Banking - The Times Of Central Asia

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U.S. Sanctions

Kyrgyz Bank Hit by U.S. Treasury Department Sanctions

The U.S. Treasury Department has uncovered a secret channel allegedly used to re-export dual-use goods and imposed sanctions on Kyrgyz commercial bank Keremet for its involvement in circumventing economic restrictions against Russia, according to a statement on the department’s website. U.S. officials allege that since the summer of 2024, Keremet Bank facilitated cross-border transactions for Russian financial institutions, including Promsvyazbank, which has been under U.S. sanctions since early 2022. Promsvyazbank, nationalized by Russian authorities in 2018, was sanctioned for its role in financing Russia's defense sector and supporting major defense contracts. The U.S. Treasury reports that the bank has provided billions of dollars in financial support to Russia’s military-industrial complex. The Treasury Department’s report also claims that the Kyrgyz Ministry of Finance sold a controlling stake in Keremet Bank in 2024 to a firm closely linked to a Russian oligarch with ties to the Kremlin. According to the U.S., the acquisition aimed to create a financial hub to evade sanctions, enabling payments for imports and exports. Further allegations suggest that Moldovan opposition politician Ilan Shor, who is himself under U.S. sanctions, discussed a sanctions evasion scheme involving Keremet Bank with Russian representatives. Keremet Bank has denied these claims, stating that it has already appealed to the U.S. Treasury’s Office of Foreign Assets Control (OFAC) to have the sanctions lifted. “The bank operates in accordance with national legislation and international law, adhering to the principles of transparency and responsibility,” the bank said in its response, published on its official website. Keremet further emphasized that the sanctions will not impact its operations and expressed readiness to undergo an international audit to clarify the situation.

Banking

Kazakhstan Limits Payment Card Validity for Non-residents

The Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (ARDF) has introduced new rules limiting the validity of payment cards issued to non-residents to one year. Exceptions are made for businessmen, investors, and diplomats. The changes are intended to reduce risks associated with drug trafficking and digital asset transactions. The ARDF clarified that the new restrictions do not apply to payment cards already in use. Under the updated regulations, banks are required to closely monitor transactions linked to drug trafficking; transfers to digital asset exchanges not affiliated with the Astana International Financial Centre (AIFC); and payments to electronic or online casinos. Banks must also scrutinize customers holding more than five cards at a single bank or three cards at three different banks. The new measures include stricter verification requirements for beneficial owners (BO): individuals who ultimately benefit from a company or assets, even if these are registered under another name. Financial institutions are now mandated to use all available tools, including official documents and public records, to identify the actual owners of assets. Previously, beneficial ownership was determined based solely on a person holding 25% or more of a company’s authorized capital. These reforms aim to enhance the transparency of financial transactions and prevent illegal activities, including fraud, money laundering, and other financial crimes.

Banking

The National Bank of Kyrgyzstan Seeks Greater Control Over Commercial Banks

The National Bank of the Kyrgyz Republic (NBKR) has proposed a draft law aimed at regulating tariffs and commissions for banking and payment services provided by commercial banks. The proposal has been published for public discussion on the official government portal Koomtalkuu. The NBKR argues that the regulation is necessary to improve the accessibility of banking services for Kyrgyz citizens. While the current system of free pricing for banking services fosters competition, encourages better customer service and allows for economic flexibility, the regulator is concerned that it also creates barriers for certain segments of the population. “Under competition, some financial organizations may use hidden fees or complex tariff structures, which make it difficult for customers to understand the true cost of services. This also complicates the ability to compare offers and select the most favorable option,” the bill’s background brief states. The National Bank told The Times of Central Asia that interest rates on loans from banks and microfinance institutions in Kyrgyzstan can reach 33–34% per annum. Such high rates significantly increase the financial strain on citizens, reducing the availability of credit. “High tariffs also increase financial burdens on businesses, driving up operational costs. This can lead to higher prices for goods and services, dampened business activity, and reduced consumer demand. In turn, this creates additional risks for banks and the economy as a whole,” the NBKR explained. The central bank also expressed concerns about the potential for market abuse by large financial players. It noted that dominant institutions could inflate fees to suppress competition, discouraging innovation and slowing the development of more affordable financial products. The NBKR argues that Kyrgyzstan needs fair, transparent, and economically justified tariffs for banking services to mitigate these issues. The regulator believes such measures would reduce financial strain on consumers and businesses while fostering a more competitive and innovative banking sector. As of October 1, 2024, Kyrgyzstan's financial sector comprised: 21 banks; 194 non-bank financial and credit institutions; 3 credit bureaus; 1 guarantee fund; 41 payment organizations; and 40 payment system operators. This diverse and growing financial ecosystem underscores the importance of effective regulation to ensure broad accessibility and equitable practices in the banking sector.

Cryptocurrency

Kyrgyzstan Aims to Integrate Cryptocurrencies with Licensed Crypto Banks

Kyrgyzstan’s Ministry of Economy and Commerce has submitted a draft law titled "On Amendments to Certain Legislative Acts of the Kyrgyz Republic in the Sphere of Virtual Assets" to the country’s parliament. The proposed legislation aims to establish licensed crypto banks to provide regulated banking services related to digital assets and cryptocurrencies. The Ministry emphasized the urgency of integrating crypto assets into Kyrgyzstan's financial system, citing the rapid growth of digital technologies and cryptocurrencies. In its commentary on the bill, the Ministry stated: “Given the rapid development of digital technologies and cryptocurrencies, the creation of a crypto bank is an urgent necessity for the integration of crypto assets into the traditional financial system of the country. A crypto bank will ensure safe, regulated, and convenient interaction of citizens and businesses with cryptocurrencies.” The Ministry identified several key goals for the proposed crypto bank: To legalize and regulate the cryptocurrency market by establishing clear rules and standards. To increase trust in crypto assets while ensuring the protection of users’ rights. To mitigate risks of fraud and unauthorized access to funds. The Ministry also highlighted the potential economic benefits of introducing a crypto bank. Legalizing cryptocurrency transactions would increase transaction volumes and boost tax revenues. Additionally, the initiative is expected to create new jobs in the fintech sector, positioning Kyrgyzstan as a regional hub for financial innovation. Kyrgyzstan already taxes cryptocurrency mining, with a rate of 10% applied to electricity costs for mining activities. This rate includes VAT and sales tax. From January to November 2024, Kyrgyzstan collected 46.6 million KGS (approximately $537,000) in cryptocurrency mining taxes, nearly half the total collected in 2023, according to the Ministry of Finance. While public interest in cryptocurrencies is growing among individuals and businesses in Kyrgyzstan, the market remains poorly regulated. The Ministry believes that a licensed crypto bank will address these challenges, increasing transparency, trust, and financial security. By adopting this legislation, Kyrgyzstan seeks to modernize its financial system and embrace emerging opportunities in the digital economy.

Banking

Uzbekistan Set to Join the Eurasian Development Bank in 2025

Uzbekistan is set to complete the procedures for joining the Eurasian Development Bank (EDB) by early 2025. The announcement was made during an expanded meeting of the Supreme Eurasian Economic Council (EAEC). Uzbekistan has held observer status in the Eurasian Economic Union (EAEU) since 2020, and is preparing to deepen its engagement in regional economic projects. The country is already participating in several sectoral programs between the EAEU member states. These programs focus on areas such as the digitalization of trade, cargo transportation, e-commerce development, and combating climate change. The Eurasian Development Bank was founded in 2006 by Russia and Kazakhstan. Its current members are Armenia, Belarus, Kyrgyzstan, and Tajikistan. The EDB's primary mission is to promote economic growth and strengthen integration among its member states by financing major investment projects across various sectors. As of June 30, 2024, the EDB's investment portfolio stood at USD 4.8 billion, comprising 78 projects throughout the member states. The Bank prioritizes projects with integration effects, including cross-country infrastructure development, enhanced trade and economic ties, and the creation of common markets. It also supports "green" financing initiatives to promote sustainable development and environmental safety across the region. Experts view Uzbekistan's plans to join the EDB as a strategic move to bolster its economic cooperation with neighboring countries. Membership in the Bank would provide Tashkent with access to new financial opportunities, facilitating the implementation of joint initiatives and strengthening its role in regional economic integration.

Oil

National Bank of Kazakhstan Predicts Higher 2025 Oil Prices Than Bank of America

The National Bank of Kazakhstan (NBK) has revised its forecast for 2025 oil prices, lowering the projected cost from $82.5 to $70 per barrel. Despite this adjustment, the NBK remains more optimistic than Bank of America, which recently reduced its 2025 oil price forecast to $65 per barrel. Bank of America’s Forecast Initially, Bank of America analysts projected Brent oil prices at $80 per barrel for 2025, aligning closely with the NBK's earlier forecast of $82.5. However, last week, Francisco Blanch, head of global commodities and derivatives research at Bank of America, announced a significant revision, citing oversupply and reduced demand driven by the global shift toward cleaner energy sources and transportation. The new forecast sets oil prices at $65 per barrel. NBK’s Adjusted Outlook In its updated Monetary Policy Report, the NBK revised its oil price forecast for 2025 to $70 per barrel, compared to an average of $80.3 in 2024. The adjustment reflects weaker anticipated demand from China and OECD countries, coupled with slower global economic growth. The NBK noted that "the relaxation of production restrictions by OPEC+ countries starting in 2025, alongside increased output from North and South America, will likely create a supply surplus in the oil market." External Influences The U.S. presidential election results could also impact global oil dynamics. President-elect Donald Trump and his administration have pledged to sharply increase domestic oil production beginning in January 2025, aiming to reduce petroleum prices. Additionally, Trump has suggested a potential withdrawal from the Paris Climate Agreement, which could further incentivize support for U.S. oil companies. For Kazakhstan, declining oil prices present significant fiscal challenges. According to the Ministry of Finance, the country collected 655.2 billion KZT ($1.2 billion) in mineral extraction tax (MET) from oil companies during the first 11 months of 2024. Oil export revenues contributed approximately 2 trillion KZT ($3.8 billion), bringing total budget revenues from the oil sector to over 2.3 trillion KZT ($4.4 billion) this year. The potential reduction in oil prices could, therefore, have a substantial impact on Kazakhstan’s economy, particularly on its budgetary revenues derived from the oil industry.