The Russian-Kyrgyz Development Fund position on the financial market in 2019

The RKDF, contributing to the modernization of the country's economy and its integration into the EEU single market, holds a prominent position in the credit market of the Kyrgyz Republic having a significant influence on it.

In terms of capitalization, the RKDF is comparable to the level of capitalization of the entire banking system of the republic. According to the National Bank of the Kyrgyz Republic, as of the end of 2019, the total capital of the banking system was at the level of KGS 42070.0 million, which is USD 604.1 million (the official exchange rate of the NBKR at the end of 2019), while the RKDF equity at the end of 2019 reached USD 532.0 million.

Unlike the banking system with an average leverage ratio is about 6, the RKDF balance sheet is practically unleveraged [1] and consists mainly of capital.

Key financial indicators of the banking system and RKDF

 

01.01.2016

01.01.2017

01.01.2018

01.01.2019

01.01.2020

RKDF capital,

USD million

350,0

503,9

509,1

523,4

532,0

RKDF assets,

USD million

366,2

545,5

545,5

559,1

574,2

The share of RKDF capital in its assets

95,6%

92,4%

93,3%

93,6%

92,6%

The ratio of the RKDF assets to the total assets of the banking system of the Kyrgyz Republic

15,6%

23,3%

19,0%

17,6%

16,1%

Total capital of the banking system of the Kyrgyz Republic,

USD million

343,7

413,3

468,2

506,2

604,1

Total assets of the banking system of the Kyrgyz Republic,

USD million

2 346,0

2 346,0

2 876,0

3 178,0

3575,1

Share of total capital in the assets of the banking system of the Kyrgyz Republic

15,0%

18,0%

16,0%

16,0%

16,9%

Leverage ratio of the banking system of the Kyrgyz Republic

7

6

6

6

6

 

For this reason, the share of the RKDF assets in the assets of the banking system of the Kyrgyz Republic is close not to 100 percent, but to 20 percent.

The RKDF funding is about 10 percent of the loan portfolio of the banking system, and 13.2 percent of the loan portfolio excluding mortgages and consumer lending not related to the RKDF mandate. This indicator also confirms the systemic importance of the RKDF for credit market of the Kyrgyz Republic.

The banking sector loan portfolio as of the end of 2019 amounted to KGS 146.4 billion and increased since the beginning of the year by 14.5 percent (at the end of 2018 - KGS 127.9 billion). In the loan portfolio of the banking system as a whole, the share of classified loans as of the end of 2019 amounted to 8.0 percent or KGS 11.7 billion (at the end of 2018 - 7.5 percent or KGS 9.6 billion).

The actual size of the RKDF loan portfolio in the total loan portfolio of the banking system of the Kyrgyz Republic amounted to 10.2 percent. The loan portfolio by the targeted financing of small and medium-sized businesses in relation to the loan portfolio of the banking system of the Kyrgyz Republic as of the end of 2019 formed at the level of 5.9 percent. The share of the RKDF loan portfolio in the long-term loans portfolio of the banking system (over three years) is almost a quarter at the end of 2019 (24.5 percent).

The RKDF managed to take a significant share of the credit market in a short time, having a certain advantage of a fairly low interest rate and longer lending terms. The RKDF source of resources is the capital with an unlimited term.

As a result, the RKDF influenced the dynamics and structure of interest rates signaling to the market to decrease the borrowing costs, which for today can be considered as a significant achievement in the borrowed resources price formation process in the country's credit market.

According to the National Bank of the Kyrgyz Republic, an average weighted lending rate of commercial banks in foreign currency (provided in 2019 for a period of more than 3 years) to the sectors that meet RKDF’s mandate: manufacturing, agriculture, transport, communications, harvesting and processing – made 9.5 percent, while an average weighted rate of the RKDF direct financing is lower by 5.1 percentage points (4.4 percent). The RKDF rate for lending to small and medium-sized businesses [2] (through financial and credit organizations) is 5 percent in USD and 9 percent in KGS (before 15.08.2017 the lending rate for SMEs in KGS was 12 percent, from 15.08 .2017 to 15.08.2019 - 10 percent).

As a result, from the beginning of the RKDF activity, interest rates of the banking system for a period of more than a year in foreign currency decreased by more than 5 percentage points, in national currency - by 4.3 percentage points.

The RKDF influences the market both in the process of borrower attraction and by injection of cheap resources into partner banks intended to finance small and medium-sized businesses.

The RKDF influences the market through long-term lending. Thus, the share of loans issued by the banking system for a period of more than three years (since the beginning of the RKDF activity) increased from 30.5 percent at the end of 2015 to 41.8 percent in 2019. [3] The share of loans issued by the banking system for a period of over three years (excluding mortgages and consumer lending) in the total loan portfolio of the banking system at the end of 2019 amounted to 31 percent. If we consider the growth in the share of loans with a term of over three years in the framework of currencies, there is a significant increase in the share of loans in foreign currency with a term of over three years in the total loans issued in foreign currency (from 41.8 percent in 2015 to 54.8 percent in 2019).

In the territory of the Kyrgyz Republic RKDF has no competition and forms a separate segment of the long-term lending market. However, the RKDF limits the impact by financing only priority sectors of the economy, including industry and agriculture. RKDF does not provide funding for the trade activities, housing construction, mortgages, consumer lending, and generally seeks to avoid direct competition with commercial banks.

It should be emphasized that a significant advantage of the RKDF for the economy and financial system of the Kyrgyz Republic over other development institutions is that its activities do not increase the debt burden on the state budget of the republic.

 

[1] In fact, here are no borrowed funds

[2] Rates are applicable for the priority sectors lending (share in the total volume is 92 percent).

[3] Data from the Bulletin of the National Bank of the Kyrgyz Republic (loans granted by commercial banks as of the end of the period).