Creation date: 2022-05-31

 

 

Appendix

to the Resolution of the Board of the National Bank of the Kyrgyz Republic dated May 30, 2014 No. 24/8

GUIDELINES  

on the procedure for observing the limits of open currency positions by microfinance companies 

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic dated November 27, 2014 No. 53/9, March 11, 2015 No. 16/2, September 16, 2015 No. 53/8, May 31, 2017 No. 21/8, April 22, 2020 No. 2020 -P-33/24-2, December 23, 2020 No. 2020-P-33/73-13) 

1. General Provisions 

1. This guidelines were developed in order to prevent currency risks in the activities of microfinance companies (hereinafter referred to as MFCs), including those carrying out operations in accordance with the Islamic principles of banking and financing, taking into account the requirements of Sharia standards and special terminology used by them in banking operations.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated May 31, 2017 No. 21/8) 

2. When developing an internal policy and procedures for monitoring compliance with limits on open currency positions, the MFC should be guided by the requirements of this Instruction.

MFCs operating in accordance with Islamic principles of banking and finance are additionally required to comply with Shariah standards approved by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated September 16, 2015 No. 53/8) 

3. For the purposes of these Instructions, the following definitions apply:

Currency risk is the risk of MFC receiving losses due to changes in the value of MFC's claims (assets)/liabilities denominated in a foreign currency, in case of an unfavorable change in the exchange rate, at the moment when MFC has an open foreign exchange position in this currency. The foreign exchange position arises from the implementation of foreign exchange transactions and is an indicator of the degree of MFC's exposure to foreign exchange risk.

Currency operations are operations for issuing loans, accepting time deposits (deposits) in foreign currency, as well as other operations that result in changes in claims (assets) or liabilities denominated in foreign currency.

The net foreign exchange position is the difference between the claims (assets) and liabilities of the MFC, both balance sheet and off-balance sheet, in each individual foreign currency.

If the requirements (assets) and liabilities of the MFC in the respective currencies do not match, the currency position is considered open, and in case of equality - closed.

MFC's open currency position can be long (in case of excess of claims (assets) in the relevant currency over its liabilities in the same currency), or short (in case of excess of liabilities over claims (assets)). A long currency position is written with a "+" sign, a short one - with a " -" sign .

Official rate - the official rate of foreign currencies in relation to the Kyrgyz som, determined by the National Bank of the Kyrgyz Republic (hereinafter - the National Bank) in accordance with the Rules for determining the National Bank of the Kyrgyz Republic official rates of foreign currencies in relation to the Kyrgyz som, approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated March 28, 2013 No. 10/15.

Total currency position is the sum of all net currency positions of the MFC for each foreign currency, calculated using the "short hand" method in the manner specified in paragraph 8 of this Instruction.

MFC equity is calculated in accordance with the rules for regulating the activities of microfinance companies in the territory of the Kyrgyz Republic, approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated February 19, 2003 No. 4/2.

Open foreign exchange position limits are limits set by the National Bank, expressed as a percentage of open foreign exchange positions (for each foreign currency and total) to MFC's own capital. The amount of MFC equity as of the 1st day of the reporting month is taken into account. Open currency positions are calculated in Kyrgyz soms at the official rate set by the National Bank. Limits of open currency positions are calculated as a percentage rounded to two decimal places after the decimal point.

Date of conclusion of the transaction is the date when the parties reach an agreement on the main terms of the transaction (types of currencies, exchange rate, amounts of funds, value date, etc.).

Value date is the date on which the funds are credited to the accounts of the participants in the transaction.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated March 11, 2015 No. 16/2) 

2. Procedure for calculating open currency positions 

4. At the end of each business day, MFC must calculate the following:

- net foreign exchange positions for each foreign currency;

- total currency position.

5. Net currency positions are calculated separately for each foreign currency as the sum of the following indicators:

- net spot position in foreign currency. This value is calculated as the difference between balance sheet assets and balance sheet liabilities (including outstanding spot contracts with a value date of up to 2 days and spot contracts that are part of swap contracts), including accrued interest income/expenses in this foreign currency. At the same time, assets and liabilities are included in the calculation at their net book value. For the purposes of these Instructions, a "swap" contract means a transaction that is a combination of two transactions: "spot" and "forward" contracts for the same amount (the principal amount of the "swap" contract), with the same counterparty , for a certain period of time;

- net forward position in foreign currency. This value is calculated as the difference between claims and obligations under forward contracts (including futures), as well as forward contracts that are part of swap contracts (the principal amount of the swap contract);

- MFC-issued guarantees denominated in a foreign currency, except for guarantees secured in the same foreign currency. At the same time, these guarantees are included in the calculation of the net foreign exchange position from the moment the beneficiary (beneficiary) submits a demand for payment of the amount of money under the obligation or the MFC receives documented information indicating a high probability of making a demand for payment under these guarantees. For example, a letter from the beneficiary about non-performance (delayed performance) by the principal of his obligations is the basis for including a guarantee in the calculation of the net foreign exchange position.

6. Currency transactions are included in the calculation of the currency position from the date of the conclusion of the transaction and its reflection in the balance sheet, including transactions containing a future value date that is not the date of the transaction.

7. Calculation of net foreign exchange positions for each foreign currency is made in som equivalent at the official exchange rate effective on the reporting date, established by the National Bank.

8. The total open foreign exchange position for all foreign currencies is calculated using the "short hand" method, that is, the calculation is carried out by summing separately all long net foreign exchange positions and separately all short net foreign exchange positions for each foreign currency. Then the obtained values are compared with each other (in absolute value, expressed in Kyrgyz soms at the official exchange rate set by the National Bank), and the larger of the two values (the sum of all long net foreign exchange positions or the sum of all short net foreign exchange positions) is used when calculating the limit of the total open currency position.

3. Limits of open currency positions 

9. (No longer valid in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic dated November 27, 2014 No. 53/9) 

10. For MFCs that borrow funds from founders (shareholders) within the limits established by the National Bank, borrow funds from legal entities and place them in the manner and on the terms provided for by the legislation of the Kyrgyz Republic, and / or carry out the following permitted operations in foreign currency specified in the license issued by the National Bank, namely:

- issuance of microcredits;

- attraction of time deposits (deposits) from individuals and legal entities on the terms of repayment;

- purchase and sale of debt obligations (factoring);

- issuance of guarantees in the amount established by the National Bank,

the following limits are set:

1) the size of the open long/short currency position for each foreign currency should not exceed as of the end of the business day:

- for currencies whose official rates are set by the National Bank - 15% of the equity capital of the MFC, calculated as of the 1st day of the reporting month;

- for currencies whose official rates are not set by the National Bank, the net foreign exchange position must be closed;

2) the size of the total foreign exchange position in foreign currencies, the official rates of which are set by the National Bank, as of the end of the business day, should not exceed 20% of the equity capital of the MFC, calculated as of the 1st day of the reporting month.

11. MFCs are required to comply with established limits on open currency positions at the end of each business day.

12. Exceeding the established limits of open currency positions cannot be carried over by the MFC to the next business day. By the end of the current trading day, the limits must be brought in line with the requirements of the National Bank.

13. The amount of open foreign exchange positions during a trading day is independently controlled by the MFC, based on its own assessment of the acceptable level of foreign exchange risk. At the same time, each MFC must hold the amount of currency risk during the day in accordance with the internal currency risk management policy approved by the Board of Directors, the Supervisory Board or other authorized person in accordance with the constituent documents of the MFC.

14. The limit value of the limit of the total open currency position for individual MFCs may be reduced by the decision of the Supervisory Committee of the National Bank, in case of revealing an extremely high level of currency risk assumed by these MFCs.

4. Reports on open currency positions and the procedure for their submission 

15. MFCs that carry out operations in foreign currency on the basis of a license from the National Bank submit daily reports on open currency positions as of the end of the previous business day in accordance with Appendix 1 to these Instructions.

MFCs that carry out operations in accordance with the Islamic principles of banking and financing within the framework of the "Islamic window", that carry out operations in foreign currency on the basis of a license from the National Bank, submit to the National Bank daily until 9.00, and those located in other regions of the republic - to the relevant regional department , Representative office of the National Bank in Batken region, on electronic media the following reports on open currency positions: on operations carried out in accordance with Islamic principles of banking and financing; on transactions other than those carried out in accordance with Islamic principles of banking and finance; consolidated report on all operations of the MFC in foreign currency.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic dated November 27, 2014 No. 53/9, September 16, 2015 No. 53/8, April 22, 2020 No. 2020-P-33/24-2) 

16. (No longer valid in accordance with the Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 22, 2020 No. 2020-P-33/24-2) 

17. MFCs with branches must report summary data on open foreign exchange positions, taking into account the data of all branches.

5. Enforcement measures for violation of the established limits of open currency positions 

18. If the MFC violates the established limits of open currency positions, the National Bank applies enforcement measures in the form of collecting a monetary fine from the MFC in the amount of 5 (five) percent of the amount of exceeding the limit of the open currency position, but not more than 10 (ten) percent of the book value of the MFC assets in accordance with the Regulation "On Enforcement Measures Applied to Non-banking Financial and Credit Organizations and Other Legal Entities Supervised by the National Bank of the Kyrgyz Republic", approved by the Resolution of the Board of the National Bank of the Kyrgyz Republic.

Note: Exceeding the established limits within 0-0.05% does not entail the application of a penalty.

(As amended by the Resolutions of the Board of the National Bank of the Kyrgyz Republic dated May 31, 2017 No. 21/8, April 22, 2020 No. 2020-P-33/24-2, December 23, 2020 No. 2020-P-33/73-13) 

19. In case of systematic (2 or more times in consecutive 30 calendar days) violation of the established limits by the MFC, the National Bank may apply other measures of influence provided for by the legislation and regulatory legal acts of the National Bank, up to the revocation of the license.

20. Any attempt by MFC to somehow avoid reporting the real foreign exchange position is treated as:

- attempts to mislead the National Bank;

- unhealthy banking practices;

- manipulation of the foreign exchange position in order to distort its real value, that is, conducting dubious transactions, the origin and performance of which cannot be clearly identified and / or if these transactions affect the financial statements of the MFC and its economic standards;

- providing the MFC with unreliable financial and regulatory reporting.

In case of unreliable reflection of the currency position, appropriate measures of influence will be applied to the MFC, up to the revocation of the license.

21. In case of violation of any of the requirements of this Instruction, the management of the MFC is obliged to immediately inform the National Bank of the violations committed and provide, within two days, written explanations about the reasons for the violation, attaching a list of measures taken by the MFC to eliminate it.

6. Organization of internal control on operations with foreign currency 

22. In order to conduct foreign exchange transactions, MFCs must develop an internal foreign exchange risk management policy and establish adequate internal controls.

23. Appropriate procedures should be developed for each of the foreign exchange transactions carried out, which should reflect, at a minimum, the following:

- delimitation of the functional responsibilities of MFC employees in such a way that one employee could not execute and / or control any process in full from initiating a transaction to recording it in accounting books;

- a clear procedure for the authorization of ongoing operations and their volume by the relevant authorized employees of the MFC;

- internal limits of open currency positions for each foreign currency and in general for all currencies;

- the level of sufficiency of information about the reliability of counterparties , depending on the nature and degree of risk of the operations performed and the category of the counterparty;

- requirements for internal audit when conducting audits of foreign exchange transactions (at a minimum, the independence of auditors and their availability of the necessary qualifications and knowledge);

- requirements for accounting and reporting on foreign exchange transactions for the MFC and its branches (form, frequency of submission, responsibility).

7. Peculiarities of foreign exchange operations of the MFC, which carries out operations in accordance with Islamic principles of banking and financing 

(Section as amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated September 16, 2015 No. 53/8) 

24. The MFC has the right to make transactions for the purchase and sale of foreign currency, subject to their compliance with the following rules of Shariah standards:

- both parties must have available the currency to be exchanged for the opposite before making the exchange;

- units of the exchange currency must be the same amount, even if one of them is a banknote and the other is a coin of one country;

- the foreign exchange contract must not include conditions or clauses on the postponement of the transfer of one or both units of exchange;

- foreign exchange transactions should not be carried out on the futures and forward markets.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated September 16, 2015 No. 53/8) 

25. Parallel buying and selling of currency is not permitted as it involves one of the following factors:

- there is no transfer and receipt of two purchased and sold currencies, which leads to the contract delaying the sale of the currency;

- the contract for the sale of currency becomes dependent on another contract for the sale of currency;

- leads to a bilateral compulsory obligation of both parties to exchange currency, which in itself is not permitted.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated September 16, 2015 No. 53/8) 

26. MFC's policies, procedures and model contracts for dealing in foreign currencies must be approved by the Sharia Board.

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated September 16, 2015 No. 53/8) 

  

 

 

 

 

 

 

 

Appendix 1

to the Instructions on the Procedure for Compliance with Limits on Open Currency Positions by Microfinance Companies

Daily report on open currency positions 

(As amended by the Resolution of the Board of the National Bank of the Kyrgyz Republic dated April 22, 2020 No. 2020-P-33/24-2) 

 

FIELD 

FIELD NAME 

TYPE 

WIDTH 

DEC 

Comment 

1

 

 

 

 

Reporting date

2

 

 

 

 

Conditional NBFCO code

3

 

 

 

 

Balance account

4

 

 

 

 

Currency code alphabetic

5

 

 

 

 

Active balance at the end of the day in soms

6

 

 

 

 

Passive balance at the end of the day in soms

7

 

 

 

 

Active balance at the end of the day in nominal value

8

 

 

 

 

Passive balance at the end of the day in nominal value

9

 

 

 

 

Accounting exchange rate

Total

 

 

 

 

 

 

The database should be called VAL XX XDD

The first three characters XX X are the institution numbers

The fourth and fifth digits of DD are the day of processing

FIELD - column

FIELD NAME - column name

TYPE - data type

WIDTH - number of characters

DEC - number of decimal places

Total - total

The report should be transferred to dbf. format.