This summer, the National Bank of the Kyrgyz Republic changed its chairman - Melis Turgunbaev was appointed to the post. Today he told us about the situation in the foreign exchange market, slowdown in inflation, introduction of the digital som and shared his vision on many other topical issues of the banking sector.

— Melis Zhusupzhanovich, 1.5 months have passed since your appointment as Chairman of the National Bank. How do you assess the state of affairs in the regulator?

— The main goal of the National Bank is to achieve and maintain price stability through appropriate monetary policy. Thanks to the measures taken in recent years, annual inflation continues to decline. At the end of 2022, its rate was 14.7%, and by the end of 2023 it slowed down to 7.3%. Now it is 4.1%.

The volume of international reserves broke another historical record, reaching $3 billion 934.3 million. The Kyrgyz som remains one of the most stable national currencies in the region.

One of our priorities is to keep inflation within the medium-term target of 5-7%, which will be a good support for sustainable economic development.

— What is your vision of the National Bank's policy on curbing volatility in the foreign exchange market? Do you plan to continue the strict intervention policy?

— Kyrgyzstan has a floating exchange rate regime based on supply and demand for foreign currency. A certain volatility in this market is quite normal.

The instruments of the National Bank are aimed at smoothing sharp fluctuations of the exchange rate and are adjusted in accordance with certain circumstances in the domestic and foreign financial markets.

From January 1 to August 13, 2024, the National Bank conducted five interventions on the sale of foreign currency in the amount of $149.95 million and 12 - on the purchase of $347.35 million. The situation in the domestic foreign exchange market is relatively stable. The National Bank monitors on a daily basis and if necessary will take measures in accordance with our monetary policy.

— How do you assess the sustainability of the banking sector of the Kyrgyz Republic in the current economic and geopolitical environment? What main risks and challenges do you see and what do you intend to do to protect the sector?

— The banking sector demonstrates stability and growth of key indicators. The resource base of commercial banks is expanding and citizens are more actively investing their savings. The stability and continuous development of the banking system certainly have a positive impact on the overall economic situation in the Kyrgyz Republic.

Since the beginning of 2024, total assets of the banking sector have grown by 18.4% and reached 727.3 billion KGS. This allows improving financing for the development of large companies, small and medium—sized businesses. The volume of credit portfolio of banking sector clients amounted to 281.1 billion KGS, increasing by 9%.

The population trusts banks more and more. This is evidenced by the volume of deposit base, which now amounts to 522.1 billion KGS. Compared to the indicators of the end of 2023, it has increased by 21%.

I would like to note that the National Bank regularly conducts supervisory activities in respect of commercial banks. When violations are detected, measures are taken to maintain the stability and sustainability of the system.

Taking into account the geopolitical situation, the National Bank is working to minimize the negative impact of sanctions on the banking system of the Kyrgyz Republic and to prevent the termination of correspondent relations.

We constantly assess the impact of sanctions imposed by the US, the EU and other countries on the CD and, if necessary, also take measures. Regular meetings are held with commercial banks on compliance with international sanctions. They are given necessary recommendations and instructions, as well as information on changes in the sanctions regime.

— What plans and initiatives do you plan to implement in the near future? What should the financial sector expect from the new head of the National Bank?

— We will continue to work on maintaining and ensuring stable growth of the financial sector of the Kyrgyz Republic. We will continue to pay special attention to the issues of strict observance of the rights of consumers of financial services - our citizens.

An important direction remains the development of payment systems, increasing the share of non-cash payments, including through the use of digital technologies. Implementation of the state program to increase the share of non-cash payments and settlements for 2023-2027 will continue.

Earlier the National Bank has initiated the introduction of payments with the use of a single standard QR codes. We will improve this system taking into account the identified shortcomings and will continue to expand the coverage of QR codes of trade and service outlets in the regions.

The National Bank is also initiating the establishment of a fast payment system. This will contribute to further improvement of the payment infrastructure in the country and economic development.

An equally large-scale project is the introduction of the digital som. Draft laws on its legal status were submitted for public discussion on August 8. As of today, there are five potential suppliers that meet the technical requirements of the prototype for testing the digital som.

Another priority area is the development of green economy. The National Bank is actively involved in the program of green economy development for 2024—2028 and the Green Taxonomy of the Kyrgyz Republic being developed by the relevant ministry. In particular, we have developed recommendations on the application of sustainable finance principles.

In the coming year, the National Bank plans to integrate ESG standards into regulatory legal acts for the banking sector. These are the principles of activities based on environmental protection, creation of favorable social conditions, fair treatment of employees and customers, as well as good corporate governance.

The National Bank will continue to improve banking regulation in accordance with international standards and changes in the legislation of the Kyrgyz Republic. We will pay special attention to the development of Islamic principles of financing and digitalization.