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Kyrgyzstan
Financial System
In mid-1995, the banking system continued to be dominated by
the central savings bank (the National Bank of Kyrgyzstan, created
in 1991) and by the three major commercial banks that succeeded
the sectoral banks of the Soviet era and remained under state
control. Those banks--the Agricultural and Industrial Bank (Agroprombank),
the Industrial and Construction Bank (Promstroybank), and the
Commercial Bank of Kyrgyzstan--owned 85 percent of banking assets
in 1994. New commercial banks, of which fifteen were established
in 1993 and 1994, were owned by individuals or enterprises and
had much less financial power than the state-owned banks. The
new commercial banks have the right to buy and sell foreign currency
and open deposit accounts. The National Bank is the official center
of currency exchange, but in the mid-1990s it did not adhere to
official exchange rates. In mid-1994, the government established
the Bank for Reconstruction and Development, which uses state
funds, foreign currency assets, and loans from abroad to aid small
and medium-sized enterprises and to invest in targeted spheres
of the economy, especially housing, construction, power generation,
and agriculture.
The banking system has remained concentrated in the same areas
as in the Soviet period. Although some diversification has occurred,
loans tend to go to traditional clients. Because new commercial
banks are small and initially were owned by state ministries and
state-owned enterprises, competition has developed slowly. Through
1994 Soviet-style accounting and reporting systems remained in
use, and banking services such as domestic and international payments
have remained at the same noncompetitive level as they were prior
to 1991. Capabilities vital to a market-type economy, such as
credit risk assessment and project appraisal, are lacking. Post-Soviet
regulations on capital funds, exposure limits, and lending practices
have not been enforced. The technical infrastructure of the banks
also requires substantial overhaul. In addition, the National
Bank has been plagued by scandal; the first director, an Akayev
protégé, was linked to several illegal financial operations in
1993 and 1994.
The limitations of the banking system have made it unable to
efficiently mobilize and allocate financial resources into the
national economy. This failure has hindered privatization and
other types of economic reform that require substantial amounts
of risk capital upon which borrowers can rely. Especially critical
are the bad loans held by the three state-owned banks (influenced
by government interference in loan decisions, together with poor
financial discipline on the part of major enterprises) and eroded
capital base. In 1995 the National Bank's outstanding loans to
agricultural and industrial enterprises totaled 1 billion som
each.
Data as of March 1996
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