State capital fuels growth in Kyrgyzstan’s financial markets

In the second quarter of 2026, Kyrgyzstan’s banking sector returned to a more moderate expansion path. In the first quarter, total banking assets had surged 23%, from 1.21 trillion soms on Jan. 1 to 1.49 trillion soms on April 1. Growth slowed to 5.9% in the second quarter.

By the end of the first half of 2026, total assets reached 1.58 trillion soms ($18 billion). Exchange rate fluctuations had virtually no impact on asset growth. Throughout the period, the official exchange rate stayed within a narrow range of 87.40 to 87.45 soms per U.S. dollar.

The largest quarterly increases were recorded in net loans (+57 billion soms; +11.2%), cash holdings (+38 billion soms; +15.8%) and securities (+19 billion soms; +7.7%). Meanwhile, the less transparent «other assets» category declined by 30 billion soms (13.5%), after a sharp increase of 46 billion soms in the first quarter.

The sector’s liabilities grew much more slowly than its assets, rising 2.3% (+29 billion soms) in the second quarter. The «other liabilities» category accounted for three-quarters of this increase (+22 billion soms; +7.3%). The remaining growth came primarily from nonresident deposits (+6.5 billion soms; +6.6%) and domestic customer deposits (+3.8 billion soms; +0.5%).

Total balance-sheet equity increased sharply in the second quarter, rising 25.1% (+59 billion soms). During the same period, 22 billion soms in retained earnings from previous years were withdrawn from the banking sector, while authorized capital increased by 71 billion soms.

The government accounted for most of this increase. In March, it injected 60 billion soms (approximately $686 million) into state-owned A-Bank. By mid-April, the funds were converted into share capital, quadrupling the bank’s authorized capital to 80 billion soms.

Bank lending grows 11.6% in second quarter

The banking sector’s gross loan portfolio, before provisions for loan losses, grew from 540 billion soms on April 1 to 603 billion soms on July 1, an increase of 11.6% — nearly twice the growth rate of total assets. The share of loans in total assets rose from 36.3% to 38.2% during the quarter. Portfolio quality deteriorated, with specific loan-loss provisions increasing 14.9%, from 32.6 billion to 37.4 billion soms.

Retail lending drove most of the growth. Consumer loans increased by 13.6 billion soms, housing construction loans by 12.6 billion soms and mortgages by 7.2 billion soms. In the corporate segment, trade recorded the largest increase (+8.9 billion soms).

The state also plays a major role in meeting credit demand. The State Mortgage Company (SMC), for example, has offered subsidized mortgages for several years. Since 2023, the SMC has also financed housing developers through a government-appointed general contractor and provided direct loans to eligible borrowers under subsidized housing programs. These mortgages carry annual interest rates of 4% or 8%, depending on the borrower’s social status, with repayment terms of up to 25 years. The SMC’s loan portfolio expanded from 0.9 billion soms at the beginning of 2024 to 11.8 billion soms as of July 1, 2026.

Stock exchange trading

Trading on the Kyrgyz Stock Exchange (KSE) approached an all-time quarterly record in the second quarter of 2026. At the time, turnover exceeded 104 billion soms, just below the 106 billion soms record set in the same period last year.

Trading on the KSE is highly concentrated, with the state accounting for most of the turnover. In the second quarter, just two transactions, both completed on April 14, accounted for 75% of total trading volume (78 billion out of 104 billion soms).

The largest was A-Bank’s 60-billion-som recapitalization, which remains the biggest transaction on the KSE in 2026. On the same day, Airports of Kyrgyzstan JSC, a government-controlled company, raised 18 billion soms through a new share offering. Freedom Broker’s Kyrgyzstan subsidiary helped arrange the offering. Its digital infrastructure allows companies to complete the listing process without requiring participants to be physically present.

Secondary market activity

Trading on the KSE’s secondary market remains subdued. In the first 10 months of 2026, transactions involving previously issued securities accounted for just 1.3% of total exchange turnover. From the beginning of the year through Oct. 27, secondary market turnover reached 2.7 billion soms (approximately $31 million), compared with 205 billion soms on the primary market.

The KSE’s official list includes shares of 36 issuers, but large, one-time offerings from state-owned enterprises dominate trading. Private investors face a limited selection of securities, many of which have low liquidity. Shares of Kyrgyzneftegaz, Airports of Kyrgyzstan and MBank regularly appear in exchange trading reports, but even these securities are hard to consider liquid. High turnover on a particular day may reflect a single block trade rather than sustained demand from a broad investor base.

In June 2026, the Kyrgyz government launched a pilot issue of government bonds totaling 500 million soms (approximately $5.7 million) to promote investment among the general public. The bonds, available exclusively to Kyrgyz citizens, have a two-year maturity, offer an annual coupon rate of 17% and pay interest quarterly. Individual purchases are capped at 10 million soms, and investors can buy the securities remotely through the MegaPay mobile app.

According to KSE Vice President Myktybek Abirov, the government launched the bonds primarily to ntroduce citizens to a new investment instrument rather than to raise funds. This explains the relatively high interest rate. By comparison, the highest deposit rate available in Kyrgyzstan is 16.5% per annum.

The offering was fully subscribed within three months. A total of 810 individuals invested an average of approximately $7,000 each, completing around 2,700 transactions. The pilot demonstrated strong retail demand for investment products offering returns above prevailing market rates. It also showed that digital platforms are able to make exchange-traded instruments available to a broader range of individual investors.

However, the bonds appear to have one major limitation: they cannot be traded on the secondary market. As of early July, the MegaPay app offered no option to sell the securities. At the time, the KSE said it was working to introduce this feature, but Kursiv Research has found no official updates since then.