Kyrgyzstan’s banks are proving resilient to political uncertainty, according to the president of the Kyrgyz Banking Union Anvar Abdrayev, who is hoping for fresh legislation to strengthen the sector.
Opposition parties have accused President Kurmanbek Bakiev of increasingly authoritarian behaviour, following clashes between protestors and police and the administration’s announcement of an alleged coup plot earlier in 2007.
“The banks, unlike other sectors of the economy, managed to not only restore their turnover volumes, but also to increase them,” Mr. Abdrayev told Emerging Markets.
He said there had been some deposit withdrawals and a slowdown in credit growth, but assets had still risen by 37.5% and total capital by 47% since the current government took power just over two years ago, after former president Askar Akaev was ousted amid popular protests over alleged election-rigging.
However, the sector remains small overall, with deposits at just 14.5% of GDP in 2006, and credit at 10% of GDP. Abdrayev noted that apart from AsiaUniversalBank, which is the largest in the sector, “most Kyrgyz banks have insufficient capitalization and lack long-term funds to invest in project finance.”
He believes the sector’s expansion will be aided if legislation is implemented in areas such as the rules governing loans, the tax code, real estate valuations and deposit protection.
“We are actively cooperating with the development and realization of laws on the regulation of commercial banking operations with the National Bank of the Kyrgyz Republic and other state bodies,” said Abdrayev.
Marat Baitokov, vice-president of the Kazakhstan Banks’ Association, which signed a cooperation treaty with the Kyrgyz Banking Union last month, agreed that the legal environment for Kyrgyz banks was becoming liberal and transparent. But he noted that “political instability also makes certain risks.”
Baitokov hopes that the treaty can stimulate Kazakh investment in the financial sector of its neighbour, by improving the quality of information available.
“Adequate and accurate information on these banks’ operations, their advantages and risks, is needed, so they could form their niche in the market and thus develop it. Now we have the mechanisms for this information delivery,” said Baitokov.
According to Abdrayev, the main opportunities in the Kyrgyz banking sector at present are in trade and commercial operations credit and the mortgage market, which account for 37.6% and 14.9% of total assets, respectively.