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Appendix to  

Resolution No. 51/4 of  

the National Bank of the 

Kyrgyz Republic Board  

as of December 28, 2009  

 

 

INSTRUCTION  

on Establishment of Capital Adequacy Standards  

for the Banks Operating under the Principles of Islamic Banking and Finance 

 

(Amendments and addenda are approved by the Resolutions of the NBKR Board No. 67/8 as of November 30, 2011, No. 18/9 as of April 25, 2012, No. 32/6 as of July 16, 2014, No. 78/23 as of December 23, 2015, No.19/6 as of April 27, 2016, No. 17/13 as of April 26, 2017, No. 21/11 as of May 31, 2017) 

 

1.        General Provisions 

1. (Became invalid as per Resolution No. 21/11 of the National Bank of the Kyrgyz Republic Board as of May 31, 2017).     

2. The purpose of this Instruction is to establish the capital adequacy standards for an Islamic bank, as well as peculiarities of calculating the capital adequacy ratios for the bank having an “Islamic window”.  

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

3. Capital of the bank is a provision of profitable and sustainable growth, guarantee of customer confidence in the bank and is used to cover potential losses typical of banking activities.  

4. Capital is used to protect against the consequences of excessive risk situations and financial insolvency of the bank. The bank needs to have adequate capital, capable of covering possible losses without the threat of insolvency. The amount of capital shall be adequate to increasing volume of banking operations carried out under the Principles of Islamic banking and finance with a high risk involved.  

2.        Capital Adequacy Standards of the Islamic Banks  

5. Minimum amount of capital stock:  

а) Minimum amount of the authorized capital of the Islamic banks newly established in the Kyrgyz Republic (including branch offices of the foreign banks);  

b) Minimum amount of the equity (regulatory) capital. Equity capital is calculated as net Tier I capital net of cross-investments in capital. Net Tier I capital is determined as specified in subparagraph (a), paragraph 18 herein. Cross-investment in capital is a mutual participation of the banks and non-banking organizations in each others capital (in the form of shares or capital interest).  

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

6. Capital adequacy ratios of the Islamic bank based on risk-weighted balance sheet assets placed under the Principles of Islamic banking and finance (hereinafter referred to as the assets) and off-balance liabilities accepted by the bank under the Principles of Islamic banking and finance (hereinafter referred to as the off-balance liabilities): 

а) total capital adequacy ratio (К2.1 of an Islamic bank) shall constitute at least 12%. It is calculated as a ratio of net Total capital to the sum of risk-weighted balance sheet assets and off-balance liabilities net of special loan loss provision and general reserves not included in Tier II capital (i.e., exceeding 1.25% of the amount of risk-weighted balance sheet assets and off-balance liabilities) net of risk-weighted assets financed by the funds attracted under the restricted Mudaraba agreement. Net total capital is determined as specified in subparagraph b), paragraph 18 herein. Tier II capital is determined in accordance with paragraph 18 herein; 

б) Tier I capital adequacy ratio (К2.2 of an Islamic bank) shall constitute at least 6%. It is calculated as a ratio of Tier I net capital to the sum of risk-weighted balance sheet assets and off-balance liabilities net of special loan loss provision and general reserves not included in Tier II capital (i.e., exceeding 1.25% of the amount of risk-weighted balance sheet assets and off-balance liabilities) net of risk-weighted assets financed by the funds attracted under the restricted Mudaraba agreement.  

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

7. The capital adequacy ratio of the bank having an “Islamic window” is calculated in accordance with the Instruction for on establishment of capital adequacy standards for the commercial banks of the Kyrgyz Republic (hereinafter referred to as the Instruction for the commercial banks) with mandatory inclusion of the risk-weighted assets placed under the Principles of Islamic banking and finance in calculation of the capital adequacy ratio.  

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

8. When calculating the capital adequacy ratios of the bank having an “Islamic window”, its individual components are included in calculation, taking into account the transactions conducted under the Principles of Islamic banking and finance. For example, when calculating Tier II capital, general loan loss provisions shall be included for assets placed under the Principles of Islamic banking and finance.  

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

9. Leverage (К2.3 of an Islamic bank) shall constitute at least 8%. It is calculated as the ratio of the net total capital to the total assets (the final value of the assets as per the balance sheet periodic regulatory banking report (PRBO) net of intangible assets).  

9-1.  The requirement on the support of “additional bank capital stock” (index “capital buffer”) for payment of dividends is set to preserve the financial stability of the bank and maintain the stability of its activities. Index “capital buffer” is defined similarly to the calculation of the total capital adequacy ratio. The value of “capital buffer” is set at 18%. The Supervisory Committee of the National Bank sets the requirement on the obligatory support of “capital buffer” at the level of at least 20% for the banks, where the share of deposits and financing is respectively 8% or more of the total amount of clients deposits and financing in the banking system as a whole.  

For the purposes of this paragraph, the term “deposits” refers to the accounts of the legal entities, the individuals and the Social Fund of the Kyrgyz Republic.  

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

9-2. The Bank shall not be entitled to pay dividends until the index “capital buffer” achieves the set target values, except the cases when due to retained earnings the bank increases its authorized capital.  

(As amended by Resolution No. 19/6 of the National Bank of the Kyrgyz Republic Board as of April 27, 2016). 

9-3. If the set target values of the index “capital buffer” have been achieved, the bank shall not be entitled to pay dividends without written consent of the National Bank, except the cases when due to retained earnings the bank increases its authorized capital.  

(As amended by Resolution No. 19/6 of the National Bank of the Kyrgyz Republic Board as of April 27, 2016). 

 

3. Capital Structure 

 

10. Capital basis is a fully paid authorized capital of the bank.  

11. The capital comprises only the authorized capital (ordinary and preference shares) without liabilities to return the funds invested by the shareholders of the bank. These funds can be received by the shareholders only by transfer or sale of shares to the third parties. 

12. The Bank shall not be entitled to take in pledge its own shares.  

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

13. For the purposes of banking supervision, some “non-capital” accounts (for example, “General loan loss provision” or “Subordinated bonds and other debt liabilities”) are included in the capital structure in the course of capital adequacy assessment. 

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

14. For the purposes of calculating capital adequacy ratio, the banking capital is divided into Tier I and Tier II capital. 

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

15. Tier I capital structure is defined as follows: 

а) “ordinary shares” are the issued and fully paid ordinary shares of the bank, which meet the conditions established by the laws;  

b) “share premium account” is the difference between the selling price of ordinary shares and their par value at initial offering. Share premium account can be used to pay for services related to placement, registration and typographic costs for printing the forms when issuing the bank shares.  

Share premium account is not subject to distribution among the shareholders in the form of dividends. 

According to the permission of the National Bank, the share premium account may be used to increase the authorized capital of the bank in order to comply with the minimum authorized capital requirements. 

The Bank shall be entitled to repurchase its own shares only: 

- for the purpose of subsequent resale of repurchased shares to the shareholders at a higher price, subject to a preliminary agreement between the bank and the current shareholders; 

- if for the last 5 (five) years prior to the day of taking a decision on repurchase of own shares, the banks activity was profitable; 

c) “reserves to cover future needs of the bank” are the reserves resulted from the profit after taxation for the future and/or unforeseen events; 

d) “retained profit (outstanding losses) of previous years” is the balance of net profit (loss) after taxation of previous years, after deduction of declared dividends and distribution among other capital accounts;  

e) (net of) “losses of the current year” are the losses of the bank in the current year. 

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

16. Tier II capital structure is defined as follows: 

а) “current-year profit” is the profit after taxation earned in the current year; 

b) “general reserves”:  

1) “general” loan loss provision from assets and off-balance liabilities placed/accepted under the Principles of Islamic banking and finance;  

2) “securities revaluation reserves” is unrealized profit (losses) based on the results of merchantable securities revaluation; 

3) “reserves on foreign currency conversion in case of consolidation” are unrealized profit (losses) resulted from change in the exchange rate in case of consolidation of the financial statements provided by the foreign subsidiary financial institutions of the bank; 

c) “profit equalization provision” (PEP) is a reserve created by the decision of the Board of Directors of an Islamic bank at the expense of the amounts allocated from the gross profit prior to distribution of the Mudarib share with a view to maintaining a certain level of return on investments of the investment accounts holders. The terms for PEP calculation must be determined in advance and applied in accordance with the terms of the contract signed by the investment account holder;  

d) “reserve to cover investment risks” (if any) is the amount allocated from the profit of the investment accounts holders, after distribution of the Mudaribs profit share, in order to mitigate risks of the future investment losses of the investment account holders. The procedure for using this reserve shall be approved by the Board of Directors of an Islamic bank; 

e) “other capital instruments” are the instruments with the features of both capital and debt liabilities. They include as follows:  

1) preference shares, which are presented in this article taking into account the difference between their sales price and the par value;  

2) perpetual subordinated debt is the instruments of perpetual subordinated debt provided that the following requirements are met:  

- these instruments shall be fully paid, subordinated and unsecured by collateral (in any form); the term “subordinated” debt means that in case of bank liquidation, the requirements on these liabilities will be the last to be redeemed, after satisfying all claims against the bank from the creditors and depositors, but before settlements with the shareholders of the bank;  

- the bank can use these instruments to cover losses on an ongoing basis, i.e. before initiation of the bank liquidation process;  

- these instruments shall not be redeemed on the initiative of their owners and/or without the prior consent of the National Bank of the Kyrgyz Republic (hereinafter referred to as the NBKR);  

3) fixed-term subordinated debt is the instruments of fixed-term subordinated debt provided that the following requirements are met:  

- subordinated debt shall not be secured;  

- minimum term for debt repayment shall be 5 years, meanwhile, 20% of the subordinated debt initial amount are deducted annually from the capital. If the term of subordinated debt repayment is over 5 years, annual deductions from the capital in the amount of 20% of the initial amount of subordinated debt must be made within the last 5 years of the repayment period;  

- the instruments of fixed-term subordinated debt do not cover losses on an ongoing basis;  

- the instruments of fixed-term subordinated debt shall not be repaid ahead of schedule on demand of the creditors.  

Meanwhile, the bank cannot repay the instruments of fixed-term subordinated debt ahead of schedule without the permission of the External Oversight Department of the NBKR.  

The Bank shall notify the NBKR beforehand on the due date for repayment of fixed-term subordinated debt instruments of the bank.  

Other instruments not included in subparagraph e) of this paragraph shall be also taken into account.  

Instruments described in subparagraph e) of this paragraph can be included in the capital structure with the permission of the External Oversight Department of the NBKR in each particular case. 

17. When calculating capital adequacy ratios, its individual constituent parts are included in calculation of capital, subject to the following:  

а) Tier II capital in the amount not exceeding net Tier I capital;  

b) general reserves in the amount not exceeding the value of 1.25% of the amount of risk-weighted balance sheet assets and off-balance liabilities;  

c) fixed-term subordinated debt in the amount not exceeding 50% of net Tier I capital;  

18. Prior to calculation of the capital adequacy ratios, the following deductions shall be made from the constituent parts of the capital:  

а) intangible assets shall be deducted from Tier I capital. The resulting value is the net Tier I capital;  

b) investments (in the form of shares or capital interest) in other non-consolidated banks and financial institutions, as well as non-banking institutions, exclusive of investments (in the form of shares or capital interest) made under the Shakira/Musharaka partnership agreements, shall be deducted from the Total capital, i.e. the sum of net Tier I capital and Tier II capital. The resulting value is the net Total capital.  

19. The values of net Tier I capital and net Total capital are used to calculate capital adequacy standards and other economic standards and requirements established by the NBKR.  

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

 

4. Risk-Related Assessment of Balance Sheet Assets Placed  

according to the Principles of Islamic Banking and Finance  

 

20. Assessment of the capital adequacy herein is carried out in relation to credit risk, i.e. the risk related to various types of assets and consisted in the impossibility to ensure by the client full or partial refund of assets.  

(As amended by Resolution No. 17/13 of the National Bank of the Kyrgyz Republic Board as of April 26, 2017). 

21. Assets have different levels of credit risk typical for certain agreements concluded under the Principles of Islamic banking and finance, as well as at various stages of operations. For example, cash in the Islamic banks cash department is a risk-free asset compared to the assets placed upon financing operations conducted under the Principles of Islamic banking and finance.  

22. With regard to the level of credit risk all balance sheet assets are divided into six categories according to paragraph 24 herein. In this case, the main criteria of the credit risk used to distribute the balance sheet assets among the categories are as follows: type of a counterparty, country of a partner in terms of transfer risk, asset backing, guarantees and duration of the asset.  

(As amended by Resolution No. 17/13 of the National Bank of the Kyrgyz Republic Board as of April 26, 2017). 

23. (Became invalid as per Resolution No. 17/13 of the National Bank of the Kyrgyz Republic Board as of April 26, 2017).    

24. Depending on the level of credit risk, as well as on the type of individual partners/counterparties, the balance sheet assets are divided into the following categories:  

Category 1 (credit risk level - 0%): 

а) notes and coins of the Kyrgyz Republic and the EAEU and OECD member-states, as well as the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service”;  

Note: OECD  Organization for Economic Co-operation and Development. The list of OECD member- states is available on the official website www.oecd.org; 

b) requirements to the National Bank of the Kyrgyz Republic;  

c) requirements to the Government of the Kyrgyz Republic (Islamic securities issued by the Government of the Kyrgyz Republic and other requirements);  

d) requirements to the Central (National) banks of the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service” or are the OECD member- states;  

e) requirements to the governments of the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service” or are the OECD member-states (Islamic securities issued by the governments);  

f) assets (or part thereof) secured by the currency of the Kyrgyz Republic and placed on a separate account;  

Note: In accordance with the Regulation “On classification of assets and related loan loss provisions in conducting operations under the Principles of Islamic banking and finance” approved by the Resolution No. 51/6 of the Board of the National Bank of the Kyrgyz Republic as of December 28, 2009.  

g) assets (or part thereof) secured by the currency of the EAEU and OECD member-states, as well as the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service”, and placed on a separate deposit account. 

(As amended by Resolution No. 17/13 of the National Bank of the Kyrgyz Republic Board as of April 26, 2017). 

Category 2 (credit risk level - 10%): 

а) assets (or part thereof) secured by the Islamic securities at the current market price, which are issued by the Government of the Kyrgyz Republic; 

b) assets (or part thereof) secured by the Islamic securities at the current market price, which are issued by the governments of the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service” or are the OECD member- states;  

(As amended by Resolution No. 17/13 of the National Bank of the Kyrgyz Republic Board as of April 26, 2017). 

Category 3 (credit risk level - 20%): 

а) monetary assets in settlements with the banks and other financial institutions of the Kyrgyz Republic; 

b) gold and other certified precious metals in the form of standard bars not prohibited by the Shari'ah Standards approved by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI);   

c) cash assets in settlements with the banks and other financial institutions of the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service” or are the OECD member-states;  

d) requirements to the banks and other financial institutions of the Kyrgyz Republic, and all assets based on guarantees of these institutions; 

e) requirements to the banks and other financial institutions of the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service” or are the OECD member-states, which are not affiliated institutions relative to the reporting bank, and all assets based on guarantees of these institutions;  

(As amended by Resolution No. 17/13 of the National Bank of the Kyrgyz Republic Board as of April 26, 2017). 

 

Category 4 (credit risk level - 50%): 

а) financing provided to the individuals for purchase or construction of housing for one family and guaranteed by the first pledge for such housing. This category includes only the assets that are issued to the persons intending to live in such house or apartment, i.e. the housing (or part thereof) will not be used for other purposes (sale, lease, etc.).    

If these assets are overdue by more than 30 days, if they have been restructured or acquired the nonaccrual status, they are specified in category 5 with the credit risk level of 100%;  

Note: According to the Procedure for assigning the status of interest income non-accrual No. 11/2 approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic as of April 28, 2004.  

b) gold and other certified precious metals in the form of standard bars not prohibited by the Shari'ah Standards approved by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI);  

(As amended by Resolution No. 17/13 of the National Bank of the Kyrgyz Republic Board as of April 26, 2017). 

Category 5 (credit risk level - 100%): 

а) notes and coins not included in category 1;   

b) requirements to the governments and the Central banks of the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service” or are the OECD non-member-states (securities issued by the governments of these states and other requirements);  

c) cash assets in settlements with the banks and other financial institutions of the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service” or are the OECD non-member-states;  

d) requirements to the banks and other financial institutions of the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service” or are the OECD non-member-states, which are not affiliated institutions relative to the reporting bank; 

e) requirements to the banks and other financial institutions of the states that have a long-term sovereign credit rating of at least “A” level, assigned by the rating agency “Standard & Poors” or an equivalent rating assigned by one of the following rating agencies: “Japan Credit Rating Agency (JCR)”, “Fitch Ratings”, “Dominion Bond Rating Service (DBRS)” and “Moodys Investors Service” or are the OECD non-member-states; 

f) requirements to the private sector (assets placed under the Principles of Islamic banking and finance):  

- assets placed under the Mudaraba, Musharaka agreements. At the same time, pledge (immovable and movable property), which shall be sold within the terms established by the regulatory legal acts of the National Bank of the Kyrgyz Republic, is used as collateral for such agreements. The value of the pledge when it is sold shall be sufficient to pay to the bank the principal amount of financing and possible costs associated with the sale of pledge.   

The value of pledge shall be confirmed by the conclusion of an independent assessment officer in accordance with the property valuation standards mandatory for all entities of the assessment activity in the Kyrgyz Republic, approved by the Resolution of the Kyrgyz Government No. 217 as of April 3, 2006. Independent assessment of pledged assets on an annual basis is a mandatory requirement for assignment of these assets to this category. In the event of reduction in the cost of collateral, deterioration in its quality, which can cause difficulties in selling the pledge, the assets placed under the Mudaraba and Musharaka agreements are specified in category 6 with a risk level of 400%. Based on the practice of the banks operations under the Mudaraba, Musharaka agreements, the National Bank may establish additional requirements and restrictions on these operations conducted by the bank, including pledged collateral.  

- other assets placed under the Principles of Islamic banking and finance, exclusive of the assets specified in categories 3, 4 and 6;  

g) fixed assets and other property of the bank;  

h) investments and financial participation net of deductions envisaged in subparagraph “b”, paragraph 18 herein;   

i) all other assets not included in the previous categories.  

(As amended by Resolution No. 17/13 of the National Bank of the Kyrgyz Republic Board as of April 26, 2017). 

Category 5 (credit risk level - 400%):  

- assets placed under the Mudaraba, Musharaka agreements, exclusive of the assets specified in categories 1-5.  

(As amended by Resolution No. 17/13 of the National Bank of the Kyrgyz Republic Board as of April 26, 2017). 

25. Investments in securities are weighted net of premium (discount) and unrealized profit (losses). 

26. Incomes on assets are risk-weighted similar to the risk-weighted assets.  

 

5. Risk-Related Assessment of Off-Balance Liabilities 

 

27. Off-balance liabilities are also exposed to the credit risk under certain conditions (see paragraph 20 herein). For example, guarantees issued by the bank on behalf of a client may, upon the occurrence of the certain events, be transformed into an ordinary asset allocation. 

28. Risk exposure value on off-balance liabilities is calculated by multiplying the nominal value of off-balance liabilities by the corresponding percentage value of the credit transformation factor. The values obtained are balance-sheet equivalents of the off-balance liabilities, which are further weighted according to the degree of credit risk as per Section 4 herein.  

29. This Instruction defines the percentage values of the credit transformation factors for the off-balance liabilities as follows:  

Credit transformation factor - 0%:  

а) any liabilities that the bank can unconditionally cancel at any time without prior notice or in respect of which the right of automatic cancellation is provided in case of deterioration of the borrowers financial condition.  

Credit transformation factor - 20%: 

а) a letter of credit issued or confirmed by the bank with the financing of imports or exports on the basis of the Murabaha agreement, where the pledge in the form of insured goods/cargo is used as collateral.  

Credit transformation factor - 50%: 

а) off-balance liabilities associated with the particular transaction (for example, letter of credit, ensuring the client compensation for damages in the event of failure by a contractor to fulfill its liabilities in the construction project and other similar liabilities); 

b) short-term self-liquidating liabilities related to trade transactions (e.g., documentary letter of credit, secured by shipment of goods).  

Credit transformation factor - 100%: 

а) commitments to grant credits;  

b) credit substitutes (for example, general credit guarantees, standby letters of credit, guarantees for acceptance), i.e. documents (regardless of its title) representing legal obligations of the bank to disburse the funds to a third party if a client, on whose/which behalf a guaranty or a letter of credit were issued, is unable to pay the funds issued in advance to a third party under the contract agreement or similarly;  

c) repurchase agreements and sale of assets, with the right of a counterparty to return an asset in certain cases; 

d) obligations on purchase of the assets;  

e) other off-balance liabilities not included in the previous categories. 

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

30. The Bank shall assess off-balance liabilities related to exchange rates, since the bank is exposed to the credit risk to the potential value of cash flow replacement (under the contracts with positive value) in the event of failure to comply by the partners with their contractual obligations rather than to the full par value of such liabilities. The size of the balance equivalents depends on the term of the agreement and the exchange rates that form the basis of the financial instruments.  

The banks can use a method, whereby a potential risk is calculated for each type of contract, regardless of its current market value, for all contracts related to exchange rates. In order to calculate the size of a balance-sheet equivalent it is necessary to multiply the base (nominal) value of each instrument by one of the transformation coefficients (credit transformation factor) set depending on the nature of the instrument and its validity.  

31. This Instruction defines the following percentage values of the credit transformation factors for off-balance liabilities related to exchange rates:  

 

Contracts duration 

Credit transformation factor 

Less than 1 year 

2% 

From 1 year to 2 years 

5% 

For each successive year 

+ 3% 

 

6. Risk-Related Assessment of Assets and Off-Balance Liabilities  

of the Bank Having an “Islamic Window”  

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

 

32. When calculating the capital adequacy ratio of a bank having an “Islamic window”, the methodology of risk-related assessment of the banks assets and off-balance liabilities allocated/accepted under the Principles of Islamic banking and finance is used as defined herein.  

33. Assets and off-balance liabilities allocated/accepted by the bank having an “Islamic window”, based on the “traditional” principles of banking and financing, are risk-weighted in accordance with the Instruction for the commercial banks.  

 

7. Procedure of Filling in and Submitting the Reports  

on Implementation of Capital Adequacy Standards 

for the Bank Having an “Islamic Window” 

34. Reporting on implementation of the capital adequacy standards, taking into account the operations carried out by the bank under the Principles of Islamic banking and finance, is composed according to the requirements of the Instruction for the commercial banks and as per the peculiarities specified herein.  

35. When composing the reports on implementation of capital adequacy standards: 

- balance sheet assets of the bank having an “Islamic window”, allocated under the Principles of Islamic banking and finance, shall be reflected in Sections 15.A-15 of the Periodic Regulatory Bank Report;  

- all off-balance liabilities (including short-term self-liquidating off-balance liabilities), attracted under the Principles of Islamic banking and finance, shall be reflected in Section 15.G of the Periodic Regulatory Bank Report.  

36. Information about capital adequacy standards implementation and calculations thereof is submitted by the bank having an “Islamic window” in accordance with the requirements of the Instruction for the commercial banks and as a part the Periodic Regulatory Bank Report.  

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

 

 

8. Dividends 

 

37. Dividend is a part of the banks net profit distributed among the shareholders under the laws. 

38. The Management Board of the bank (an executive body) on the basis of the auditors opinion shall submit to the Board of Directors of the bank and the shareholders meeting the analysis of at least the following factors for consideration and appropriate assessment:  

а) capital adequacy and its trends; 

b) implementation of the economic standards established by the NBKR;  

c) nominal and real income levels of the bank (taking into account inflation rate) and their trends;  

d) growth prospects of the bank; 

e) effect of economic conditions and inflation rate.  

39. Dividends to shares are attributed and paid according to the results of the financial year. 

40. If there is a threat to the stability of the bank, the NBKR may prohibit or impose limitations on dividends payment, if:  

а) dividends payment will result in violation of the economic standards set by the NBKR; 

b) the values of the capital adequacy ratios of the bank are below minimum limits set by the NBKR for this bank; 

c) the amount of retained profit is equal to or less than zero due to loss-making activity of the bank;  

d) the bank incurred losses for the reporting year and/or for the year prior to the reporting year;  

e) the bank is under particular supervision of the NBKR as a result of deterioration of the bank status and/or is classified as a “troubled” bank in accordance with the applicable laws and regulations of the NBKR; 

f) if loan loss provisions were not created or were created in insufficient amount as per the requirements of the NBKR.  

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

 

9. Procedure of Filling in Reporting on Implementation of Capital Adequacy Standards 

 

41. Reporting on implementation of the capital adequacy standards is composed based on the balance sheet of the bank according to the Chart of accounts for accounting in the Islamic banks and financial institutions licensed by the NBKR. 

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

42. Reporting items are divided into integrated and detailed ones (for example, integrated item 20 is divided into two detailed items 20.1 and 20.2). The values of balance assets (off-balance liabilities) are specified in detailed items, depending on belonging thereof to any category of credit risk. The values specified in integrated items are the sums of values in the detailed items.  

43The names of many reporting items fully correspond to the names of certain accounts or groups of accounts of the Chart of accounts for accounting in the Islamic banks and financial institutions licensed by the NBKR. However, the filling in of certain items has some peculiarities. Thus, the total balance-sheet value of the appropriate type of securities, irrespective of their classification is specified in every item in section “Securities portfolio” (items 130-230). For example, the amount of the balance-sheet value of the securities issued by the Government of the Kyrgyz Republic and/or the NBKR under the Principles of Islamic banking and finance, classified both as the securities held until maturity, and as trading securities and securities eligible for sale, is specified in item 130 “Securities issued by the Government of the Kyrgyz Republic and/or the NBKR”.  

The amount of debt on the corresponding type of financing under the Principles of Islamic banking and finance net of the discount is specified in every item of section “Financing” (items 240-370).