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WEEKLY NEWSLETTER
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Kyrgyzstan
Index
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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