A Guide to Banking in Kyrgyzstan

Banking in Kyrgyzstan is a relatively modern concept, with the first commercial bank opening in 1994.

The country has a mix of state-owned and private banks, with the largest bank being the National Bank of the Kyrgyz Republic.

Most banks in Kyrgyzstan are open Monday to Friday from 9am to 5pm, with some having extended hours on Wednesdays.

You'll find ATMs and bank branches in major cities like Bishkek, Osh, and Jalal-Abad.

The ADB and IMF have been actively involved in supporting the Kyrgyz Republic's banking sector. The IMF has provided technical assistance in areas such as banking supervision, monetary and foreign exchange operations, and central bank modernization.

In terms of the scope of their involvement, the IMF's technical assistance has focused on a range of topics, with banking supervision being a major area of focus, particularly after the 1998 crisis. The IMF has also played a crucial role in training local staff, with many NBKR staff participating in short-term training, seminars, and regional courses.

The ADB, on the other hand, has committed significant funds to the Kyrgyz Republic, with a total of $2.6 billion committed as of 31 December 2023. This includes public sector loans, grants, and technical assistance, which support economic diversification, inclusive development, and social protection.

The Asian Development Bank (ADB) has been actively working in the Kyrgyz Republic, supporting economic diversification, inclusive development, and social protection.

One of ADB's key goals is to help the Kyrgyz Republic participate in the Central Asia Regional Economic Cooperation (CAREC) Program.

As of 31 December 2023, ADB has committed a significant amount of resources to the Kyrgyz Republic, totaling $2.6 billion in public sector loans, grants, and technical assistance.

This commitment includes 217 public sector loans, grants, and technical assistance projects.

These efforts aim to have a lasting impact on the country's economy and people's lives.

IMF Technical Assistance has played a significant role in the Kyrgyz Republic, focusing on banking supervision, monetary and foreign exchange operations, central bank modernization, accounting, and payments system.

The IMF's technical assistance has been delivered through a combination of missions and peripatetic visits by experts and resident advisors in banking supervision and payments.

The training of local staff has been an essential aspect of TA delivery, with many NBKR staff participating in short-term training, seminars, and regional courses in areas related to banking.

IMF technical assistance was particularly valuable to NBKR staff, as it was based on the practical experiences of other central banks.

The Kyrgyz Republic's banking system was initially based on the ruble, which was supplied by the central bank of Russia. This caused cash shortages and restricted the use of non-cash payments.

In the early days, the government encouraged the use of direct deposits and payments, and regional clearing centers were set up to process wholesale payments. However, these centers were slow and relied on paper records sent to Bishkek every five days.

The IMF provided substantial support to modernize the payments system, including the modernization of clearing centers with computers and online connections. This improved the speed and efficiency of the payments system, reducing the size of the float and making it less costly for users.

Related reading: In a Fractional Reserve Banking System Banks Create Money Because

The Kyrgyz Republic's monetary policy framework has undergone significant changes since its independence from the Soviet Union. The country did not adopt its own currency after the break-up of the USSR and remained in the ruble area, operating with a rudimentary set of monetary instruments and institutions.

The IMF's technical assistance (TA) played a crucial role in shaping the country's monetary policy framework. The TA started at the beginning of the transition period and consisted of the simultaneous review of several central banking topics and the appointment of resident general advisors to the NBKR.

The NBKR was very receptive to the TA recommendations, and the work of subsequent resident advisors was moderately successful. The IMF assisted the central bank in implementing its reform agenda, which included the introduction of a range of monetary policy instruments to allow for the implementation of indirect monetary control.

The transition process in monetary operations included improvements to the system of refinancing credits and the accompanying refinancing policy of the NBKR, as well as the reserve requirements system, including the remuneration of reserves. The auctions for government securities were also improved, and the internal requirements for monetary policy decision-making within the central bank were revamped.

The creation of financial markets was also a key aspect of the monetary policy framework. The initial steps included the establishment of weekly credit auctions, the development of the money market, and the sales of foreign exchange by the NBKR to the interbank market.

The early reforms were partially successful in developing the monetary framework, but some weaknesses were derived from the fact that the foundation on which these reforms were built was unsophisticated. As a consequence, the early rules for the operation of some of these instruments and markets had to be changed later.

The Kyrgyz Republic used the Russian ruble as its currency for payments from 1991 to 1993.

This system had its drawbacks, particularly when it came to cash shortages. The central bank of Russia supplied the cash, but it was problematic.

The use of non-cash payments was restricted due to limited bank accounts and a lack of bank branches in remote areas. Direct deposits and payments were introduced to encourage the use of non-cash payments.

Regional clearing centers were set up to process wholesale payments, but paper records of all transactions were sent to Bishkek only every five days. This led to increased credit risks and a significant "float" developed.

The float was estimated to have reached 40 percent of some banks' capital in 1992. This slowed down the payment process considerably in the early stages.

A crucial element in the early plans for the modernization of the payments system was the modernization of the clearing centers. The goal was to improve the speed and efficiency of the payments system by providing each center with computers and establishing on-line connections between them.

This new system was designed to lessen the risks emanating from the payments system and reduce the size of the float. Foreign assistance, including from the IMF and the Japan International Cooperation Agency, supported the early plans.

The use of the ruble had severe difficulties in payments between the former Soviet republics. Some central banks and enterprises were unable to make payments, and the payments system itself was inefficient.

Initiatives were taken to solve these difficulties, including setting up an interstate bank to handle payments between the republics. However, these initiatives were superseded by the decision to issue the Kyrgyz Republic's own currency.