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Unique profits in the banking sector

Fat Cat

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2022 brought our banks a unique amount of profit in the history of independent Kyrgyzstan.

The geopolitical upheaval that has been unfolding in Europe since February of last year has inevitably impacted the financial markets of countries within the Eurasian region. The massive exodus of people and capital from Russia has left an indelible mark on our nation’s banking system. Tens of thousands of Russians attempted to protect their savings from the rapidly descending iron curtain that enveloped the Russian banking system, both from the West and internally. Thousands of Russian businesses – ranging from small distribution franchises to large industrial companies – sought ways to safeguard their capital and maintain international trade by transferring their financial activities to more stable jurisdictions.

As a consequence, our banking sector has witnessed an unprecedented influx of foreign capital, encompassing both private and corporate sources. This trend continues today.

In light of the immense human tragedy unfolding in Ukraine, it would be inexcusably cynical to describe 2022 as a «good» year for Kyrgyz banks. However, the plain facts reveal that the country’s banks achieved record profits last year, with the majority of earnings derived not from traditional customer lending, but from foreign exchange and payment service fees.

We present the following remarkable statistics based on the officially published financial statements of banks for the period ending December 31, 2022.

The table «Profit Growth of Kyrgyz Banks for 2022» displays pre-tax profit data for our banks, comparing figures from the end of 2021. Even a cursory glance reveals the extraordinary growth in indicators for nearly all banks. Some banks experienced profit increases of 10, 20, and even almost 70 times compared to 2021 (as shown in the last column of the table).

Top 5 banks by absolute amount of profit:

1. Aiyl Bank (5.1 billion)
2. Buckeye Bank (4.7 billion)
3. MBank (3.1 billion)
4. Demir Bank (2.5 billion)
5. Optima Bank (2 billion)

We have also included our own analytical indicator in the table – the percentage of authorized capital represented by profit in 2022 for our banks. Globally, banks» success is measured in relation to their capital (authorized or total) or assets. The percentage of profit a bank generates relative to the size of its capital reflects the effectiveness of the bank’s management. According to 2022 results, this indicator for almost all Kyrgyz banks reached tens of percent.

Top-5 banks by profitability on authorized capital:

1. Optima Bank (197%)
2. Buckeye Bank (171%)
3. MBank (143%)
4. Companion (133%)
5. Demir Bank (125%)

Analyzing the bank statements, it was intriguing to examine the constituent components of income and profit. In classical banking, the primary source of income and profit is interest income – essentially, income from lending, which is the core of banking business. Roughly speaking, net interest income (refer to the table) is the interest received minus interest paid, as well as provisions for bad debts.

Besides interest income, an average bank can earn in various other ways: through transactions with securities, commissions for banking services and transactions, dealings with derivative financial instruments, and foreign currencies.

Examining the second table we compiled – «Sources of Income for Kyrgyz Banks in 2022» – it becomes apparent that our banks obtained a disproportionately large portion of their income from foreign exchange transactions last year. These transactions include both cash and non-cash exchanges with individuals (on current accounts and multi-currency debit cards) and exchange rate markups for legal entities. According to our information, Kyrgyz banks» commissions for converting non-cash rubles into dollars for legal entities amounted to 2.5–3% of the sum, with actual costs of 0.3–0.7%.

Bakai Bank emerged as the absolute leader in terms of income and profit from foreign exchange operations: its income from such operations soared from 318 million in 2021 to a staggering 3.2 billion soms (!) in 2022.

Top 5 banks by income from currency transactions:

1. Bakai Bank (5.1 billion)
2. Aiyl Bank (4.6 billion)
3. MBank (4.3 billion)
4. Optima Bank (2.3 billion)
5. Demir Bank (1.8 billion)

In 2022, the banking sector contributed significantly to the tax revenues of the Kyrgyz Republic’s state budget. The combined pre-tax profits of all banks (excluding the externally managed Amanbank, which had disabled its reporting website at the time of writing) amounted to approximately 26.5 billion soms ($312 million at current exchange rates).



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