2.3. The influence of deposits insurance system to the deposit market and the behavior of the population in the Kyrgyz Republic
At the end of last year saw the growth of the main indicators of the banking sector, namely, assets, loan portfolio and resource base. The banking sector has a high level of capital adequacy, which indicates the presence of a certain potential to further enhance the level of financial intermediation, the efficiency of the banking sector and ensuring a "safety cushion" in the future. Systemic risks in the banking sector are assessed as moderate. The banking sector is still poorly integrated in international financial markets.
As at 31 December 2015 on the territory of the Kyrgyz Republic acted 24 commercial banks, 16– with foreign participation in equity. The share of foreign capital at the end of 2015 accounted for 42.8% of the capital of banks.
During the reporting period, the total assets of the banking sector increased by 29.4% and amounted to 178 billion soms. The main share of banks ' assets – 52.8% were loans.
The loan portfolio grew by 19.3%12 and reached 94 billion soms. The number of borrowers of banks amounted to 319 742 persons, an increase compared to the 2014 year at 40.9%. The level of dollarization of the loan portfolio amounted to 55.1%. Excluding exchange rate changes increase banks ' loan portfolio amounted to 4.6 %. The increase in the loan portfolio was secured by the growth of credits in national currency by 26.5% to 42.2 billion soms and in foreign currency – 14% to 51.7 billion soms.
Graph2. The volume of banks’ credits (at the end of the period)
The volume of newly issued credits by commercial banks compared to 2014 decreased by 1.4% and amounted to 78.4 billion soms.
At the end of last year the volume of liabilities of commercial banks increased by 30.1% to 151.9 billion soms. The share of deposit base13 in the total liabilities amounted to 66%. During the reporting period, the increase in deposit base of the banking sector amounted to 28.6%.
Graph3. Dynamics of liabilities and deposit base
Table5. Structure of commercial banks’ liabilities
The structure of the deposit base virtually unchanged. So, as of the end of 2015 on current account and demand deposits accounted for 50.9%, term deposits – 38.2%. Overall, the volume of deposits of commercial banks14 amounted to 100.2 billion soms. The level of "dollarization" of the deposit base amounted to 65.6%. The share of deposits of legal entities in the structure of the deposit base remained significant - 48%. In the currency structure of deposits, both individuals and legal entities has been a marked increase of deposits in foreign currency, at 51.7% and 37%, respectively. The share of funds on current accounts was reduced to 31.6% and the share of demand deposits to 24.4%, while the share of term deposits decreased to 44%.
Graph4. Volume of deposit base
The volume of newly accepted deposits15 by banks for 2015 amounted to 400.2 billion soms, having increased by 1.9% compared to the same period in 2014. The deposits in national currency increased to 190.1 billion soms and in foreign currency decreased to 210.1 billion soms. Thus the basic inflow of deposits was due to the receipt of funds on time deposits in foreign currency
Graph5. Dynamics of interest rates on term deposits
Now consider how the introduction of deposit insurance affected the market of deposits and the behavior of the population in our country.
In 2007, total deposits amounted to 23442,7 million soms, after the introduction of deposit protection at the end of 2008 this figure increased to 29558,5 million soms, and a year after the functioning of the deposit insurance system could see a significant increase – up to 39604,4 million soms. For the whole of the considered period – from 2007 to 2015, total deposits increased from 23442,7 to 102877,7 million som respectively. In addition, we can identify positive growth not only of deposits in foreign currency but in local currency.
Graph6. The total volume of deposits
After the introduction of deposit protection it is possible to observe the growth of deposits of individuals16. So, from 2007 to 2015, the volume of deposits of individuals increased from 6234,9 to 47128,9 million som. However, the volume of deposits of individuals in national currency increased slightly 2794,2 to 15860,4 million som.
Throughout the period under review, there is a tendency to increase the amount of funds placed in a more "long-term" deposits – term deposits .17
Graph7. Dynamics of settlement accounts, term deposits, demand deposits
In Kyrgyzstan, since the introduction of deposit protection, amount of depositors’ savings, which are placed in deposits, increased from 14.2 to 21.1%. These changes have occurred not only due to the growth of welfare of people, but also associated with increasing confidence in the commercial banks, backed by the action of the deposit protection system.
One of the important problems of the economy of many countries, including our country, is the acute shortage of financial resources for the development of all its industries. While the population itself has significant cash resources, which could contribute to the development of the economy in the case of investment in it. But the involvement of people's savings could be achieved under the condition, if you can convince people, first, that such investment is beneficial for them personally and, secondly, that, giving their money, they do not risk losing them. The most accessible form of transformation of savings into investments is the transfer of money to commercial banks in the form of bank deposit. So, in addition to the analysis of the influence of the system of protection of banking deposits in the deposit market, we decided to identify, as the total amount of deposits and loans of commercial banks are connected to each other.
Table7. Connection between deposits and credits of commercial banks
Graph8. Connection between deposits and credits of commercial banks
As we can see, the correlation coefficient of two variables 0,987653 has a positive value. Therefore, by increasing the volume of deposits, increases also the number of credits of commercial banks. Based on this, we can conclude that the process of development and perfection of system of bank deposits insurance leads to an increase in savings allocated to deposits, and this in turn contributes to the growth sectors of the economy.
During the analysis of the process of deposit insurance in our country, we have identified that the introduction of deposit protection system in the best way affected the deposit market, and the attitude of the population towards the banking system. During the period under review – 2007-2015 – key indicators, such as total deposits, the time structure of deposits, volume of deposits of individuals and etc. had a positive value. In addition, by calculating a positive correlation of the variables – total deposits and loans of commercial banks – showed that the deposit insurance system promotes investment by increasing the number of loans and thus, directing the savings of the population in certain industries.