Baktygul Jeenbaeva was plucked from the private sector to become acting chairman of the National Bank of the Kyrgyz Republic in July 2010, following the overthrow of the country’s government in April. She explains how she responded to the crisis, and sets out the fate of the country’s largest bank.

Q: How have events since April affected yourself and the staff of the National Bank, and their ability to maintain the stability of the Kyrgyz financial system?

A: Of course, the revolutionary developments in Kyrgyzstan have resulted in changes to the operational staff of the NBKR [National Bank of the Kyrgyz Republic]. The staff of the National Bank were forced to work overtime to take decisions and introduce operational measures to ensure the functioning of the banking system in crisis. Thanks to the efforts of National Bank staff, the crisis did not spread through the banking system. Working in such conditions showed how important it is for the National Bank to have a reliable, trained team of professionals.

Q: How many changes have occurred in the management of the central bank, and how many executives remained in their places after the events of April 7?

A: The organisational structure of the National Bank has not changed. The chairman and one deputy chairman have been replaced, and one member of the board has been removed from office.

Q: What should be the priorities for economic and financial policy for the government formed after elections in October 2010?

A: The government itself must properly give this answer, because the National Bank is not part of the government, but an independent government body. Nevertheless, it is clearly necessary to solve such problems as reducing the budget deficit, restoring economic growth and aiming for price stability.

To date, the main directions of economic policy are reflected in the Memorandum of Economic and Financial Policies, September-December 2010, supported by the International Monetary Fund through its Rapid Credit Facility. In the near future, we will work with the government to draft its new economic and financial policies over the medium term, which we hope will be supported by international financial institutions through medium-term funding mechanisms.

Q: What is the current financial position of the country’s largest bank, AsiaUniversalBank (AUB)? In May 2010, after it had been taken under temporary administration by the National Bank, the interim management of the bank declared that its financial position was still very strong. What caused it to deteriorate between May and August, when it was declared insolvent?

A: The interim management estimated the financial condition of AUB in May on the basis of the existing balance sheet data. However, as was established by later investigation, this balance had been falsified to disguise an imbalance of assets and liabilities. Secondly, securities recorded as assets did not actually belong to the bank. Thirdly, loans made under the previous management of the bank in violation of the relevant banking laws proved to be unrecoverable.

Bringing the balance into line with the real financial condition of the bank showed that its assets will not cover its liabilities, leaving the bank with negative capital of almost Kgs1.8bn ($38m). The reason for this situation was the activities of the now suspended former management and board of directors.

As a result, after the inspections, AUB was declared bankrupt as the law requires, and the NBKR has revoked its banking licence and started the procedure of special administration.

Q: The former owners of the bank allege that on April 8 about $40m was seized from the vaults of the bank, and more money from customers’ safety deposit boxes. Can you comment on these allegations or say what happened to that money?

A: Cash seized from the bank vaults by law-enforcement authorities of the Republic was transferred for safekeeping to the NBKR.

Q: Members of the interim Kyrgyz government alleged that AUB was used for money laundering. Did the special administration team find any evidence of this, and is any action being taken to recover money lost in this way?

A: This bank had conducted transactions with no economic sense that were suspicious in form and content. Funds, including state funds, were placed abroad, in offshore jurisdictions. The bank’s independent audit firm is currently conducting a forensic audit. The preliminary audit results confirm the existence of fraudulent transactions, and the report will be used by the National Bank jointly with the State Service for Financial Market Regulation and Supervision, as well as by the Attorney General's Office in its work to recover the assets of the bank.

Q: Who holds the remaining deposits in AUB (individuals and/or companies), and will they be able to recover their deposits now or in the future?

A: There are both retail and corporate deposits in AUB. Individuals not associated with the bank or whose accounts have not been frozen for legal reasons will be able to recover their funds at the end of judicial proceedings related to bankruptcy. As regards companies, depending on the decision of the court, some are not related entities and their accounts are not frozen. They will be transferred to the new bank, when it is created, or their demands will be met in accordance with the priority established by law.

Q: What is the long-term plan to rehabilitate AUB? Will the bank be broken up, for example separating its domestic and external businesses, or selling its branches to other banks? And what will happen to the other four banks that were taken under special control after the change of government?

A: No rehabilitation is planned for AUB, because it has been declared bankrupt. The process set out by law is that the special administrator will restructure a failed bank through the establishment of a new bank, with the subsequent transfer of assets and liabilities from the failed bank to the new bank.

Currently, the plan is to divide the assets and liabilities of AUB between 'good' and 'bad' categories. A new bank with a new name and brand will be created, to which AUB’s 'good' assets will be transferred, to continue serving customers while complying with banking law. The 'bad' part of the assets will be transferred to the Debt Enterprise Bank Resolution Agency. The NBKR is taking all possible measures to ensure the normal functioning of the new bank in the future.

In the other troubled banks, the regime of temporary control will continue and decisions will be taken on each bank as necessary.

Q: Leaving aside AUB and the banks taken under temporary control, what is the condition of the financial sector in Kyrgyzstan? 

A: As of the fourth quarter of 2010, in Kyrgyzstan there were 22 commercial banks (including the Bishkek branch of the National Bank of Pakistan) and 244 branches of commercial banks. Excluding AUB, the net profit of the banking system at that date amounted to Kgs366.8m. Compared with the beginning of the year, the credit portfolio had increased by 5.1% and retail deposits increased by 8.9%, indicating continued public confidence in the banking sector. However, the bankruptcy of AUB did reduce the assets of some other banks, and there are difficulties in the availability of funds for a number of banks that have a regime of temporary control.


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