Obtain a banking licence in Kyrgyzstan

To obtain a banking licence in Kyrgyzstan is aimed at those who want to establish themselves in the Central Asian financial markets, providing their activities with a legal and regulated basis, which implies mandatory compliance with the regulations established by the National Bank of the country and international regulations. The legislation provides for strict criteria for corporate governance, internal monitoring and control policies.

Obtaining a banking licence in Kyrgyzstan obliges an organisation to regularly submit reports to the competent authority, undergo inspections and audits, comply with capitalisation and liquidity standards, which creates a guarantee of protection of depositors' interests. In aggregate, banking licensing in Kyrgyzstan is aimed at creating a transparent, competitive and safe financial environment that promotes investment attraction, development of the national economy and the country's integration into the international banking community.

The banking services industry in the Republic of Kyrgyzstan (RoK) is highly competitive and dynamic. Given the growth of digitalisation and the increasing demand for innovative financial services among the population, attaining a banking licence in Kyrgyzstan is of strategic importance for overseas applicants. My main objective in writing this article is to analyse the lawful, financial factors affecting the attaining of a bank licence in Kyrgyzstan and to explain investment opportunities in the country's banking sector.

Regulation of banking activities in the country

The National Bank of the country (NBRK) acts as the authorised and supreme regulatory body exercising state supervision over the activities of the banking sector participants (including branches and structural subdivisions of oversea banks). The NBK's competence covers the issuance, suspension and cancellation of banking licences, mandatory approval of founders and senior management (including members of the Management Board and Supervisory Board), and comprehensive legal and financial due-diligence of applicants to determine their compliance with regulatory requirements.

Obtaining a banking licence in the Kyrgyz Republic is a process that requires strict compliance with a set of regulations governing the banking sector. The Law ‘On Banks and Banking Activities’ acts as the main legislative act establishing general principles and conditions for obtaining a banking licence in Kyrgyzstan.

The current legislation governing the establishment and operation of banking institutions sets out the requirements that must be met by an entity applying for a bank licence. Such requirements include the organisational forms permitted for the establishment of a banking institution, the minimum amount of authorised capital to ensure the financial stability and reliability of a bank, and restrictions applicable to the composition of shareholders, including requirements as to their business reputation, financial solvency and the absence of circumstances preventing them from participating in banking activities. These regulations are aimed at ensuring the stability of the financial system, protecting the interests of depositors and investors, and preventing risks associated with unfair banking activities.

Establishment and operation of banks in the Kyrgyz Republic

In accordance with the settled legal procedure, an entity applying for a banking licence in Kyrgyzstan may be established only in the form of a joint stock company. At the same time, the measure allows for both open and closed joint-stock companies. This approach ensures not only transparency of the ownership structure, but also proper control by the regulator, as well as compliance with corporate procedures, including the general meeting of shareholders and the activities of the board of directors.

According to the NBRK requirements, the minimum authorised capital for a bank to be established is at least KGS 600 million (EUR 6,065,780 at the current exchange rate). This requirement is aimed at creating a sound basis for their operating activities. Capital formation is allowed solely from the founders' own cash resources. This means that no borrowed funds, including loans or other third-party liabilities, may be used as sources of capital. This condition serves as a guarantee that the founders really bear the economic risk associated with the establishment of the bank and are able to ensure its stable operation at the initial stage. At the same time, the capital must be irrevocable, i.e. the bank may not recognise any obligation to return the invested funds to its shareholders. This rule excludes the possibility of using the authorised capital as a temporary or contingent source of financing.

All potential shareholders are required to have a satisfactory financial position. They are obliged to fulfil tax obligations in full, pay other obligatory payments within the terms established by the measures. An essential aspect of the system of counteracting illegal capital turnover and ensuring transparency of funding sources is the provision excluding the possibility of participation in the authorised capital of banks of persons registered in offshore jurisdictions, as well as persons directly or indirectly affiliated with offshore structures. Offshore area in this context mean jurisdictions recognised as such by the NBK on the basis of criteria established in legal acts, including non-transparency of ownership structure, lack of effective tax control, refusal to exchange financial information with foreign regulators, etc.

How to open a bank in Kyrgyzstan

To establish a bank in the Kyrgyz Republic, it is necessary to undergo a multi-stage procedure strictly regulated by banking, corporate and administrative law. The key stages of establishing a bank in Kyrgyzstan are set out below.

State registration of a lawful entity - a bank

After receiving a favourable opinion from the NBK, the next step is to register the bank in Kyrgyzstan as a legal entity with the Ministry of Justice. Registration is carried out in accordance with the Law ‘On State Registration of Legal Entities, Branches (Representative Offices)’. Along with registration with the Ministry of Justice, the bank is subject to:

• registration with the tax office at the place of location;
• notarization with the National Statistical Committee.

The Law establishes the term for completing the registration - no more than ten days from the date of submission of the full package of documents. The legal status will be obtained from the moment an entry is made in the Unified State Register of Legal Entities.

State registration of share issue and placement report

Since the establishment of the bank must take the lawful form of a joint-stock company - as mandated by regulatory requirements - the initial (founders') issuance of shares is subject to mandatory state registration. This registration is conducted through the State Service for Regulation and Supervision of the Financial Market (Gosfinnadzor), in line with the applicable securities legislation.

As part of the procedure, the founding shareholders are required to submit the following documentation:

• decision on the issue of shares;
• issue prospectus;
• the National Bank's conclusion on compliance of the draft issue with banking regulation requirements;
• other documents stipulated by regulatory acts.

Within 30 days the State Financial Supervision Service is obliged to make a decision on the notarization of shares issue or refusal with indication of reasons. Upon completion of the placement of shares, the joint-stock firm submits a report on the results of the placement, which is also subject to mandatory registration.

Issuance of preliminary authorisation

Another stage of bank licensing in Kyrgyzstan is the initiation of the procedure for obtaining a preliminary permit, which is regulated by the Law ‘On Banks and Banking Activity’. The application is accompanied by a comprehensive package of papers, including:

• draft charter and other constituent documents;
• a business plan justifying the economic feasibility of establishing the bank, including financial calculations, objectives, strategy and the expected range of banking operations;
• information on founders (shareholders), including documents confirming their reliability, financial solvency and business reputation;
• candidatures of members of the executive body (management board) with attachment of documents confirming their qualification and absence of restrictions established by law;
• a scheme of the bank's organisational structure, including information on internal control, monitoring and risk management systems, and compliance policy.

The NBK performs a comprehensive review of the submitted data and makes a decision on granting or justified refusal to grant a preliminary authorisation.

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Obtaining a banking licence in Kyrgyzstan

The final and fundamental stage is obtaining a bank licence in the Kyrgyz Republic. An application for a licence is submitted to the NBRK after the following conditions have been met:

• State notarization of a lawful unit was carried out;
• the issue and placement of shares was registered;
• the authorised capital was formed and fully paid in the amount established by the National Bank's regulations;
• the organisational structure was approved and qualified management personnel were appointed;
• compliance of internal procedures and systems with risk management, internal control, information security, AML/CTF requirements.

The National Bank considers a request for a licence within 6 (six) months after submission of the full set of papers. If there are persons with foreign capital among the founders, the term may be extended. Issuance of a licence is the final act of admission of a legal entity to banking activities and implies inclusion in the Register of licensed banking institutions.

Banking Licence in Kyrgyzstan: Key Person and Asset Requirements

Obtaining a banking licence in the Kyrgyz Republic is a strictly regulated procedure, during which key participants responsible for corporate governance - founders, members of the Board of Directors and senior management - must be approved. Legislation imposes qualification requirements on candidates, including appropriate professional education and experience, impeccable business reputation, confirmation of absence of criminal records and other restrictions preventing them from performing functions in the banking sector.

When going through the licensing procedure for banks in Kyrgyzstan, applicants are required to prepare and submit a set of documents confirming the absence of reputational and lawful risks. This includes official certificates of criminal record, letters of recommendation from previously accredited credit institutions, and declarations reflecting the income structure and property status of key participants. The National Bank of the Kyrgyz Republic conducts an in-depth review of the data provided, including questionnaires and a comprehensive assessment for possible conflicts of interest. An essential point is to check the participation of founders in other financial institutions with a dubious reputation or negative history, which may result in the denial of a licence. This approach is aimed at ensuring a high level of reliability and stability of the country's banking system, preventing the possibility of unscrupulous or unprepared persons entering the sector, which guarantees protection of depositors' interests and stability of the financial market.

The process of obtaining a banking licence in the Kyrgyz Republic involves strict regulation and control over the quality of assets held by the applicant institution, which is a prerequisite for ensuring the financial stability and reliability of the bank. The NBRK examines the composition and characteristics of securities, other financial instruments and assets on the bank's balance sheet in order to prevent speculative and risky transactions that could adversely affect the stability of the organisation and the financial market as a whole.

In accordance with the current legislation, a bank is required to maintain a sufficient level of liquid assets, which include cash on hand, highly liquid securities and deposits with other credit institutions. The key standard is the ratio of liquid assets to liabilities of the bank, which should not fall below the regulator's threshold of 25%.

In order to achieve and maintain the required level of liquidity, the bank applies a set of management schemes, among which are:

• Analysing the maturity of liabilities (timing management) - comparing cash inflow schedules with schedules for the fulfilment of liabilities in order to prevent cash gaps.
• Diversification of funding sources - including attraction of different types of borrowed funds (e.g. commercial loans, bond issue, interbank loans), which reduces dependence on individual sources and minimises liquidity risk;
• Cash reserves and liquidity buffers - creation of special reserve funds to cover possible losses and unforeseen expenses.

According to regulatory prescriptions, an institution planning to obtain a banking licence in Kyrgyzstan is required to develop and implement internal policies aimed at systematic monitoring and analysis of market, credit and operational risks. The key components of the risk management system are:

• A regular stress test to assess the bank's resilience to various unfavourable economic conditions.
• Crisis Response Plan approved by the authorised regulator (NBRK), which includes mechanisms for prompt response to sudden changes in market conditions, such as sharp currency fluctuations or massive loan defaults.
• Monitoring and reporting to ensure transparency and timely reporting of the current liquidity and risk profile to supervisors.

Non-compliance with liquidity and risk management requirements entails administrative and, in some cases, criminal liability of bank officials. The regulator has the right to apply sanctions ranging from prescriptions and fines to revocation of licence in case of systematic violations.

Advantages of obtaining a banking licence in Kyrgyzstan

With the dynamic development of the financial sector in Central Asia and the growing integration of regional markets, the Kyrgyz Republic is a promising jurisdiction for banking activities. Attaining a banking licence in the Kyrgyz Republic can be a profitable strategic decision, given the combination of a progressive legislative framework and regional opportunities. One of the factors stimulating the development of the banking sector in the Republic of Kazakhstan is sustainable economic growth. According to the forecasts of international and national financial organisations, the country's GDP is expected to increase by 4% this year. Such economic dynamics indicates stabilisation of macroeconomic conditions, which provides a favourable environment for the development of banking activities and attraction of investments.

Kyrgyzstan has access to a domestic market of over 7 million consumers, as well as to the growing regional market in Central Asia. The country's strategic location at the crossroads of transport and financial routes of the Eurasian continent favours the expansion of its customer base and integration into global economic processes. This creates prerequisites for scaling up banking products and services.

The country's legislation provides for tax benefits for new financial market participants during the first five years of operations. Obtaining a banking licence in Kyrgyzstan will allow integration into global financial systems through correspondent accounts opened with leading international banks. This ensures efficient cross-border payments, expanding the range of services provided and increasing the confidence of international counterparties. As a result, a full-fledged infrastructure is formed, which allows operating at the level of world financial standards.

Foreign applicants from other CIS countries are focused on obtaining a licence for a bank in Kyrgyzstan, as there is a significant increase in demand for modern banking services in the country. According to statistical data, about 70% of the population actively use mobile payments, and the volume of online transactions increases by about 15% annually. This necessitates the introduction of digital technologies and innovative platforms to meet the needs of customers.

Given the growing demand for Shariah-compliant products, Kyrgyzstan is demonstrating active development of Islamic banking. The introduction of Islamic financial instruments opens up additional opportunities for raising capital and expanding the customer base both within the country and in neighbouring countries with similar preferences. The regulatory framework takes into account the specifics of Islamic banking, ensuring the protection of the rights and interests of all participants.

The RoK offers a combination of flexible regulatory policies, regional linkages and technological capabilities. Legislation provides the necessary level of protection of investors' interests while maintaining the speed and adaptability of regulatory actions. This makes the process of attaining a banking licence in the Kyrgyz Republic promising for international and local investors.

Refusal to issue a bank licence in Kyrgyzstan

When deciding to attain a banking licence in Kyrgyzstan, it is important to take a responsible approach to all stages prior to submitting an application to the NBRK, as the licensing process involves high requirements for applicants and strict control by the regulator. Failure to meet regulatory criteria or document requirements may result in the denial of a banking licence.

In my practice, the most common reasons for refusal to issue a licence to a bank in Kyrgyzstan were:

1. Non-compliance of founders and management personnel with the prescribed regulations. The NBRK requires strict qualification and reputational criteria for founders, board members and managers of banks. The key conditions are absence of criminal record, impeccable business reputation and proven experience in the financial sector. Any unexpunged criminal record, including for economic or corruption offences, is considered grounds for refusal to approve a candidate for a management or supervisory position. In addition, considerable attention is paid to business reputation - establishing involvement in illegal financial transactions, fraud, abuse of office or other unlawful activities is a ground for refusal of licence.
2. Incompleteness of the package of documents or provision of unreliable information. The law requires an applicant to provide a comprehensive and accurate set of documents that confirm the legitimacy and solvency of future banking activities. Such documents include a business plan, documents certifying the origin and sources of capital, information on the ownership structure, information on key officials and other documents established by NBK regulations. Submission of an incomplete set of papers, errors in calculations or planning, or knowingly providing false information, including on the management structure or the origin of capital, are regarded as serious violations. For example, failure to confirm the legitimacy of sources of capital formation may be considered as a potential risk of illegal financial transactions and may be grounds for refusal to issue a licence.
3. Non-compliance with minimum capital and liquidity requirements. Legislation establishes a minimum amount of capital, which must be fully contributed and supported by appropriate documents. The bank is also required to maintain liquidity ratios that ensure its financial stability and ability to fulfil its obligations to customers and creditors in a timely manner. Non-compliance with the established norms indicates financial instability of the applicant and represents a serious risk for the entire banking system. As a consequence, the regulator decides to refuse to issue a licence in order to protect the interests of depositors and maintain the stability of the national financial market.

Conclusion

Establishing a bank in Kyrgyzstan is a labour-intensive and multi-stage process, which involves meeting strict regulatory requirements, securing authorised capital, and complying with international standards in financial monitoring and risk management. Nevertheless, in recent years, the government has made significant efforts to improve the investment regime in the banking sector. In particular, the authorities are reforming the lawful and regulatory framework, optimising procedures for registering financial institutions and simplifying interaction with state authorities. One of the priorities is to reduce the time required to review licence applications and to increase the transparency of the registration process. In addition, fiscal incentives are being introduced. These steps are aimed at expanding the competitive environment in the country's banking system.

Licensing of banking activities in the Kyrgyz Republic provides for strict eligibility criteria. Interested entities applying for a licence undergo a comprehensive due diligence process, including analysis of their financial solvency, business reputation, ownership structure and compliance with regulatory requirements, which together ensure their legal status and the possibility of legitimate access to the financial market of the Republic of Kazakhstan.

Having considerable experience in the field of financial law, I provide comprehensive support in obtaining a banking licence in Kyrgyzstan. Involvement of a specialised expert in the preparation of the application ensures that regulatory and legal risks are mitigated.