OREANDA-NEWS. The IV Bishkek International Banking Conference called “Central Asian Financial Markets in the Global Economies” that was carried out from 25 to28 July, in Bishkek and at the Issyk-Kul shore, was marked with the presence of world famous specialists in the sphere of finance from the USA, Europe and Asia. Once again Kyrgyzstan’s Banking Union and Moscow International Currency Association became the organizers of the Conference, reported the press-centre of AUB.

The name of the IV Bishkek International Banking Conference - “Central Asian Financial Markets in the Global Economies”- was completely sound in terms of its informational content. The participants of this event , the biggest in banking sphere of the Kyrgyz Republic, got a unique opportunity to learn a vision of the representatives from Europe, the USA, Russia and Kazakhstan, of the main issues currently existing at the financial market of the developing countries: a favorable investment climate(Kyrgyzstan’s macroeconomic), financial and non-financial risks, banking products’ management, introduction of some new banking products into the market, the equity markets of Kyrgyzstan and Kazakhstan, and finally, counteraction to legalization of illicitly acquired funds, and compliance procedure. Each of these aspects was discussed from two positions: of the advanced and the developing markets.

Undoubtedly, the most important issue of the financial market of the Kyrgyz Republic is investment attractiveness of the country. The speeches of the representatives of Kyrgyz state bodies, public organizations and businesses were focused on the dynamic of the economical growth of the country, increasing of investments in financial, industrial and tourist sectors.

Kurmanbek Bakiyev, the President of the Kyrgyz Republic, addressing to the Conference noted: “Central Asian market, including the economy of the Kyrgyz Republic, is an economical area that becomes more and more attractive for foreign investors. The rapid pace of increasing of investments in capital stock could be given as an example of that. During the first half-year of 2007 investments in the capital stock amounted to 6, 4 billions soms; increasing by 43% against the similar period of 2006. A substantial growth of foreign trade turnover (with 120 countries of the world trade community) is the evidence of speeding-up of the integration of the Kyrgyz Republic into the global economic processes. And, what is more important, the export abilities of the country are now increasing; during the first quarter of 2007 Kyrgyz export has increased by 36%.

“More than 60% of all the banking capital now is a foreign capital and that is the evidence of the fact that Kyrgyzstan is open for any investments, including banking ones,-said Anvar Abdraev, the President of Kyrgyzstan Banking Union,-This is really very important and significant for our Republic. In comparison with other countries, such as Kazakhstan, China, Tajikistan, and Turkmenistan, our Republic doesn’t have such natural resources, which could provoke certain interest of some investors in terms of natural and energy resources’ development. But we do have some investments and they are increasing. Attracting of capital in the banking sector particular is the factor that indicates existence of the base (first of all legislative and regulatory base), which attracts foreign investors”.

Martin Born, the Director on CIS countries of the world famous publishing house, EUROMONEY, also noted a high investment potential of the country. He pointed out some existing in the country shortcomings, in particular: comparatively unstable political situation and still ambiguous international image. Nevertheless Mr. Born especially emphasized presence in the country of all three prerequisites that are necessary for a rapid growth and development of diversified economy, namely: presence of industrial basis, clear legislation and educated people who are ready to work.

Ekaterina Masenko, ISI Emerging Markets analyst, gave a high evaluation of the investment potential and the future economical development of the country, although she mentioned tribalism as a social feature of Kyrgyzstan that negatively influences its development.

According to Mikhail Nadel, the Chair of the Board of Directors, in spite of the considerable share of gold mining and hydropower export in GDP, the Kyrgyz Republic is not resource-oriented like Russia and Kazakhstan, but a transit- oriented country. Located in the very heart of Central Asia, the country is a crossroads of many trade routes.

For the first time representatives of practically all state structures that directly involved in the development of financial sector of Kyrgyzstan and work on the issues of financial legislation, creation of favorable investment climate and development of macroeconomic showings of the Republic, took part at the IV Bishkek International Banking Conference.

“Currently the banking system of the Kyrgyz Republic is on the stage of active dynamical growth,-said Marat Alapayev, the Chair of the National Bank of Kyrgyzstan,- The credit portfolio of commercial banks has enlarged during the six month of the current year and as of July 1st, 2007, the increase forms 62,5%, the deposit base grew by 11%, the showing of the net total capital of the banking system amounted to more than 6,72 billion soms that constituted 33,7% of increase.

The banking system’s yield is also dynamically growing, specifically, the net profit showing for January – July 2007 amounted to 643 billion soms that is more than double increase comparatively to the showing for the similar period of the past year. A profitability of the banking assets is also rising. According to the totals of the similar period of the last year the ROA (return on assets) showing compiled 3, 2%, this year it has reached to 4%. Return on equity (ROE) constituted 24, 3%, last year this index was 21, 4%. These facts prove a dynamical development of the banking sector. Currently the share of foreign capital makes up almost 60%. In 2006 alone the bulk of foreign capital invested in the banking sector of the Kyrgyz Republic amounted to more than 416 millions soms. That is quite a substantial investment and it shows that interest of foreign investors in the country is increasing.”

Akylbek Djaparov, the Minister of Economics and Finance of the Kyrgyz Republic, in his report summed up the speeches of the representatives of the state bodies and revealed the intentions by which the state government is currently guided:

“We want that present banking system would get a growth of its volumes and accessibility of crediting by means of creation of favorable conditions for a progressive growth of the financial mediation’ level, and stability and reliability of the financial crediting institutions. We also expect that due to increasing of the capital base of the banks, increasing of capital attracting in the form of deposits and long term banking financing, the ratio of the assets and the credits to GDP exceed the level of 30%, 15% and 20% by 2010. In September, 2007, the Parliament is going to pass a law on deposit protection and establish a respective structure. Another our priority is arrangement of such conditions that will promote processes of merging, integration and engrossing that lead to strengthening of the banking sector of the Kyrgyz Republic. We will also arrange conditions and mechanisms concerning to introduction and extending of mortgage crediting system that is necessary for stirring up of the construction business, forming of reliable sources of financing and making the system a driving force of economical development. Introduction of the mechanism of mortgage crediting will be performed by the same scheme as introduction of the deposit protection system”.

The round table talk applied to financial and non financial risks at emerging markets became a lively discussion concerning to introduction of traditional methods of risk evaluation that are used in Russia, Western countries and Central Asia. During the round table talk a unique for Central Asian financial market issue-a mechanism of purchasing of financial risks-was opened. The procedure of risks purchase is mainly related to insurance companies’ business; and it is possible that after a time some Kyrgyz financiers will start mastering it.

Indubitably, one of the most complicated issues in the development of financial (in particular, banking) sector is counteraction to legalization of illicitly acquired funds as well as compliance procedures.

Lately the issues of banking supervision, financial intelligence and organization of internal control over banks’ financial operations became the key points for Central Asian financiers.

John Hole’s and David Artingstole’s reports showed that the problems of “money laundering” and economics’ financial losses because of activities on legalization of illicitly acquired funds are typical for the advanced countries too. In many respects losses are caused by imperfection of a legislative base. Compliance departments of banks of almost all countries have the same typical shortcomings: insufficiently frequent training of compliance departments’ staff, work of these subdivisions is focused on single transactions of clients but not on the clients’ business in general, and also so called “human element”- in most cases staffs of these departments do not have an external audit of their work.

Methods of “money laundering” are improving, the legislation is changing, and therefore the banks should very quickly react to these changes.

In the judgment of Tilek Sayakbaev, the Head of Counteraction to Legalization of Illegal Income Monitoring Department of Financial Intelligence Service of the Kyrgyz Republic, the main problem of development of procedures of “money laundering” is cash turnover that constitutes more than 80% of the total money turnover of the country. Nevertheless, according to Sayakbaev, Kyrgyzstan is currently moving at a normal pace to improving of its legislative base. The controller-bank of the Kyrgyz Republic closely collaborates with the banking community; the most competent specialists from international financial institutions were invited for training of the financial intelligence’s staff.

Enthusiastic discussions during round table talks on the topic of Kazakhstan’s financial sector development revealed similarities and differences in the forming of investment strategies of Kazakhstan’s and Kyrgyzstan’s residents. As it turned out, their main characteristics are extremely similar, but in Kazakhstan people are more competent in financial issues and the citizens have more trust in the financial institutions. Round table talks also included the discussions of strengths and weaknesses of Kazakhstan’s equity market which has already formed and works according to its own, in many ways unique, principles. Even though banks still dominate at the equity market, investment funds get a lot of attention in Kazakhstan and the share of their assets is increasing year by year. The composition of issuers of the financial market is diversifying and new financial instruments are developing. The financial center in Almaty takes a significant place in the development of the equity market. The Kyrgyz Republic doesn’t have such organized mechanism of development of non–banking issuers of the financial sector as Kazakhstan does, but the country has all preconditions for their appearance in the nearest future.

In conclusion of the official part of the Conference Marat Baitokov, the Vice-President of the Kazakh Republic Bank Association and Anvar Abdrayev, the President of the Bank Union of Kyrgyzstan signed an overall collaboration contract between these two public organizations that is aimed at intensification of the process of integration in the banking sectors of these two countries.

“We have all prerequisites for development of collaboration with Kazakhstan’s banks,-said Abdraev,-The Conference has shown us that there is direct evidence of similar macro economical, geopolitical and social factors. We just have a lack of efficient level of mutual informing. Signing of this agreement is a big step ahead from both sides in order to resolve this problem”.

“I think that the great work that have been done, the serious issues that was put up during the discussion, the heated debates that took place in the auditoria and in the lobbies, favored to making good and friendly relationships between the participants. I believe that the Conference was hold successfully and we all will observe its results in the future cooperation that was conceived here and now, in Bishkek, and at the Issyk-Kul, during these four days of the Conference,”-noted Mikhail Nadel, the Chair of the Board of Directors of AUB.

“For the forth time our Association acted as co-organizer of this Conference; and year by year its importance for the Kyrgyz Republic is growing. This a nice initiative from “AsiaUniveralBank’s” side and a wonderful example of the fact that businesses care for the future, because organization of such conferences is not a momentary goal, it also an investment to the future,-totaled the Conference Andrei Mamontov, the President of Moscow Currency Association,- This fact speaks for serious intentions of the business structures, about their long term strategy and their attractiveness for partners, counteragents and creditors”.