Deposit Protection Agency of the Kyrgyz Republic 9 July 2015 Target Value sufficiency of the Deposit Protection Fund and the Guaranteed amount Deposit Protection Agency of the Kyrgyz Republic 9 July 2015

Target Value Sufficiency of the DPF as an instrument for management In accordance with the international standards of the deposit insurance, the key factor for the establishment and development of the DPS and creating public trust is the availability of sufficient funds of insurer for execution of its liabilities on compensation payout In order to secure sufficient funds of DPF for the execution of the guaranteed liabilities , it is important to fix the adequate target value level of the DPF and existence of mechanisms for their management. Such a target value of the DPF should help to execute its liabilities by the Agency.

Target values of the DPF, comparative information If we take the international practice, than in the IADI’s Survey for 2012, there were given 39 positive answers out of 80 agencies for the question asked on the existence of the target value of the DPF, or it gives 49% of them that has target value of the Fund. Target value of the DPF is the ratio of the DPF value to the total sum of the covered deposits by the system. Target values of the DPF fixed by the law in different countries vary from 0,25% of covered deposits in Taiwan (as the lowest) and 15% of guaranteed deposits in the Kyrgyz Republic (as the most highest). It worth saying, that the target value of the Fund in Kazakhstan and Azerbaijan is 5%, in Tajikistan -7%.

How to define the target value of the Fund? By the Law/Directive; By the Board of Directors of the Fund; By analyzing different factors; By quantitative methods.

The factors affecting the target value of the Fund А – Financial System, structure and characteristics B – Macroeconomic conditions C – Legal normative base D – Availability and accessibility of reserve financing E – Prudential regulation, supervision, resolution F – Financing mechanisms in case of systemic crisis G – Accounting and disclosure mode

Grade of affecting factors

The methodology of establishing the target value may be based on: Expert conclusion, adequacy appraisal of funds in the DPF, (so called Monte-Carlo modeling and Markov model, credit risk model and empirical method); Quantitative approach; Political approach(«opinion of politics» for instance: EU); Risk analysis.

Dynamics of the adequacy index of DPF

IMF/WB recommendations, made in the Financial Sector Stability Report (FSAP, 2013) Review the target value of the DPF of 15 percent, which is the highest according to the international standards

Resolution of the Round Table It deems appropriate and responsive to the current situation, the introduction of the flexible mechanism to define the target value sufficiency of the DPF through the Board of Directors of the Deposit Protection Agency of the Kyrgyz Republic.

Principle 9 – Coverage: Policymakers should define clearly in law, prudential regulations or by-laws what an insurable deposit is. The level of coverage should be limited but credible and be capable of being quickly determined. It should cover adequately the large majority of depositors to meet the public policy objectives of the system and be internally consistent with other deposit insurance system design features Coverage limits may need to be reviewed and when necessary adjusted because of factors such as: inflation, the growth of real income, the development of new financial instruments, and the way in which these factors influence the composition and size of deposits.

The guaranteed amount in Kyrgyzstan The compensation sum was KGS 20,000 at the beginning when the Deposit Protection System was established. This amount was reviewed up to KGS 100,000 by introducing changes in the Law “On Protection of Bank deposits” adopted on April 29, 2009. Since than, the compensation amount remained unchanged at a level of KGS 100,000.

Share of fully covered accounts of natural persons (individuals)

Share of the guaranteed deposit amounts against the total volume of deposits of natural persons (individuals)

Reasons to review the guaranteed amount The size of average nominal wage increased from KGS 6161 in 2009 up to KGS 12435 in 2014. At the same time, the level of consumer prices were increasing against the background of a relative devaluation of the national currency. In some years, the inflation was of double-digit (in 2010 – 19,2%; in 2014 – 10,5%). Rate of the national currency in 2009 was 44 KGS/USD, and at the end of 2014, the exchange rate was 59 KGS/USD. GDP per capita in 2009 was KGS 39,2 thousand, and in 2014 – KGS 71,2 thousand.

Comparative information on the guaranteed amount In other countries of Eurasian economic union this figure has been increased for several times and substantially is higher than in Kyrgyzstan. So, in Russian Federation this figure doubled and starting January 2015 it made up 1,4 million roubles. In Kazakhstan this figure also increased and it made up 10 million tenge (about 3,1 mln Soms), but in a foreign currency 5 mln tenge (1,6 mln Soms). The Republic of Belarus has unlimited cover. In Armenia this figure is 4 mln drams (about 500 thousand Soms) in the national currency, and in a foreign currency – 2 mln drams.

Resolution of the Round Table In order to strengthen mechanisms for the protection of the population and stimulate the growth of financial intermediation of the banking sector to agree to the urgency of increasing the size of the guaranteed compensation up to KGS 200 000 for the deposits in the national currency.