3.1. Problems in the deposit insurance system in the Kyrgyz Republic.
To ensure the most efficient process of deposit insurance is necessary to most accurately determine the problems in the deposit insurance system.
One of the main problems in the deposit insurance system in our country is the low level of trust of population to the banking sector in general and insurance in particular. People cannot trust their funds to banks, because they are not sure that the savings will be returned. The reasons for this are financial illiteracy, poor-quality work of banks, as well as lack of awareness of the population about innovations in the insurance process. The instability of our economy entails the instability of the banking sector. As a result, its activity is exposed to various risks and unpredictable changes. Also it should be noted unpredictable changes in the exchange rate. It also contributes to a reduction of public confidence. An important role is played by the state. It should provide quality work of the entire banking sector and carry out the appropriate supervision and regulation for the entire financial system. The state should be a kind of intermediary between deposit insurers and investors that the operation of the insurance system was the most efficient and transparent.
However, for the effective functioning of a deposit insurance system should be the use of all funds. First of all, we need to increase the amount of insurance coverage. As shown by our analysis of international experience among the countries of the Customs Union, the amount of insurance coverage in our country is the lowest. This factor is one of the most important for attracting savings of depositors. For the population, it is not profitable in this situation to trust their money to banks, because in case of bankruptcy of the bank, payable from the Fund, the amount will not cover the size of the lost contribution. The increase in the guaranteed amount would create an incentive for the growth of deposits, will accelerate the development of the banking system, positively affect economic growth, but also will allow removing a significant part of the cash circulation that will curb the rate of inflation. But with an increase in the guaranteed amount, we can face the problem of insufficiency of the deposit protection fund. In addition, it is necessary to reduce the period for commencement of payment of insurance coverage. The faster they will be paid out to depositors, the more effective will function in the process of insurance.
Resources of the Fund should be placed in government securities of the Kyrgyz Republic or the NBKR. We understand that these financial instruments have a low level of risk and ensure the safety of Fund, but they have disadvantages. In our view, the capacity of the market of government securities is insufficient. With regard to the placement of funds in the securities of the National Bank, they are a tool of monetary policy; therefore, the interests of monetary policy and the activities of the Fund in certain moments cannot match. From a macroeconomic point of view, placing the Fund in the state financial instruments involves additional risk of the outflow of funds from the private sector in the state, that the significant scale has potentially a negative impact on economic growth. There is another option – the investment by the Fund in foreign securities, but in Kyrgyzstan due to the underdevelopment of the securities market there is a problem the Fund's investment in foreign securities. Investing in foreign securities because of the lack of responsible authority for this is limited. The reason for this remains the most appropriate investment in Government Treasury Bills. At the moment we don't see other safe instruments for investment of the Fund, however, the Law of the KR "ON protection of Bank deposits " it is necessary to provide an additional item on the yield means of the Fund, which should not be below the level of inflation.
Also important is the problem of incorporating microfinance institutions into the system of deposit protection due to the lack of the license for attraction of deposits, weak supervision, non-compliance with the requirements and conditions of membership.
In addition to this, it must be a strict supervision and regulation. Currently, the audit activity of banks is not carried out sufficiently. It is necessary to ensure disclosure of banks and its accuracy. And the Deposit protection Fund and the National Bank should have the necessary information. There has been an omission of information, its unreliable performance. As a result, regulators in making important decisions based on unreliable information, which leads to negative consequences.
The activity of system of insurance is carried out in an inefficient way. It is necessary to modernize the process. In particular, introduce various innovations and technologies. Our neighbors have experience in the use of the deposit insurance system technologies. So that we can study the international experience, to adopt the most appropriate methods.