fbpx 53392-001: Promoting Financial Sector Resilience | Asian Development Bank

Kyrgyz Republic: Promoting Financial Sector Resilience

Sovereign (Public) Project | 53392-001 Status: Active

The TA project will assist the National Bank of the Kyrgyz Republic (NBKR) to establish the required systems and processes for a fully functional Basel III regulatory framework. While Pillar 1 of the Basel III framework is largely in place, Pillar 2 entails banks to carry out internal capital adequacy assessment and NBKR to put in place a supervisory review process thereof. Among many things, this requires NBKR to have a strong stress-testing and econometric forecasting internal capacity to (i) identify unexpected adverse outcomes across a range of risk factors, including credit, market, liquidity, operational risks and (ii) estimate related capital and liquidity requirements. These forward-looking assessments will also support effective communication to the public and facilitate the development of risk mitigation or contingency plans for stressed conditions.

As such, ADB assistance will support NBKR in setting up the following elements of Pillar II:

Project Details

Project Officer
Giannetto, Giacomo G. Central and West Asia Department Request for information
Country
  • Kyrgyz Republic
Sector
  • Finance
 
Project Name Promoting Financial Sector Resilience
Project Number 53392-001
Country Kyrgyz Republic
Project Status Active
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 9900-KGZ: Promoting Financial Sector Resilience
Technical Assistance Special Fund US$ 225,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Knowledge solutions
Sector / Subsector

Finance / Central banking systems

Gender Equity and Mainstreaming No gender elements
Description

The TA project will assist the National Bank of the Kyrgyz Republic (NBKR) to establish the required systems and processes for a fully functional Basel III regulatory framework. While Pillar 1 of the Basel III framework is largely in place, Pillar 2 entails banks to carry out internal capital adequacy assessment and NBKR to put in place a supervisory review process thereof. Among many things, this requires NBKR to have a strong stress-testing and econometric forecasting internal capacity to (i) identify unexpected adverse outcomes across a range of risk factors, including credit, market, liquidity, operational risks and (ii) estimate related capital and liquidity requirements. These forward-looking assessments will also support effective communication to the public and facilitate the development of risk mitigation or contingency plans for stressed conditions.

As such, ADB assistance will support NBKR in setting up the following elements of Pillar II:

(i) Establishing NBKR capabilities in stress-testing and econometric forecasting as integral elements for forward-looking prudential supervision.

(ii) Enhancing microprudential supervision by using stress-test results in monitoring and estimating impacts on asset quality, liquidity, and solvency of individual banks.

(iii) Establishing macroprudential supervision by using stress-test results in monitoring and estimating macroeconomic impacts on asset quality, liquidity, and solvency of the overall banking system.

(iv) Guiding NBKR's communication with banks' management to perform appropriate capital adequacy assessment to support a more shock resilient banking system.

(v) Improve NBKR's staff skills for effective stress testing and econometric modelling, which is a new area for most of the NBKR staff.

Project Rationale and Linkage to Country/Regional Strategy

The Kyrgyz Republic's banking sector steadily grew by a solid compound annual growth rate (CAGR) of 15% throughout 2013-2018. Over the same period, loan book and customer deposits grew by 19% and 16%, respectively. Quality of the loan portfolio remained satisfactory with non-performing loans at 8% of gross loans. Capital adequacy ratio stood at a solid 24% in 2018, which is twice the prudential ratio of 12%. Liquidity of the banking system was adequate with the liquidity ratio (short term assets to short term liabilities due within 30 days) at 67%, comfortably above the central bank minimum requirement of 45%. The range of the banking services also expands, with the growing popularity of digital financial products (e.g. banking services accessible through mobile phones and instant online loans). Despite the current positive trends of the Kyrgyz Republic banking sector's development, some areas of concern have been noted. The Kyrgyz Republic banking sector remains small with the ratio of assets to gross domestic product (GDP) at a low 39.8% in 2018. With credit to economy at 23% of GDP, the banking sector is shallow. Only 40% of the adults have banking accounts, suggesting weak financial inclusion. Women have lower access to finance with 39% of adult women having banking accounts compared to 41% among male. Due to the lower ownership of assets, women's access to bank credits is lower as they often cannot meet banks' collateral requirements. High dollarization levels in loans (45%) and deposits (65%) make the banking sector prone to market volatility and increased credit risks.

Capacity development of the banking sector regulator, supported under this TA, is required to prevent the risks that increase with the growth of financial sector and build investors' confidence in the Kyrgyz banks. Alignment with Basel III standards will also make the regulatory capital ratios of the Kyrgyz banks internationally comparable for investors and rating agencies. This will in turn facilitate the Kyrgyz banks' access to global capital markets. This TA is also important given increasing sophistication of the banking operations driven by the introduction of new banking services, such as digital financial products. New untested digital financial products present new challenges for the commercial banks and the National Bank of the Kyrgyz Republic (NBKR) in terms of assessing and managing operational and liquidity risks related to these products.

This TA project is aligned with the Kyrgyz Republic`s National Strategy 2018 -2022 "Unity, Trust and Creation", which stipulates strengthening of the NBKR`s capacity as a financial sector regulator.

Impact
Project Outcome
Description of Outcome
Progress Toward Outcome
Implementation Progress
Description of Project Outputs
Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Nation-wide
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services ADB will engage one individual international consultant for 4 person-months and one individual national consultant for 4 person-months to assist the NBKR in adopting econometric and stress-testing models. All consultants will be recruited in line with ADB's Procurement Policy (2017, as amended from time to time) and its associated project administration instructions and/or staff instructions. To reduce administrative burden and improve efficiency and value for money, lump sum payments and output-based contracts will be considered.
Responsible ADB Officer Giannetto, Giacomo G.
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, CWRD
Timetable
Concept Clearance -
Fact Finding 22 Oct 2019 to 22 Oct 2019
MRM -
Approval 12 Dec 2019
Last Review Mission -
Last PDS Update 05 Mar 2020

TA 9900-KGZ

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
12 Dec 2019 - 12 Dec 2019 30 Apr 2021 - -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
225,000.00 0.00 0.00 0.00 0.00 0.00 225,000.00 12 Dec 2019 0.00

Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.

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Evaluation Documents See also: Independent Evaluation

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Related Publications

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Tenders

Tender Title Type Status Posting Date Deadline
NBRK Strengthening of Econometric, Stress-testing and Forecasting Firm - Consulting Closed 27 Jun 2020 31 Jul 2020
Econometric Modelling and Stress-testing (International Expert) Individual - Consulting Closed 06 Mar 2020 19 Mar 2020
National Expert Stress-testing and econometric modelling Individual - Consulting Closed 21 Dec 2019 24 Jan 2020
Econometric Modelling and Stress-testing Individual - Consulting Closed 21 Dec 2019 24 Jan 2020

Contracts Awarded

No contracts awarded for this project were found

Procurement Plan

None currently available.