On 26th July 27, 2007 the fourth Bishkek International Banking Conference in Hyatt Regency Bishkek on “Central Asian financial market in the global economy” was held which united a range of chairmen of the leading world banks, private investors and prominent specialists of the biggest world financial institutions. The purpose of the conference was to discuss the integration of Central Asian banks into world economy along with the regional integration of financial markets of Kyrgyzstan and Kazakhstan.

The future possibility of cooperation of Kyrgyzstan’s financial sector with global financial institutions, strengths and weaknesses of Kyrgyz financial market was discussed during the conference. The conference serves also as a bridge for the discussion of the problems, exchange of experience and opinions and future realization of joint business projects. Most interesting, the proposal of application of Islamic principles into banking and financing in Kyrgyzstan, which was recently discussed by CXW on neweurasia, was also on the agenda of the conference.

According to Marat Alypaev, the chairman of the National Bank of Kyrgyzstan, the share of foreign capital in the banking system of Kyrgyzstan makes up 60 percent and the volume of the foreign capital invested in 2006 into the country’s banking sector is 416 bln soms (Akipress news agency). He notes that the banking system of Kyrgyzstan is actively developing in recent years.

Today there are already five Kazakh banks operating in Kyrgyzstan. The good thing about foreign banks functioning in a country is that it creates a competition mood making local banks provide better services and achieve international standards. It also brings more capital to the country and creates more job opportunities for local population.

The latest developments and changes in Kyrgyz banking system have been attracting my attention for past years and it’s been interesting to observe how foreign banks shape the country’s banking system. Recently I have read a paper by Michael Keren and Gur Ofer on “Globalisation and the Role of Foreign Banks in Economies of Transition”. The authors mainly argue that an early establishment of foreign banks in transition countries is a vital step towards integrating the whole banking system as foreign banks are better equipped to provide essential services than local banks. Being influenced by foreign banks, domestic banks do improve their overall performance. These guys note that transition countries have a socialist heritage which slows down the economic growth and banking system development. So, they offer a solution by letting foreign banks “take the lead in restructuring, in guiding the domestic banking sector and helping the government to create the appropriate legal, regulatory and institutional infrastructure”.

Being a transititon country, Kyrgyzstan does need financial and banking services for short and long-term operations. However, I am not sure how ‘foreign’ is a Kazakh bank, when it comes to apply the argument these authors make in terms of foreign banks being an important tool in restructuring the banking system. I would like to see more western banks opening up in Kyrgyzstan because they as authors believe would have more influence and experience in integrating local banking system.