by the Resolution
of the Board of the National Bank
of the Kyrgyz Republic
No. 21/19 dated May 31, 2017
Strategic Directions for Activities
of the National Bank of the Kyrgyz Republic
The National Bank of the Kyrgyz Republic (hereinafter referred to as the National Bank), as the central bank of the country, acts in the interests of the whole society. The mission of the National Bank is to achieve and maintain price stability through implementation of the appropriate monetary policy. This mission is fulfilled through carrying out an effective monetary policy, ensuring the stability of the banking and payment systems in the country, subject to the following basic principles: ensuring the independence of the National Bank as a necessary condition for the effective operation of the central bank in the country; adherence to the principle of transparency as a form of responsibility and accountability to the society to achieve the goals and objectives; maintaining the professionalism and competence of the National Bank employees, which is a key factor in strengthening the reputation and maintaining confidence from the public of the Kyrgyz Republic and from the international community.
Ensuring overall price stability, progressively increasing level of financial intermediation, promoting the development of innovative technologies and tools in the financial sector and in the payment systems segment focused on economic agents, as well as enhancing financial literacy will create conditions for the long-term economic growth of the Kyrgyz Republic.
Vision of the National Bank of the Kyrgyz Republic for 2018-2021.
In the sphere of monetary policy
- adoption of the inflation targeting mode.
In the sphere of financial sector development
- providing the assets share in the banking and non-banking sectors to 60% of GDP;
- completing the process of risk-oriented supervision introduction;
- achieving the share of financing of the financial-credit organizations operating on the principles of Islamic finance up to 5% of the total credit portfolio in the financial sector;
- improving the financial literacy of the population in the Kyrgyz Republic.
In the sphere of payment systems
- striving to achieve optimal cash and non-cash money turnover in 50/50 ratio.
In the sphere of cash turnover
- ensuring continuity, reliability and security of cash circulation;
- formation of the market of bank instruments and investments for economic agents.
In the sphere of the National Bank activity maintenance
- ensuring the continuous process of the National Bank’s activities, which is focused on fulfilling its mission, by improving internal processes, as well as maintaining reputation and confidence.
The objective of the National Bank’s activities to achieve and maintain price stability in the country established by the Law “On the National Bank of the Kyrgyz Republic, banks and banking activity” predetermines the main activities of the bank.
The main objective of the monetary policy is to ensure price stability in the framework of the inflation target of 5-7 percent. Effective monetary policy predetermines macroeconomic stability and long-term sustainable growth by ensuring the optimal level of money supply in the economy.
The efforts of the National Bank will be focused on improving the monetary policy transmission mechanism as a required condition for adoption of the inflation targeting mode. The National Bank will continue improving the efficiency and flexibility of the monetary policy instruments.
The monetary policy development will be long term oriented due to the time gaps in its impact on the key macroeconomic indicators.
Monetary policy will be built further on the principles of a floating exchange rate policy, which has proved its substantiality in shock periods.
International reserves management will be implemented in accordance with the basic principles of supporting liquidity and ensuring the reserve assets safety.
Work will be continued to improve the quality of the analytical framework and the decision-making process on the monetary policy through deepening the model apparatus, introducing into practice the results of economic research, taking into account the specific features of the economy in the country.
FINANCIAL SECTOR DEVELOPMENT
The supervisory function fulfilled by the National Bank will be focused on achievement of the objectives stipulated by the Law of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, banks and banking activities”, namely, ensuring the efficiency, safety and reliability of the banking system of the republic to promote long-term economic growth. Increasing the public confidence in the financial and credit system of the republic to contribute to the domestic resources mobilization is among the main directions.
The measures being envisaged in the Guidelines for the Banking Sector Development in 2018–2023 and the Guidelines for the Microfinance Sector Development in 2018–2022 will be implemented in coordination with the Government of the Kyrgyz Republic and other participants of the financial and credit system in the country.
Favorable conditions will be created for attracting domestic resources of the economic agents, expanding the range of provided services, and developing agency banking to ensure sustainable and qualitative growth of the banking and non-banking financial organizations. The activities of the National Bank as a body responsible for development and stability of the financial and credit system in the country will be focused on stimulating the development of the sector by introducing best international practice.
Work on further development of the deposit protection system will be carried out in cooperation with the Deposit Protection Agency of the Kyrgyz Republic to increase public confidence in the banking system.
Meanwhile, the new Law of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, banks and banking activity” will contribute to:
- increasing the effectiveness of the National Bank as a body of banking supervision and regulation;
- ensuring the stability and security of the banking system as the main condition for maintaining public confidence and stimulating economic growth.
The main priorities for the period up to 2021 will be as follows:
1. Increasing the level of financial intermediation and achieving forecasted indicators of the banking system and non-banking financial sector.
Increasing the level of financial intermediation provides for an increase in the share of assets of the financial-credit organizations to GDP, which will result in economic development in the country. By 2021, the expected “assets to GDP” indicator should reach 55% in the banking sector. Meanwhile, the dynamics is forecasted as follows: 2018 - 40%, 2019 - 44%, 2020 - 49%, 2021 - 55%. These values were forecasted based the analysis of the assets growth dynamics to GDP, as well as taking into account foreign policy changes: joining the EAEU and the adopted economic development direction in the country.
By 2021, the expected indicator “assets to GDP” should be 5% in the sector of the non-banking financial-credit organizations.
Taking into account the planned indicators for the banking system and non-banking financial-credit organizations, generally, the expected indicator “assets to GDP” for all FCOs should reach 60% by 2021.
The National Bank will provide creation and improvement of the system for forecasting and early warning of financial crises to achieve and maintain the financial system stability and improve the quality of the supervisory function. Moreover, an anti-crisis program will be developed in conjunction with the involved ministries and agencies. Information on risks/real threats and strengths/weaknesses of the financial system in the country, as well as macroeconomic costs will be taken into account when implementing risk-oriented supervision (ROS), financial regulation and development of the financial sector.
2. Supervision of the commercial banks and the non-banking financial-credit organizations by the National Bank based on the ROS principles.
ROS is supervision focused on measures taken in accordance with the risks inherent to the bank. The ROS is implemented based on identifying and assessing the inherent risks, as well as evaluating the risk management quality contributing to supervision focus on the most risky areas of the bank’s activities and make the most the National Bank’s resources.
3. Increasing the share of financial services provided on the principles of Islamic finance.
By 2021, the share of non-banking financial-credit organizations operating on the principles of Islamic finance will be 5% of the total credit portfolio in the financial sector.
The National Bank plans to continue work on improving existing and developing new regulatory legal acts within the framework of improving regulation and supervision of the banks and non-banking financial-credit organizations operating in accordance with the principles of Islamic banking and finance licensed and regulated by the National Bank.
4. Improving financial literacy of the population in the Kyrgyz Republic.
The National Bank of the Kyrgyz Republic places great value on the protection of the rights and legitimate interests of the banking services consumers. Taking into account the fact that the population of the republic has insufficient financial literacy and does not have information about their rights as the consumers of the financial and banking services, the financial literacy issues are becoming more important in the development of the banking and financial sectors. The National Bank continues applying efforts to improve the statutory regulations aimed at protecting the rights of consumers of the financial and banking services and improving the quality of provided services, as well as taking measures to improve the financial literacy of the population.
5. As part of improving the regulatory legal framework, the National Bank will take measures to introduce new effective methods used in the international best practice in the field of banking supervision, as well as to improve existing mechanisms for regulating the activities of the financial-credit organizations. The regulatory legal framework will also be improved to create conditions for the opening and development of apex institutions in the field of microfinance. As part of the laws harmonization in the EAEU member-states, work will be continued in conjunction with the authorized representatives of the EAEU member-states on harmonization of the legislation on the financial markets.
6. Development of mechanisms for the operations with the impersonal metal accounts implemented by the commercial banks is planned. The impersonal metal accounts are among the reliable investment tools to mobilize domestic resources of the population in the banking system.
Moreover, the National Bank will continue forwarding resources to improve the reporting system of the financial-credit organizations, as well as to modernize automated systems for receiving and processing these reports.
The National Bank will continue working to improve the mechanisms of interaction with the financial-credit organizations and their regulation in the field of information security, which will ensure the necessary level of security of the banking system and counter modern challenges and cyber threats.
Measures taken by the National Bank will be focused on cooperating with the authorized bodies and improving the regulatory legal framework taking into account the new FATF recommendations to further improve the system of countering the financing of terrorism (extremism) and legalizing (“laundering”) criminal proceeds (hereinafter - AML/CFT).
Ensuring the efficiency, safety, and reliability of the payment system of the National Bank is among the tasks defined by the Law of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, banks and banking activity”. To accomplish this task, efforts will be focused on maintaining payment systems operation at a high technological level through introducing new information and telecommunication technologies, ensuring safe and efficient payments between various economic entities of the Kyrgyz Republic.
Increasing the share of non-cash payments and settlements and ensuring the security of the payment system, as well as improving the regulatory and interaction mechanisms in the field of information security for the financial-credit and payment organizations are the priorities of the National Bank for 2018-2021. To implement these areas, the National Bank will:
- strive for an optimal ratio of cash and non-cash turnover;
- develop the national payment system, carry out activities for its integration with the payment systems of other countries;
- monitor and promote the creation of favorable conditions for the introduction of innovative banking services;
- improve the legal framework in the field of the payment system and information security for financial-credit and payment organizations;
- create a center for monitoring information security and responding to incidents and cyber threats in the payment system of the Kyrgyz Republic.
Expected results of the payment system development:
- the cash and non-cash turnover ratio - 50/50;
- an increase in the number of trade and service enterprises, providing the opportunity to pay for the goods/services in a non-cash form;
- provision of the payment infrastructure with information protection against cyber threats.
The National Bank will continue working on preventing the emergence and spread of counterfeit banknotes in the country to ensure the continuity, reliability and security of cash turnover in the Kyrgyz Republic. Thus, work will be carried in the medium term on a comprehensive study of new developments in the field of high security printing, fundamental approaches to the design, security features and technical characteristics of the national currency banknotes.
A project will be developed to build a cash center in accordance with the modern standards to ensure safe and secure storage of cash and other values of the National Bank. The cash turnover processes are planned to be optimized and automated as part of the introduction of the new cash center of the National Bank. Consolidation of all processes for receiving, processing and issuing cash as per the new technological processes in a single cash center will speed up and improve the process of issuing and receiving cash from the commercial banks, accepting cash from the banknotes manufacturers, and safe processing of cash.
The new cash center will meet the needs of the Kyrgyz Republic for the storage of cash and other valuables for the next 30-40 years.
The National Bank will work on increasing the volume of output of small bars made from domestic gold to expand savings and investment instruments.
PROVISION OF THE NATIONAL BANK ACTIVITIES
To provide for the activities of the National Bank, work will be carried out in the following areas:
1. Improving the regulatory legal framework to effectively implement the goal of the activities and the main objectives of the National Bank in accordance with the Law of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, banks and banking activity”, as well as implementing the Strategic Directions for Activities of the National Bank of the Kyrgyz Republic for 2018-2021.
2. Strengthening and developing human resources to meet the needs of the National Bank in the workforce of the required quality and in the optimal quantity. Improving the qualifications and skills of the employees and attracting qualified specialists in the priority and strategic areas of the National Bank.
3. Improving the risk management system to minimize the risks through improving the timeliness of responding to the external and internal factors that may result in non-fulfillment or improper fulfillment of the goals, objectives and functions of the National Bank defined by the Law of the Kyrgyz Republic “On the National Bank of the Kyrgyz Republic, banks and banking activity.”
4. Ensuring the safe operation of the National Bank: improving the information security system of the National Bank, including the corporate system of information security management, as well as the means and methods to ensure the technical security of the National Bank facilities in accordance with the best international practices and standards.
5. Interaction of the National Bank with the international organizations, foreign central (national) banks and integration organizations to strengthen and develop existing cooperative relations within the framework of facilitating the effective implementation of the National Bank main goals and objectives.
6. Ensuring the continuous process of the National Bank’s activities to fulfill its mission by modernizing internal processes, as well as maintaining reputation and confidence from the public of the Kyrgyz Republic and from the international community through an active communication policy.
7. Introduction and use of modern information technologies to improve the availability and reliability of IT services.
8. Development of the system of guaranteed uninterrupted power supply to the National Bank, which meets international security standards, to ensure the stable operation of payment and information systems, security systems, trading platforms and IT equipment.
9. Improving the efficiency of management and optimization of business processes in order to accurately and transparently reflect the operations of the National Bank in the financial statements.
10. Development of infrastructure to hold the regional and international seminars and conferences.
11. Modernization and maintenance of the required level for the engineering and technical equipment of the National Bank physical infrastructure.