During the analysis and subsequent improvement of bank deposits insurance system of different countries we should take into account the features of insurance in a particular country.
In the Kyrgyz Republic, in accordance with the law of the KR "On protection of bank deposits" the deposit insurance system provides for the mandatory participation of all commercial banks operating in the country. In Kyrgyzstan operates a two-stage system to guarantee bank deposits.
The first stage is the National Bank, which aims to ensure the efficient operation of the banking system as a whole, and individual commercial banks. The second stage - the Agency for the protection of deposits, one of the most important features of which is the reduction, elimination and control of cases where an individual bank as a result of the inefficient functioning is at the stage of bankruptcy or forced liquidation.
The National Bank of the Kyrgyz Republic is determined by the Constitution of the Kyrgyz Republic, the Law of the Kyrgyz Republic "On the National Bank of the Kyrgyz Republic" dated July 29, 1997. The legal status of the National Bank and its relationships with credit institutions determined on the basis of the fact that, on the one hand, the National Bank has broad authority for the management of the monetary system (including the banking sector) of Kyrgyzstan, and with another - it is a legal entity that enters into a corresponding civil-law relations with banks and other credit institutions. The National Bank supervises the activities of credit institutions, shall take the necessary measures to protect the interests of depositors. In addition, the National Bank plays an important role in the organization and functioning of the process of deposit insurance, as it has a control and regulatory authority. The main document governing the protection of bank deposits is the law of the Kyrgyz Republic №78 «On protection of bank deposits" dated May 7, 2008.
The constitutional foundations of banking law have the following functions:
1) program the banking activities, spreading it on the legal regime of entrepreneurship and establishing the freedom of movement of capital and financial services;
2) establish the minimum guarantees of the rights and interests of participants of banking relationships, which may not be restricted to a special bank rules;
3) create the basis for a single banking legal regulation establishing that a legal framework of the single market, financial, currency, credit regulation, and money issue are the responsibility of the Kyrgyz Republic.
One of the functional tasks of the National Bank is to ensure the safety and soundness of the banking and payment system of the country through the regulation and supervision of banks and financial institutions. In the near future it is planned inclusion in the system of protection of deposits of micro-credit organizations, while at present the system includes only commercial banks. In the National Bank there is a clear structure for tracking the quality work of the banking sector, consisting of several departments with separate tasks and goals.
Figure2. Structure of the National Bank for tracking the quality work of the banking sector
The first department is the department of management of external oversight, whose main tasks are:
- providing high quality evaluation and control of commercial banks and nonbank financial-credit institutions in accordance with the legislation of the Kyrgyz Republic and regulatory legal acts of the National Bank;
- quality assurance solutions according to the measures of exposure in accordance with the legislation of the Kyrgyz Republic and regulatory legal acts of the National Bank in the framework of its competence, and materials to be submitted to management;
- development and implementation of measures for the development of the banking sector and system of nonbank financial-credit institutions based on the analysis and evaluation of their activities.
The organizational management structure includes the following departments:
- The department of external supervision of banks;
- The department of consolidated reporting and analysis.
The next department is the department of inspection. Its tasks included:
- the development and improvement of regulatory requirements, methodologies, regulation and supervision of activities of commercial banks and nonbank financial-credit institutions;
- development and implementation of methodologies and regulatory legal acts in promising areas for the development and implementation of new financial products of banks and nonbank financial-credit institutions;
- examination of documents of banks and nonbank financial-credit institutions to issue licenses and other documents, and review and evaluation of documents on their activities in reorganization and restructuring activities of the management and owners (shareholders, founders).
Organizational structure of department of inspection presented by the following departments:
- the department of inspection of banks;
- the department of inspection of nonbank financial-credit institutions;
- department of examination of individual transactions, including analytical group.
The third division of the National Bank supervising the banking system is the management of methodology of supervision and licensing. This department is organized as follows:
- department of methodology of supervision;
- department of methodology of financial products;
- department of licensing, including the licensing group of nonbank financial-credit institutions.
Considering all the above, it can be concluded that in general the National Bank of the Kyrgyz Republic has a high-quality, properly structured framework for the regulation of the banking sector and analysis of the situation on the market, and in addition to that tools for the timely impact on the banking sector and the activities of individual commercial banks.
The next step will analyze the work of the Agency for protection of deposits.
In the register of banks are registered commercial banks operating on the territory of our republic, which have licenses of the National Bank to perform banking operations.
Bank-the participant of system of protection of deposits must comply with all mandatory standards and requirements established by the legislation of the Kyrgyz Republic and regulatory legal acts of the National Bank, thus:11
- have a satisfactory financial condition, provide information on activities of previous years and the bank's development strategy for the future;
- have adequate capital and other capital requirements for the bank;
- reserves to cover potential losses should be adequate to the quality of assets;
- the leadership should be able to provide safe and efficient operation of the bank in accordance with the laws of the Kyrgyz Republic, as well as meet the established qualification requirements;
- have the required level of income;
- maintain the necessary level of liquidity;
- have an adequate system of internal control and internal audit service;
- accounting and reporting must conform to established standards of accounting and financial reporting.
The newly-established banks must apply to the National Bank to participate in the deposit protection system along with the submission of documents for obtaining of banking license. The newly-established banks automatically transferred to the system of deposit protection in compliance with the laws of the Kyrgyz Republic "About National Bank of the Kyrgyz Republic" On banks and banking activity in the Kyrgyz Republic" and established by the National Bank requirements for obtaining a license to conduct banking activities. After obtaining a license from the National Bank to conduct banking activities and transferring the entry fee to the Deposit protection Fund, the National Bank sends the Agency a notice confirming the issuance of the banking license with the application copies of the statements of the bank for participation in the system of deposit protection. Notification of the National Bank is the basis for making bank in the register of banks participating in the deposit protection system. The bank becomes the participant of system of protection of deposits with the date of its registration by the Agency in the prescribed manner. Thus, the deposits of depositors of the new Bank be under a state guarantee in accordance with the Law of the Kyrgyz Republic "On protection of Bank deposits (deposits)".
The system of deposit protection is provided through the payment of compensation to depositors in the event of a guarantee claim. The amount of compensation payments in the Kyrgyz Republic, determined at the rate to 100 thousand soms for each depositor of the Bank (previously the amount was 20 thousand soms).
The financial basis of the system of protection of deposits is the Deposit protection Fund intended for the payment of compensation upon the occurrence of a guaranteed event. The sufficiency Fund ensures financial stability and supports the strengthening of social consciousness in the reliability of the system of Deposit protection. The target size of adequacy of the Deposit protection Fund of the CD is 15-percentage of guaranteed deposits of the banking system.
For the effective management of the Deposit protection Fund, the Agency invested temporarily free funds in securities, following the principles of recoverability, profitability and liquidity of purchased financial instruments.
Compensation upon the occurrence of the guarantee case are made out of funds of the Deposit protection Fund, formed by contributions. The contributions of banks to the Fund are calculated at the rate of 0.2% per annum of the total deposit base of banks.
The main purpose of the system of deposit protection is to protect the most financially vulnerable investors. By international standards, it should cover at least 80-85 per cent of bank depositors ' accounts and about 30 percent or more of total deposits. The value of the first indicator of the deposit insurance system in Kyrgyzstan is consistent with international practice. Second indicator there is a slight decrease in 2013 from 15 to 13.6%, or the deficit of the sufficiency of the Deposit protection Fund in the amount of 388,2 million soms.
The main sources of financing of the Deposit protection Fund after the formation of the initial Fund in the amount of the target values are calendar assessments of member banks, and the net income of the Agency from managing assets of the Fund (excess of income over expenditure).
Unstable internal situation caused by economic or political factors, affects the degree of yield and liquidity of the Fund's assets. Inflation in the country is able to dramatically reduce the cost of the assets of the Deposit protection Fund. Given the high level of inflation, you need to remember about the high risk of preserving the devaluation of the currency against the world currencies, particularly the U.S. dollar, while contributions paid by banks in national currency from almost half of total banking system deposits taken in foreign currency.
For a modern bank requires not only an internal analysis of its financial activities, but also compare its performance with performance of other banks. In Kyrgyzstan at the moment, there is a veiling, silence and lack of analytical information on the activities of all commercial banks.
In conclusion, we can say that the system of deposit insurance in the Kyrgyz Republic, as in any other country, has its own specific features that need to be considered in the process of adoption and implementation of measures to improve and enhance the effectiveness of the system of deposit protection.