Banking System

The National Bank of the Kyrgyz Republic

The Banking system of the Kyrgyz Republic consists of the National Bank of the Kyrgyz Republic (National Bank) and commercial banks. Banking activities are regulated by the Law of the Kyrgyz Republic “On the National Bank” and the Law of the Kyrgyz Republic “On Banks and Banking”.

The National Bank is a state owned bank of the Kyrgyz Republic. The principal goal of the National Bank’s activities is the achievement and maintenance of price stability by implementation of proper monetary policy. Powers and functions of the National Bank include:

  • Issuance of licenses for all types of banking operations
  • Approval of requirements of minimal authorized capital amount and capital base of banks, capital adequacy standards, currency and interest risks, and other regulation of banking activities binding for all banks
  • Application of preventive measures and imposition of sanctions to banks breaching or failing to comply with established requirements

The National Bank acts as a financial advisor to the President of the Kyrgyz Republic, the Jogorku Kenesh (Parliament) of the Kyrgyz Republic, and the Government of the Kyrgyz Republic on financial issues and other issues related to banking.

The National Bank reports to the Jogorku Kenesh of the Kyrgyz Republic. The Chair of the National Bank is appointed and relieved by the President of the Kyrgyz Republic. Other members of the National Bank Board are appointed by the President of the Kyrgyz Republic upon recommendation by the Chair of the National Bank.

22 commercial banks, including banks with foreign participation, and 1 branch of a foreign bank, are currently registered in the Kyrgyz Republic. In addition, representation offices of 2 foreign banks are active in the country.

Bank Licensing

Banking activities subject to licensing include: securing deposit funding; placing own or raised funds; opening and maintaining accounts of individuals and legal entities; independently establishing correspondent relations; carrying out settlements upon the request of customers and correspondent banks; providing cash services to them; issuing, cashing, accepting, keeping, and confirming payment instruments (checks, letters of credit, promissory notes, and other instruments), including credit and debit cards; purchasing and selling debt (factoring); promissory note and bill of exchange forfeiting; issuing debt securities (deposit certificates, bonds, promissory notes); performing financial leasing transactions; issuing bank guarantees. The right to issue respective licenses rests with the National Bank.

Standard Requirements for Banks of the Kyrgyz Republic

The National Bank establishes standard requirements (including minimal capital requirements and reserve fund requirements). The National Bank also establishes mandatory requirements with respect to commercial bank officials (Chair and members of the Board of Directors, Chair and Deputy Chairs of the Management Board, members of the Management Board, Chair of the Audit Committee, head of the Crediting Department, Chief Accountant, Internal Auditor) whose candidacies must be coordinated with the National Bank.

Banks with Foreign Participation

Foreign banks may open their representation offices, subsidiaries, and joint ventures in the Kyrgyz Republic with consent of the National Bank. Branches of foreign banks must be licensed by the National Bank.

All the requirements of domestic banks, including requirements of minimal authorized capital amount and minimal reserve fund amount, also apply to banks with foreign participation.

Liquidation and Re-Organization of Banks

A bank may be liquidated or re-organized as a result of revocation of its banking license by the National Bank, as a result of a respective court decision, or by a voluntary decision of the bank.

Bank Secrecy

Disclosure of information representing a bank secret is regulated by the Law of the Kyrgyz Republic “On Bank Secrecy” and the Law of the Kyrgyz Republic “On Banks and Banking”.

The following information is considered to be a bank secret: information on customers’ accounts and deposits; information on transactions/operations performed upon customer’s request or to the customer’s benefit; information about a customer which the bank may have obtained in the course of its relations with the customer.

In addition to the National Bank, banks may provide information to: bodies of investigation (with authorization of procurator); courts (on the basis of a court ruling); and representatives of an individual (on the basis of a notarized power of attorney).

Credit Resources

Banks issue credits on the following conditions: maturity may vary from 5 to 10 years, annual interest rate – from 16% to 33% in the national currency and from 11% to 30% in foreign currency.

Islamic Principles of Financing in Kyrgyzstan

One of the maxims of Islam is “prohibition to participate in any interest-bearing transactions”. Therefore, banks that follow the Islamic principles issue interest-free loans instead of credits for business development. Under this scheme a bank obtains a share in the financed or newly established company and participates both in gains and losses of the financed business project.

Many Western banks, including Swiss banks, follow Islamic principles of financing when providing banking and financial services to their Muslim customers. However, despite the fact that the majority of the population in the Kyrgyz Republic is Muslim, mandatory norms of banking legislation in the Kyrgyz Republic include repayment within an established term with interest.

Due to this fact, and in order to raise investments of the Islamic Development Bank group of countries (which the Kyrgyz Republic joined in 1993), in May 2006 the Kyrgyz Republic, the Islamic Development Bank, and EcoBank open joint stock company signed a Memorandum of Understanding related to the introduction of Islamic banking and financing principles in the Kyrgyz Republic. Parties to the Memorandum agreed to a phased introduction of Islamic banking and financing principles in the Kyrgyz Republic as an alternative to the existing principles of financing.

Operations with Offshore Zones

Under the legislation of the Kyrgyz Republic, banks of the Kyrgyz Republic may not establish direct correspondent relations with offshore banks, their affiliates and envelope banks. Offshore companies may not act as founders or shareholders of resident banks of the Kyrgyz Republic