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Appendix to the Resolution of the Board of the National Bank of the Kyrgyz Republic dated July 16, 2014 No. 32/5 |
RULES
for regulating the activities of credit unions carrying out operations on Islamic principles of banking and financing
(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic dated January 20, 2016 No. 4/6, August 15, 2018 No. 2018-P-33/33-8)
Chapter 1. General Provisions
1. These Rules are developed in accordance with the Law of the Kyrgyz Republic "On Credit Unions", other regulatory legal acts of the National Bank of the Kyrgyz Republic (hereinafter referred to as the National Bank).
2. These Rules establish economic standards, requirements and restrictions that are binding on credit unions when carrying out operations in accordance with the Islamic principles of banking and financing in order to protect the interests of members of a credit union and reduce risks in the activities of credit unions.
3. Credit unions may establish higher economic standards and restrictions in order to further reduce risks, without violating the values of the standards and restrictions established by these Rules and other regulatory legal acts of the National Bank.
Chapter 2. Concepts and definitions
4. The following concepts and their definitions are used in these Rules:
1) savings share (share contribution) - the amount of funds contributed by a member of a credit union to the capital and at the disposal of the credit union;
2) equity capital - the amount of savings shares contributed by participants of a credit union for a period of one year or more and having a special withdrawal period. The term for the withdrawal of such shares begins after the end of the financial year, provided that the participant submits an application at least six months before the end of the financial year (before July 1 of the current year);
3) institutional capital is a part of the total capital, which is used to calculate the economic standards established by the National Bank. When calculating institutional capital, the following indicators are used: reserve for future needs, retained earnings/losses of previous years, losses of the current year. The profit of the current year is not included in the calculation of institutional capital;
4) total capital - the sum of institutional and equity capital of a credit union;
5) operating credit union - a credit union established and functioning for more than two years and having at least two annual balance sheets at the time of calculation of economic standards;
6) newly created credit union - a credit union established and functioning for less than two years and not having two annual balance sheets at the time of calculation of economic standards.
Chapter 3. Requirements and restrictions for credit unions
5. The following requirements and restrictions apply to credit unions:
1) the minimum amount of a savings share contributed by a participant when joining a credit union must be at least one thousand soms;
2) the maximum allowable size of the savings share of one participant cannot exceed 10% of the amount of all paid savings shares of the credit union;
3) the minimum capital of a credit union must be:
- for credit unions that do not have a license to raise funds - at least thirty thousand soms;
- for credit unions that have a license for the right to raise funds from members of a credit union - at least two million soms;
4) for credit unions that have a license to raise funds from members of a credit union, the maximum size of the deposit base should not exceed 450% of the institutional capital;
5) for credit unions that have a license to raise funds from members of a credit union, the ratio of the total debt on the principal amount of assets bearing credit risk, overdue on the principal amount and / or mark-up, to the financing portfolio should not exceed 5% .
(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated January 20, 2016 No. 4/6)
Chapter 4. Economic standards and the procedure for their calculation
§ 1. General Provisions
6. The economic standards that are mandatory for credit unions include:
1) the standard for the maximum amount of attracting external financing (N1):
N1.1 - for newly created credit unions;
N1.2 - for existing credit unions;
2) the standard for the maximum amount of risk per client/supplier/partner (hereinafter referred to as the client) (N2 ) :
N2.1 - for newly created credit unions;
N2.2 - for existing credit unions;
3) the standard for the maximum amount of investment in the capital of financial and credit organizations (N3);
4) the standard for the maximum amount of investment in fixed assets (N4);
5) liquidity ratio (N5):
N5.1 - for credit unions that do not have a license to raise funds;
N5.2 - for credit unions that have a license to raise funds;
6) capital adequacy ratio (N6):
N6.1 - the standard for the adequacy of institutional capital;
N6.2 - the standard for the adequacy of the total capital.
7. The economic standards specified in paragraph 6 apply to all credit unions. By the time of applying for a license for the right to raise funds from their participants, credit unions must comply with the requirements specified in the Regulation on Licensing Credit Unions, approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic No. 14/3 dated May 4, 2005.
§ 2. Norm of the maximum amount of attracting external financing of a credit union (N1)
8. The standard for the maximum amount of external financing of a credit union (N1) is the maximum possible amount of external financing that a credit union can receive.
9. When calculating the standard for the maximum amount of attracting external financing of a credit union , the amount of attracting external financing includes funds received by the credit union that meet the requirements of the Law of the Kyrgyz Republic "On Credit Unions" and comply with Sharia standards.
10. The standard for the maximum amount of external financing for newly created credit unions (N1.1) is determined in accordance with Appendix 1 to these Rules.
11. During the first year of activity of a newly created credit union, the amount of its attracted external financing should not exceed the amount of equity capital.
During the second year of operation of a newly established credit union, the amount of its attracted external financing should not exceed the amount of total capital, or four times the amount of institutional capital in cases where the amount of total capital is less than four times the amount of institutional capital.
12. The standard for the maximum amount of external financing for existing credit unions (N1.2) is determined by the formula:
N1.2 (<=) IK x 4, where:
IK - institutional capital.
of external financing for existing credit unions (N1.2) should not exceed four times the amount of institutional capital.
13. Credit unions that have been operating for more than eight years and/or have a license to raise funds from participants are not subject to the maximum amount of external financing.
§ 3. Norm of the maximum amount of risk per client (N2)
14. For the purposes of this paragraph, a customer means a member of a credit union or related members of a credit union that is indebted for credit risk assets to the credit union.
15. The standard for the maximum amount of risk per client for newly created credit unions (N 2.1) is determined in accordance with Appendix 2 to these Rules.
16. During the first year of operation of a newly established credit union, the maximum risk limit per client for newly created credit unions (N2.1) is determined by the ratio of 3:1 of the total debt on assets bearing credit risk and issued to one client, to savings share.
During the second year of activity of a newly created credit union, the value of the maximum risk per client for newly created credit unions (N2.1) should not exceed 20% of the sum of the institutional and equity capital of the credit union.
17. The standard for the maximum amount of risk per client for existing credit unions (N2.2) is determined by the formula:
N.2 = MK / (IK + DK) x 100 (<=) 20%, where:
MK - the maximum amount of total debt on an asset that carries a credit risk, issued to one client;
IK - institutional capital of the credit union;
DK - share capital of the credit union.
18. The value of the maximum risk ratio per client for existing credit unions (N2.2) should not exceed 20% of the sum of institutional and equity capital.
19. A credit union is prohibited from repaying debts on assets bearing credit risk at the expense of a savings share of a member of a credit union, except as provided for by the Law of the Kyrgyz Republic "On Credit Unions".
20. All debts of individual clients, when calculating the maximum risk per client (N2), should be summed up and considered as a risk per client, if the non-repayment of debt by one client will inevitably lead to problems with the recovery of debts of another client. At the same time, when considering the debt of various clients for summing them up as a single risk, one should take into account the degree of interconnectedness of clients:
1) by type of economic activity of the participants of the credit union (for example, the business of one participant is connected by common interests or controlled by another participant of the credit union);
2) by the source of repayment of an asset that carries a credit risk (for example, several customers are connected with one business or jointly run a household);
3) to secure an asset that carries a credit risk (for example, one pledge is provided to secure an asset that carries the credit risk of several members of a credit union).
§ 4. Norm of the maximum amount of investments in the capital of financial and credit organizations licensed by the National Bank (N3)
21. A credit union may invest in the capital of financial and credit organizations licensed by the National Bank.
22. A credit union is prohibited from investing in securities and capital of legal entities, except for investments in the capital of financial and credit organizations licensed by the National Bank, as well as investments in treasury bills and other highly liquid securities issued by the Government of the Kyrgyz Republic and the National Bank.
23. The amount of investments of a credit union in the capital of financial and credit organizations licensed by the National Bank should not exceed 15% of the amount of institutional and equity capital.
24. The standard for the maximum amount of investments in the capital of financial and credit organizations (N3) is determined by the formula:
N3 = SI / (IK + DK) x 100 (<=) 15%, where:
SI - the total amount of investments in the capital of financial and credit organizations licensed by the National Bank, with the exception of investments in the capital of the Specialized Financial and Credit Organization OJSC "Financial Company of Credit Unions" (hereinafter - SFCI OJSC "FCCU");
IK - institutional capital of the credit union;
DK - share capital of the credit union.
25. The amount of investments of a credit union or credit unions related to each other in the capital of the SFCI of OJSC "FCCU" should not exceed 10% of the authorized capital of the SFCI of OJSC "FCCU".
26. Associated credit unions are credit unions that are under common direct or indirect control.
27. General direct or indirect control is understood as the ability of an individual or legal entity to exercise a decisive influence on the management or policies of a credit union, alone or jointly with other persons, regardless of participation in the equity capital of a credit union.
§ 5. Norm of the maximum amount of investment in fixed assets (N4)
28. A credit union may invest free funds not used for financing in fixed assets intended to ensure the statutory activities of a credit union.
29. The standard for the maximum amount of investment in fixed assets (N4) is determined by the formula:
N4 = OS / (IK + DK) x 100 (<=) 20%, where:
OS - the amount of investment in fixed assets (except for fixed assets received in the form of grants and gratuitous assistance);
IK - institutional capital of the credit union;
DK - share capital of the credit union.
30. The total investment of a credit union in fixed assets, such as buildings, land, furniture and equipment (except for fixed assets received in the form of grants and gratuitous assistance), which are necessary for the credit union to conduct its business activities, cannot exceed 20% of amounts of institutional and equity capital.
§ 6. Liquidity ratio (N5)
31. The liquidity ratio for credit unions that do not have a license to raise funds from their participants (N5.1) is determined by the following formula:
N5.1 = LA / OB x 100 (>=) 5%, where:
LA - liquid assets of a credit union, including:
- cash at the cash desk of a credit union;
- cash on settlement and deposit accounts in banks;
- treasury bills and other highly liquid securities issued by the Government of the Kyrgyz Republic and the National Bank, less pledged ;
OB - all liabilities of the credit union, with the exception of reserves for dividends of the current year and previous years and income of the future period.
32. The value of the liquidity ratio for credit unions that do not have a license to raise funds from their participants (N5.1) must be at least 5%.
33. The liquidity ratio for credit unions licensed to raise funds from their participants (N5.2) is determined by the following formula:
N5.2 = (LA - KOB) / (PS + SP) x 100 (>=) 15%, where:
LA - liquid assets of a credit union, including:
- cash at the cash desk of a credit union;
- cash on settlement and deposit accounts in banks;
- treasury bills and other highly liquid securities issued by the Government of the Kyrgyz Republic and the National Bank, less pledged;
KOB - short-term liabilities of a credit union, settlements on which will be carried out within thirty days after the reporting date;
PS - borrowed funds of a credit union, the payment period of which is more than thirty days;
SP - savings units with a withdrawal period of up to twelve months and provided for withdrawal minus borrowed funds with a payment period of thirty days after the reporting date.
For credit unions licensed to raise funds from participants, the liquidity ratio (N5.2) must be at least 15%.
34. To manage liquidity risk, credit unions that raise funds from their members should calculate liquidity ratios on a weekly basis.
§ 7. Capital adequacy ratio (N6)
35. The capital adequacy ratio (N6) is determined by the following two coefficients:
- standard of institutional capital adequacy (N6.1);
- total capital adequacy ratio (N6.2).
36. The institutional capital adequacy ratio (N6.1) is determined by the following formula:
N6.1 = IK / SA x 100, where:
IK - institutional capital of the credit union;
SA - total assets of the credit union.
37. The total capital adequacy ratio (N6.2) is determined by the following formula:
N6.2 = (IK + DC) / SA x 100, where:
IK - institutional capital of the credit union;
DK - share capital of the credit union;
SA - total assets of the credit union.
38. The value of the institutional capital adequacy ratio (N6.1) and the total capital adequacy ratio (H6.2) are determined in accordance with Appendix 3 to these Rules.
39. The institutional capital adequacy ratio (N6.1) is set for credit unions that have a license to raise funds from members of a credit union in the amount of 12%.
Chapter 5. Reporting of credit unions
40. Credit unions located on the territory of the Chui region and the city of Bishkek must submit reports to the authorized structural unit of the central office of the National Bank on financial statistics and review in the manner prescribed by the regulatory legal acts of the National Bank.
41. Credit unions located on the territory of other regions of the Kyrgyz Republic must submit reports to the relevant regional department or representative office of the National Bank.
42. A credit union is obliged to ensure strict accounting and storage of documents used in accounting and reporting.
Chapter 6. Supervision of compliance with economic standards and restrictions
43. Supervision of the activities of credit unions is carried out by the authorized structural unit of the National Bank for external supervision, regional departments and representative offices of the National Bank.
44. Verification of compliance of credit unions with economic standards and restrictions can be carried out at any date by studying and analyzing their activities against the submitted reports and information, as well as by conducting on-the-spot checks.
45. If facts of non-compliance by credit unions with economic standards and restrictions are discovered, they provide false data, untimely submission or non-submission of reports and information, or in case of violation of banking legislation, the National Bank takes preventive measures and sanctions provided for by the legislation of the Kyrgyz Republic.
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Appendix 1 to the Rules for Regulating the Activities of Credit Unions Carrying out Operations on Islamic Principles of Banking and Financing |
TABLE
for calculating the maximum amount of external financing for newly established credit unions (N1.1)
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Credit union period |
First year |
Second year |
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Calculation N1.1 |
N1.1 DC |
N1.1 DK + IK or N1.1 IK x 4, whichever is greater |
where:
DK - share capital;
IK - institutional capital.
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Appendix 2 to the Rules for Regulating the Activities of Credit Unions Carrying out Operations on Islamic Principles of Banking and Financing |
TABLE
for calculating the maximum risk limit per client for newly created credit unions (N2.1)
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Credit union period |
First year |
Second year |
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Calculation N2.1 |
N2.1 ≤ SP x 3 |
N2.1 = MK / (IK + DK) x 100 ≤ 20% |
where:
SP - savings share of the client;
MK - the maximum amount of total debt on assets bearing credit risk, issued to one client;
IK - institutional capital of the credit union;
DK - share capital of the credit union.
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Appendix 3 to the Rules for Regulating the Activities of Credit Unions Carrying out Operations on Islamic Principles of Banking and Financing |
TABLE
for calculating the capital adequacy ratio (N6)
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Validity period of the CC |
First year |
Second year |
Third year |
Fourth year |
Fifth year |
Sixth year |
Seventh year |
Eight year onwards |
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N6.1 = IK / SA x 100 |
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≥ 1% |
≥ 3% |
≥ 6% |
≥ 6% |
≥ 9% |
≥ 9% |
≥ 12% |
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N6.2 = (IK + DK) / SA x 100 |
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≥ 13% |
≥ 13% |
≥ 14% |
≥ 14% |
≥ 16% |
≥ 16% |
≥ 18% |
where:
IK - institutional capital of the credit union;
DK - share capital of the credit union;
SA - total assets of the credit union.
Note. During the first year of activity, the capital adequacy ratio (H6) is not applied to a newly created credit union.
