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Kyrgyzstan’s Banking System

Kyrgyzstan is home to 24 banks and one foreign bank’s unincorporated subsidiary.

Several domestic banks have notable international owners, such as The European Bank for Reconstruction and Development (EBRD), International Finance Corporation (World Bank group), KfW (the German Development bank), FMO (Dutch Entrepreneurial Development Bank), MercyCorps (USAID-backed), Sawada Holdings (listed Japanese financial and banking business), US-based FINCA International, etc. Two local banks are owned by the Government and are used for servicing budget programs and special purpose lending.

There has not been a single bank failure in Kyrgyzstan since 2010, which can be fully credited to Kyrgyzstan’s National Bank policy to strictly vet license applicants and not allow locally chartered banks to invest into any assets which potentially may be used in ‘back-to-back’ schemes of draining liquidity from banks through undisclosed encumbrances (which plague the Russian and the Ukrainian banking sectors immensely). Most local banks do little securities trading (except for government securities) and focus on lending to the local population and businesses which further strengthens their stability.

Thanks to the absence of exchange controls, Kyrgyz banks have adapted well to serving non-resident clients (although they harbour certain reservations against opening accounts for totally opaque offshores, such as Belize or the Seychelles), efficiently convert currencies besides the Som (Eg. Rouble —> Yuan).

Many Kyrgyz banks maintain direct correspondent relations with major US clearing banks and high quality EU lenders. Kyrgyzstan’s financial sector includes banks with Turkish, Korean, Chinese etc. founders which significantly simplifies transactions with those countries in their national currencies.

Reputation of Kyrgyz banks in the international financial markets is quite strong because the country does not have any systemic risk of involvement in money laundering. In the opinion of the FATF, Kyrgyz AML legislation and enforcement practices are adequate to the required international standards and the country has no need in current monitoring (conclusion of the Mission in 2014).

Kyrgyz banks can be grouped in several categories.

Government-owned banks

There are two Government-owned banks in the Kyrgyz Republic — RSK Bank (services many budgetary accounts) and Ayil Bank («ayil» meaning «village», the name speaks for itself: the bank is mostly involved in lending to the agricultural sector).

Subsidiaries of foreign lenders and financial firms

  • Halyk Bank — a fully owned subsidiary of Kazakhstan’s largest Halyk Bank (Savings Bank). The Kyrgyz bank utilizes the parent bank’s wide and high quality correspondent banking network world-wide.
  • BTA Bank — a subsidiary of the Kazakh BTA Bank (the parent bank is now part of Halyk Bank group). During the years of Kurmanbek Bakiev’s presidency the Kyrgyz bank was subject to a raidering attempt, was then returned to its rightful owners by the new Government in 2010 and is now successfully developing.
  • Optima Bank — a subsidiary of the Kazakh ATF Bank (whose main shareholder is Mr. Galymzhan Esenov, a well-known Kazakh businessman). The bank belonged to the Unicredit Group but was sold to ATF after the 2008-2009 financial crisis. Before coming into the hands of Unicredit the bank was originally owned by ATF Bank which was then sold to Unicredit but then bought back by the original owner at a huge discount after Unicredit could not successfully digest the asset.
  • KICB (Kyrgyz Investment and Credit Bank) — the bank with the coolest set of shareholders in town: EBRD, Aga Khan Foundation, International Finance Corporation (IFC, member of the World Bank group), German Investment and Development Corporation which is part of the banking group KFW, a Pakistani-chartered Habib Bank which has an AA rating, and the Government of the Kyrgyz Republic with a 10% share.
  • Demir Bank – strictly speaking, it is not a subsidiary of a foreign bank but just a bank with a foreign shareholder. EBRD used to be a shareholder but sold out in 2014, and now the main owner is a Turkish businessman Khalit Chingillioglu, a well-known financial asset investor. Demir is one of the most successful retail banks in the country, its credit and debit cards are immensely popular.
  • FINCA Bank received its banking license on 3 March 2015 after many years of being one of the largest and most profitable microcredit companies in Kyrgyzstan. It is a subsidiary of a large global network of microfinance companies and banks called FINCA.
  • Kyrgyzcommerzbank — a local bank whose controlling share was acquired in June 2017 by a public Japanese company Sawada Holdings Co. Ltd., quoted on JASDAQ, (owns 52.90%). This was the first Japanese acquisition of a bank in Kyrgyzstan. Sawada Holdings is a financial services corporation, established in 1958. It is active in banking and investment services sectors and owns a controlling stake in the largest bank in Mongolia, Khan Bank as well as a large share in the Russian SOLID Bank.
  • Bishkek Subsidiary of the National Bank of Pakistan. The head office of the bank n Pakistan can boast a perfect correspondent network around the world; the clients of the Bishkek office can fully awail themselves of its benefits.

The next group of banks — those owned by the local shareholders — is the most plentiful in Kyrgyzstan. Below is their list, with website links, in case you wish to meet them closer:

  • Commercial Bank Kyrgyzstan is owned by the family of a well-known local businessman. The bank has a chain of offices around the country and holds a precious metal trading license.
  • Russian-Kyrgyz Amanbank — as follows from the name, it is controlled by Russian and Kyrgyz investors.
  • Rosinbank — until recently belonged to the owners of the Russian-chartered InvestTorgBank (Investment and Trade Bank) who in turn bought it from the Government several years ago following the nationalization and restructuring of AsiaUniversalBank (AUB) (AUB was split into two banks — the good bank and the toxic asset bank; the ‘good one’ was auctioned off and the ‘bad one’ is now undergoing bankruptcy).
  • Tolubay Bank — a bank with local capital (2 companies and 10 individuals).
  • Bai Tushum — a microcredit company which successfully grew into a bank.
  • Bank of Asia — owned by South Korean investors and is registered within the free economic zone in Bishkek.
  • Bank Bakai — owned by local investors.
  • DOS-Credobank — owned by local investors.
  • Eco Islamic Bank — a locally owned bank which actively develops Shariah-compliant banking in Kyrgyzstan and receives dedicated support for that activity from foreign Shariah banking supporting lenders.
  • Capitalbank (formerly, Akylinvestmbank) — owned by the local investors.
  • Kyrgyz-Swiss Bank — the bank’s shares are registered in the name of a local company owned by a Swiss holding structure.
  • Eurasian Savings Bank (formerly, Kyrgyzcredit) — the bank’s capital is split into almost equal shares of slightly below 10% each; 6,6% is owned by the Government.
  • Finance Credit Bank — shares are in the name of two local companies.
  • Investment Bank Chang-An — owned by Chinese and Kyrgyz investors.
Almost all of the banks in the above group have a rather small share capital (within 20 million USD, some even have as little as 5 million). However this does not preclude some of them to have a good correspondent account network.

The last group of banks to comment on is a number of distressed banks which are under the administration or conservation of the National Bank:

  • Manas Bank. Before the bank was nationalized in 2010 it was owned by Valery Belokon, owner of the Baltic International Bank in Latvia. The bank is now under conservation by the National Bank of the Kyrgyz Republic. The bank’s former owner fought an international arbitration case against the Kyrgyz Republic for compensation, but ultimately lost, following the judicial review of the original award which was favourable to Belokon. In theory, the license may be put up for sale by the Kyrgyz banking regulator.
  • Investment Bank Issyk Kul. In 2010 it was announced that the bank participated in dubious financial schemes of AsiaUniversalBank under President Bakiev and the bank was nationalized. Now it stays under conservation by the National Bank. Further prospects of its banking license are unclear; quite possible that it will just be liquidated.

We are mentioning the distressed banks on our list here for a reason. The policy of the National Bank of Kyrgyzstan is first to propose investing into resurrection of one of the distressed banks to the prospective seekers of new banking licenses in the country. Or find a suitable bank for sale of the ones which are active and healthy.

This is a shrewd approach, because otherwise Kyrgyzstan would have had many dozens of banks which would be impossible to regulate. There are always many aspirants for a local banking license in the country with such liberal exchange control and tax legislation.

We consider the Kyrgyz banking sector a very promising target for investment.

One may open or buy a captive bank for servicing the financials of a company group: the price is negligent in comparison with the issues which one can streamline by that.

Entry into the local banking sector is also worth considering for the access to the client base — both local (it is not huge, but not small either) and from the neighbouring countries. It can be especially profitable to develop Chinese clientelle (not all of the Chinese businesspeople dream of repatriating their capital to China), Russia (a horrible exchange control regime and threat of side effects from the sanctions drive Russian entrepreneurs abroad, but banking in Europe and offshore now more and more resembles the game of Russian Roulette: you never know when they freeze the money). Very promising can be the focus on Kazakh clients (Kazakh capitalists do not want to gamble by keeping their money in the country when the ruling power will change), Uzbek clients (a huge client base in the Fergana Valley) and other regional depositors.

As far as introduction of innovative banking technologies is concerned, Kyrgyzstan is an untapped market. For example, not many banks even develop precious metal linked products. Bank services to non-residents could be developed with more efficiency. Electronic commerce in Kyrgyzstan is also in its infancy. Take any advanced banking product, and in most of the cases Kyrgyz clients have not heard of it.

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