Kyrgyzstan to tighten capital requirements for commercial banks

Kyrgyzstan plans to raise the minimum rate for commercial banks’ registered and equity capital. The rate may be about $23.2 million for too-big-to-fail banks. The Kursiv edition has tried to determine whether these changes will affect Optima Bank and Halyk Bank Kyrgyzstan, the two subsidiaries of big Kazakhstani banks.

The National Bank of Kyrgyzstan suggests gradually increasing the capital requirement: to $9.3 million by July 1, 2024 and $11.6 by July 1, 2026. The current rule requires banks to have at least $6.9 million of equity capital. However, systemically important banks and foreign financial institution subsidiaries must have at least $23.2 million of registered capital by July 1, 2023.

Optima Bank, a subsidiary of Kazakhstani Jusan Bank, is a big fish in the Kyrgyzstani market, which means it may fall under this new rule first. As of September 30, 2022, the bank had a 10% market share and was ranked third in Kyrgyzstan.

Jusan has inherited Optima Bank from the former ATFBank, which acquired the asset in the middle of the 2000s. Currently, Jusan controls 97% of its Kyrgyz subsidiary.

Indeed, Optima Bank is a systemically important bank that has played the leading role in the country’s banking system for 12 years, the parent company confirmed. Optima has always followed the requirements of Kyrgyzstan’s legislation and the National Bank, Jusan Bank added.

As of the end of 2022, the registered capital of Optima Bank was about $12.2 million. Now the bank has to double this figure by July in order to meet the regulator’s new requirement.

“If needed, we can execute the requirement to increase the bank’s registered capital at the expense of undistributed profit with no additional funds from the parent company,” Jusan Bank’s press services told Kursiv.

According to the last bank’s report to the National Bank of Kyrgyzstan, it has about $87.2 million of undistributed profit.

When Jusan was asked whether it would sell the asset due to the new rule, the bank’s press service said no. “The bank is sticking to its business strategy and is not going to sell anything,” the press service highlighted.

Halyk Bank, another Kazakhstani bank with a subsidiary in Kyrgyzstan, has no intention to leave the country’s market either. The bank acquired its Kyrgyzstani asset in October 2004 when the local government set its public assets on sale. As of September 2022, Halyk Bank Kyrgyzstan was ranked 8th (4%).

In December 2022, the bank’s registered capital was roughly $13.9 million, which means that the bank already meets the new requirement of the National Bank of Kyrgyzstan. The bank is quite profitable. In 2022, it generated $7.2 million in profit.

The National Bank of Kyrgyzstan came up with the idea of new requirements in March 2022. The regulator insists that the move is necessary to “make the national banking system more safe, trusted and flexible to stand against various external shocks.”

The regulator warned banks that they might need additional capital, including undistributed profit, once the new requirement for banks’ capital enters into force.

The National Bank started developing new legislation in September by inviting all interested parties to share their thought and suggestions. At the time, the regulator admitted that the new rule might be problematic for some unprofitable banks. The authorities said these banks might want to drop their banking licenses and operate as microfinance organizations. Otherwise, the authorities haven’t ruled out potential enforcement actions against those banks that will ignore the new rule.

However, the National Bank also said that it fully understands potential risks and will provide banks with enough time to meet the new capital requirement.

The draft legislation was published on December 27, 2022 and will be discussed until January 26, 2023.