RESOLUTION OF BOARD OF NATIONAL BANK OF THE KYRGYZ REPUBLIC

of May 30, 2018 No. 2018-P-12/20-2-(NFKU)

About modification and amendments in some regulatory legal acts of National Bank of the Kyrgyz Republic

According to article 68 of the Law of the Kyrgyz Republic "About National Bank of the Kyrgyz Republic, banks and banking activity" the Board of National Bank of the Kyrgyz Republic decides:

1. Make changes and additions to the following resolutions of Board of National Bank of the Kyrgyz Republic (are applied):

- "About" regulations on the general principles of classification of assets and forming of reserves on covering of potential losses and losses by the microfinancial organizations in the Kyrgyz Republic which do not have the right to implementation of acceptance of deposits from physical persons and legal entities" of October 22, 2003 No. 31/3";

- "About approval of new edition of the Provision "About Classification of the Credits in Credit Unions" of April 12, 2006 No. 10/6";

- "About approval of the Provision "About Classification of Assets and the Corresponding Allocations to Reserve on Covering of Potential Losses and Losses by the Microfinancial Organizations Performing Transactions according to the Islamic Principles of Banking and Financing" of September 24, 2014 No. 42/8";

- "About approval of the Provision "About Classification of Assets and the Corresponding Allocations to Reserve on Covering of Potential Losses and Losses in the Credit Unions Performing Transactions according to the Islamic Principles of Banking and Financing" of April 23, 2014 No. 16/3";

- "About approval of the Provision "About the Periodic Regulating Report of the Microcredit Company / Mikrocreditnogo Agencies" and the Provision "About the Periodic Regulating Report of Microfinance Company" of May 27, 2009 No. 25/3";

- "About the Provision "About the Periodic Regulating Report of Credit Union" of January 16, 2008 No. 3/3";

- "About approval of provisions of National Bank of the Kyrgyz Republic" of October 17, 2014 No. 45/1.

2. This resolution becomes effective on July 1, 2018.

3. To legal management:

- publish this resolution on the official website of National Bank of the Kyrgyz Republic;

- after official publication to send this resolution to the Ministry of Justice of the Kyrgyz Republic for entering into the State register of regulatory legal acts of the Kyrgyz Republic.

4. To management of financial statistics and overview and Management of external supervision of National Bank to automate forms of periodic regulating reports till July 1, 2018.

5. To management of methodology of supervision and licensing to bring this resolution to the attention of Association of the microfinancial organizations, microfinancial organizations, JSC Finance Company of Credit Unions, National association of credit unions and cooperatives, Association of credit unions and cooperatives of Kyrgyzstan, credit unions. Associations of Islamic finance, regional managements and representative office of National Bank of the Kyrgyz Republic in Batken Province.

6. To impose control of execution of this resolution on the board member of National Bank of the Kyrgyz Republic Dzhusupova Т.Дж.

Appendix

to the Resolution of Board of National Bank of the Kyrgyz Republic of May 30, 2018 No. 2018-P-12/20-2-(NFKU)

Changes and amendments in some regulatory legal acts of National Bank of the Kyrgyz Republic

1. Bring in the resolution of Board of National Bank of the Kyrgyz Republic "About the Provision "About the General Principles of Classification of Assets and Forming of Reserves on Covering of Potential Losses and Losses by the Microfinancial Organizations in the Kyrgyz Republic Which Do not Have the Right to Implementation of Acceptance of Deposits from Physical Persons and Legal Entities" of October 22, 2003 No. 31/3", the following changes and amendments:

in the Provision "About the General Principles of Classification of Assets and Forming of Reserves on Covering of Potential Losses and Losses by the Microfinancial Organizations in the Kyrgyz Republic Which Do not Have the Right to Implementation of Acceptance of Deposits from Physical Persons and Legal Entities" approved by the above-stated resolution:

- state Item 1.1 in the following edition:

"1.1. This Provision determines the general principles of classification system of assets and forming of reserves on covering of potential losses and losses (further - RPPU) for the microfinancial organizations (further - IFI) which obtained the license or the certificate of National Bank of the Kyrgyz Republic (further - National Bank) for implementation of activities as the microfinancial organization, but not having the right to accept deposits of physical persons and legal entities.";

- declare Item 1.2 invalid;

- in Item 2.2 of the word "IFIs provided on the conditions similar to loan granting conditions" to exclude;

- declare Item 2.3 invalid;

- in Item 3.6-1:

in paragraph three "(*)" to exclude sign;

the fourth to state the paragraph in the following edition:

"Note: These signs do not extend to overdrafts within salary projects.";

- in Item 3.7:

in paragraphs five and pole "(*)" to exclude signs;

to state the paragraph of the seventh in the following edition:

"Note: The signs specified in paragraphs five and pole of this Item do not extend to overdrafts within salary projects.";

- in Item 3.9:

the paragraph one to state in the following edition:

"3.9. Assets can be considered as losses if their quality worsened so that return of assets is improbable. After exhaustion of all legal opportunities of return of such assets, they shall be considered vnesistemno at least three years on case of possible debt repayment.";

add Item with the paragraph the second the following content:

"Assets are considered as losses if, in particular:";

- third subitem 4.1.2 of Item 4.1 to state the paragraph in the following edition:

"-Three years from the moment of emergence of the property right - for real estate, except for lands of agricultural purpose for which terms of realization are established by the legislation of the Kyrgyz Republic.";

- in subitem 4.2.2 of Item 4.2 shall be replaced with words abbreviation of "NBKR" "National Bank";

- in Item 4.3:

state subitem 4.3.1 in the following edition:

"4.3.1. The restructured credits are the loans on which IFI grants to the borrower of preference (ease) in individual procedure by change of terms of the contract (with the obligatory conclusion of the new agreement or the supplementary agreement to the credit agreement), IFI, different from customary practice of crediting, for the purpose of ensuring return of debt of the borrower. At the same time the interest rate realignment and/or loan term before repayment of the amount of the main duty/percent is led to change of the expected future cash flows.

Restructuring represents:

- change of conditions of the existing credit agreement in connection with deterioration in financial condition of the borrower by provision of more favorable conditions to the client on loan repayment, IFIs, different from customary practice of crediting, for ensuring return of debt of the borrower;

- complete or partial refinancing of asset when the borrower utilizes the loan granted to IFI for repayment of other credit in other FKO (debt on the main amount or percent on it) provided that the debtor experiences financial difficulties;

- change of terms of the contract by partial write-off of the main credit amount.

Change of initial terms of the contract on the credit and its refinancing, not connected with deterioration in financial condition of the borrower, are not restructuring of the credit (for example, currency transfer of the credit from foreign in national and others).";

Add provision with subitems 4.3. 2, 4.3.3, 4.3.4, 4.3.5, 4.3.6, 4.3.7, 4.3.8, 4.3.9 of the following content:

"4.3.2. At the client on the restructured asset the following circumstances can be indicators of emergence of financial straits:

- not classified credit on which restructuring was made, and on which fully or partially there were overdue payments more than for 30 days, at least 1 time within the last 3 months or;

- on the refinanced credit, in cases when the client did not make principal payment or percent on parallel loan in this to IFI, fully or partially more than for 30 days, at least 1 time within the last 3 months before refinancing of the above-stated credit.

4.3.3. Restructuring shall be directed, first of all, to creation of conditions on loan repayment by simplification of requirements to the borrower, at the same time restructuring shall not allow application of permanent practice of reducing amounts of periodical payments for the account of increase in repayment periods on the operating credit.

4.3.4. Restructuring can be applied in the relation of the assets both classified, and not classified.

4.3.5. The classified restructured asset cannot belong to not classified credits before accomplishment of conditions of Item 4.4 of the Provision.

4.3.6. Modification of the credit agreement when the borrower experiences financial difficulties, by partial debt repayment on the credit for the realization account of pledged property on this credit, shall be considered as restructuring of the credit.

4.3.7. Assets which were restructured are classified by IFI at least as "asset under observation".

4.3.8. The restructured asset shall be classified as "substandard" if on it there were overdue payments more than for 30 days or this asset was restructured repeatedly.

4.3.9. Repeatedly restructured asset shall be classified as "doubtful", in case of delays more than for 30 days.";

- add Chapter 4 with Item 4.4 of the following content:

"4.4. In case repayment of all overdue debt the assets classified as "doubtful" or "losses", are transferred to category "substandard", at the same time IFI can transfer the classified "substandard" asset to category of not classified assets when all following conditions are satisfied:

- lack of the overdue amounts;

- timely complete payment of the last three fees, according to the schedule;

- the current activities and financial condition of the borrower allow to comply fully with conditions of restructuring.";

- the subitem) Item 5.4 to state in the following edition:

"b) RPPU on investments and other assets which bear in themselves credit risk;".

2. Bring in the resolution of Board of National Bank of the Kyrgyz Republic "About approval of new edition of the Provision "About Classification of the Credits in Credit Unions" of April 12, 2006 No. 10/6" the following changes and amendments:

in the name of the word of "new edition" to exclude;

in Item 1 of the word to replace "new edition of the Provision" with the word "Provision";

in the Provision "About Classification of the Credits in Credit Unions" approved by the above-stated resolution:

- declare Item 2.2 invalid;

- in Item 3.4-1:

in paragraphs second and third "(*)" to exclude signs;

the fourth to state the paragraph in the following edition:

"Note: These signs do not extend to overdrafts within salary projects.";

add Item with the paragraph the fifth the following content:

"-restructuring of the credit.";

- in Item 3.5:

in the subitem and) to replace figure "60" with figure "90";

the subitem in) to state in the following edition:

"c) repeated restructuring of the credit;";

in subitems д) and e) "(*)" to exclude signs;

the ninth to state the paragraph in the following edition:

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