Clare Nuttall in Almaty -

The popular revolution in Kyrgyzstan that ousted Kurmanbek Bakiyev has lost some of its gloss. Since the interim administration took over on April 7, the state's takeover of the country's biggest bank and some shabby instances of revenge against former officials and their associates have raised more concerns about stability in the country.

Interim President Rosa Otunbayeva and her government took power after Bakiyev fled the capital Bishkek following a wave of nationwide protests against the corrupt regime and suppression of free speech. However, many of the new government's actions in the weeks since appear to be driven more by revenge than democratic ideals, and due process has got lost in the pursuit of establishing control over the main assets of the country.

Immediately following the revolution, Kyrgyzstan's largest bank AsiaUniversalBank (AUB) and several smaller banks were seized by the state amid allegations of corruption and being too cosy with the former regime. Rather than pursue these allegations through the courts, the government took control of AUB, Issyk-Kul Bank, Kyrgyz Credit Bank, Manas Bank and Akilinvestbank on April 8 by administrative fiat and appointed provisional management to run them. The banks' boards of directors and executive boards were suspended, and a ban placed on activities such as foreign currency operations. Although some of the restrictions have since been lifted, the provisional management is to stay in place for six months.

The National Bank of the Kyrgyz Republic has said the action was taken to prevent funds being transferred outside the country. According to interim government sources, some $200m was transferred abroad by AUB in early April. However, Mikhail Nadel, chairman of the board at AUB until April 8, denies the allegations, which initially surfaced in the run-up to the revolution. "The present accusations, I believe, look more like a black PR exercise to cover the bank robbery and takeover which is happening now," he tells bne. "We have never been close to politics, all the views I have ever expressed are those of an investor doing business in Kyrgyzstan."

Nadel believes there is little prospect of trying to regain control of the bank through the legal system, at least within Kyrgyzstan. "The interim government has fully gained control; no shareholders, members of the board or management are allowed in the bank," he says. "Provisional administration from the National Bank of the Kyrgyz Republic holds full control, some operations are blocked. There's nothing we can do to either protect our own interests to even claim our rights. The bank and its clients are getting literally robbed and it is somehow called 'checking and audit'. The reality is simply - the bank has simply been taken over."

In addition to grabbing control of AUB on the basis of alleged links to the previous president's family, in particular his influential and widely reviled younger son Maxim, the interim government seems bent on taking revenge on its political enemies. The Kyrgyz Prosecutor General's Office sent an extradition request to Belarus for Bakiyev, who is currently holed up in Minsk. Bakiyev has already been stripped of his presidential immunity. The head of Bakiyev's administration, Kanybek Zhoroyev, was charged with abuse of power after turning himself in to the authorities. Former BBC journalist Vugar Khalilov, who was running the PR company Flexi Communications at the time of the revolution, has been held in prison since April 12. Khalilov, a British citizen, had worked with Bakiyev in the past.

Investors jitters

Unlike in Kazakhstan where the government took control of two of the largest banks - BTA Bank and Alliance Bank - in early 2009 amid a swirl of corruption accusations to prevent their collapse, the takeover of AUB appears to be purely politically motivated and has already hurt its international standing.

At the time of the takeover, Kyrgyzstan's largest bank was profitable and financially sound. The merger between AUB and Kyrgyzpromstroibank in 2008 created a local giant with a market share of around 25%. Just prior to the civil unrest, the bank had recently opened an Austrian representation and was mulling its options for international fund raising.

The first Kyrgyz bank to obtain a rating from Moody's Investors Services, AUB's long-term local and foreign currency deposit ratings were downgraded from 'Caa1' to 'Caa2' on April 14. The downgrade was due to the instability in Kyrgyzstan, as well as the central bank's takeover of AUB and the decision of the attorney of the city of Bishkek to seize the bank's assets, which effectively resulted in a deposit freeze of the bulk of the bank's customer deposits. "Although AUB was recently sanctioned by the attorney to restore part of its operations, particularly in respect of repayment of retail customer deposits up to a certain limit and conducting budget payments, Moody's remains concerned about the sustainability of the bank's operations in the longer term," Semyon Isakov, Moody's lead analyst for AUB, said in a statement.

AUB is still on review for another possible downgrade by Moody's if the political situation isn't stabilised or if the bank is unable to restore its operations in the short term.

The provisional management team, which is led by Zair Chokeov, has been trying to restore the bank's reputation. A statement from the bank issued on May 4 says its operations are "gradually returning to normal" and clients can use the bank's services "almost" in full. "The bank's financial condition is stable, complying with the mandatory standards set by the [central bank]," said the statement.

Kyrgyzstan's interim government is also trying to reassure investors, who as well as being spooked by the general instability are also nervously watching other corporate raids and many small-scale land grabs. Police officers in Bishkek started clearing squatters from land in and around the capital by force on May 7, after efforts to persuade them to leave had failed.

Otunbayeva, who will remain in power until new elections are held on October 10 and is engaged in drawing up a new constitution that will limit the powers of future presidents, took time out to meet with foreign investors in Bishkek on April 23 to reassure them that they could continue business as usual. "We will help make sure that all our large investors work without disruptions," Reuters quoted Otunbayeva as saying. "We will make sure our tax services work for the business and not against the business."

Nonetheless, with the shareholders of AUB and other banks losing control over their assets, and concerns over the possible redistribution of other assets, investors remain worried about the uncertain future in the country.