Kyrgyz Republic : Financial Sector Assessment

This report was based on the IMF-World Bank Financial Sector Assessment Program (FSAP). It examines the different aspects of the Kyrgyz financial sector including the banking system, public external debt, creditors, corporate governance, the payments system, non bank financial institutions, and the capital markets. The Kyrgyz financial system is dominated by commercial banks and to a lesser degree by non-bank financial intermediaries that are mostly donor funded. The banking system is small while capital markets, insurance, and pension sectors are all extremely small, if not embryonic, and not systemically significant. In recent years, some progress has been made in terms of consolidation and rationalization of the sector and improvement of financial infrastructure, especially in banking supervision and resolution. Weaknesses remain in corporate governance and the legal and regulatory framework, as well as in the judiciary. The system also suffers from a severe lack of public confidence in commercial banks and weak demand for current accounts due to a narrow range of payments services. Vulnerabilities do not represent a short-term threat to macroeconomic stability, especially if compared with the high level of the country's public debt, most externally held and denominated in foreign currency, thus exposing Kyrgyz Republic to foreign exchange risk. The FSAP mission prepared a number policy recommendations, which have been incorporated in the government's and the National Bank of the Kyrgyz Republic's financial sector strategy section of the National Poverty Reduction Strategy now under implementation.