress test scenario is based on a probable event that has not yet occurred. 

When modeling a historical scenario, the analysis is carried out taking into account the events that took place in the past and caused negative changes in the financial status of a bank.  

In the course of stress testing using the historical scenario method, special attention shall be paid to an accurate definition of the conditions and circumstances of the past crises that are used in testing the banks balance.  

Modeling a hypothetical scenario involves analyzing a situation that has not yet occurred; however, it has a high probability of occurrence. The hypothesis can contain the influence of a particular event on the banks capital (for example, worsening the financial status of a client/partner, untimely payment of the principal amount or markup/income, etc.), and assessment of the maximum change in the indicators on the basis of which it is possible to forecast an increase in the credit risk in order to take necessary measures to minimize it to an acceptable level.  

When conducting stress testing, it is also necessary to conduct several trial calculations. The stress test scenario will be considered final when the analysis, conducted with the help of combined impact of various risks, will show the first signs of insolvency for a bank.  

Stress testing for the purpose of credit risk assessment can be carried out using the scenarios, for example, reclassifying the financing portfolio to one classification category down, or two categories down. As a scenario, one can also assume reclassification of classified assets bearing credit risk as losses, etc., depending on the closest approximation of the scenario to the actual state of the financing portfolio and the banks historical experience.  

Further, the amount of necessary deductions to the LLP is calculated according to the scenario of stress testing, then net total capital is estimated, on the basis of which the banks ability to meet the requirements for economic standards is determined.  

Stress testing monitors the overall status of the assets, the quality of the financing portfolio, the deterioration of collateral, and other indicators that characterize the increase of credit risk. Thus, applying various methods of stress testing, a bank can take timely measures to optimally minimize losses in the occurrence of cases that caused negative changes in the financial status of the bank.  

 

 

Appendix 4  

to the Regulation on minimum  

requirements for credit risk management  

in conducting operations under  

the principles of Islamic banking and finance  

 

 

 

Log for registration of the clients/partners applications for obtaining the assets bearing credit risk  

 

№ № 

Date of application  

Full name of a client/partner     

Requested amount  

Intended use 

Term  

Prospective collateral 

 

   

  

Status (approved/ refused) 

  

Source of repayment (type of business)  

In case of refusal: the reason for refusal / In case of approval: amount, terms 

Date of approval / notice of rejection   

  

  

Signature of a finance specialist  

11  

  

  

  

  

  

  

  

  

  

  

  

2 2 

  

  

  

  

  

  

  

  

  

  

  

33  

  

  

  

  

  

  

  

  

  

  

  

44  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

  

 

Appendix 5  

to the Regulation on minimum  

requirements for credit risk management  

in conducting operations under  

the principles of Islamic banking and finance  

 

Book of complaints and suggestions of the banks clients  

 

«№ 

Full name of the banks client/partner  

 

Description (essence) of a complaint or suggestions  

Date 

Comments of a bank  

1 1 

  

  

  

  

  

  

  

  

  

Measures taken:  

  

Signature of a responsible employee: ______________  

Full name: _______________________________   

Position: ____________________________  

22  

  

  

  

  

  

  

  

  

  

  

  

  

  

Measures taken:  

  

Signature of a responsible employee: ______________  

Full name: _______________________________   

Position: ____________________________ 

 

 

 

 

 

 

 

 

Appendix 6  

to the Regulation on minimum  

requirements for credit risk management  

in conducting operations under  

the principles of Islamic banking and finance  

List of expenses (payments) of the banks clients/partners and penalties  

Expenses (payments) of the banks client/partner for the asset bearing credit risk 

The amount of the asset bearing credit risk 

 

  

It is specified according to an agreement 

 

Markup/ income on an asset bearing credit risk 

Fee for consideration of an application (registration of an asset bearing credit risk) 

If the penalties are charged, their sizes are indicated in accordance with approved tariffs of the bank in percentage or value terms.  

Fee for issue and managing of an asset bearing credit risk 

  

Fee for opening (if account opening shall be made after entering into an agreement) and servicing (if the transactions on the asset bearing credit risk are carried out in a non-cash form) the loan and/or current accounts 

  

Fee for settlement and cash services (as well as entering and receiving cash by a client/partner through the ATM) 

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

 

  

The approximate value (range) of such expenses indicating that these expenses may change in the future 

Fee for providing statements on the clients/partners accounts 

Fees (expenses) are indicated in accordance with the approved current tariffs of the bank  

Fee for currency conversion  

Other expenses 

Penalties and banks fines 

  

For delay in payments on the principal amount of the asset bearing credit risk and on the banks markup/income 

Are indicated in accordance with the approved penalties imposed by the bank on the basis of an agreement, in percentage or value terms   

For delay in replenishment of a deposit granted as a pledge for an asset bearing credit risk 

Terms of agreement termination after receipt of an asset bearing credit risk. 

Other expenses  

 

______________________________ ___________ _________ ____________________________ __________ _________  

(Full name of the banks authorized employee (signature) (date) (Full name of the banks client/partner) (signature) (date)