This report was based on the IMF-WorldBank Financial Sector Assessment Program (FSAP).Itexamines the different aspects of the Kyrgyz financialsector including the banking system, public external debt,creditors, corporate governance, the payments system, nonbank financial institutions, and the capital markets.TheKyrgyz financial system is dominated by commercial banks andto a lesser degree by non-bank financial intermediaries thatare mostly donor funded. The banking system is small whilecapital markets, insurance, and pension sectors are allextremely small, if not embryonic, and not systemicallysignificant.In recent years, some progress has been madein terms of consolidation and rationalization of the sectorand improvement of financial infrastructure, especially inbanking supervision and resolution. Weaknesses remain incorporate governance and the legal and regulatory framework,as well as in the judiciary. The system also suffers from asevere lack of public confidence in commercial banks andweak demand for current accounts due to a narrow range ofpayments services. Vulnerabilities do not represent ashort-term threat to macroeconomic stability, especially ifcompared with the high level of the country's publicdebt, most externally held and denominated in foreigncurrency, thus exposing Kyrgyz Republic to foreign exchangerisk.The FSAP mission prepared a number policyrecommendations, which have been incorporated in thegovernment's and the National Bank of the KyrgyzRepublic's financial sector strategy section of theNational Poverty Reduction Strategy now underimplementation.
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