Clare Nuttall in Bishkek -

The first international bank to set up in Kyrgyzstan, Demir Kyrgyz International Bank, has lived through two revolutions since it entered the market 14 years ago. Undeterred by the latest upheaval earlier this year, the bank is now planning to expand its branch and ATM networks across the country.

At present, DKIB's customer base of almost 55,000 people is concentrated in Bishkek and Kyrgyzstan's second city Osh, but it now plans to expand to other urban areas. "We plan to open new branches this year in Kara-Suu and in the Issyk-Kul region at Karakol and Cholpon-Ata. Plans to open a branch in Jala-Abad have been postponed until 2011 due to the June events," says Sevki Sarilar, general manager of DKIB, referring to the ethnic strife that exploded in certain areas after the overthrow of the former president Kurmanbek Bakiyev. "Currently, we have a network of 48 ATMs. We will approximately double this number this year, as we plan to buy an extra 40 or 50 ATMs. These will include both 'cash out' machines and - for the first time in Kyrgyzstan - 'cash in' machines."

The push into the regions is significant in a country with very low banking penetration by international standards. At the moment, most banks focus on Bishkek, the industrial Chui Valley in the north and Osh, with only AsiaUniversalBank (AUB) having branch offices across the country. Even in Kyrgyzstan's two largest cities, with a combined population of over 1.5m people, just 150,000 - around 10% - use banking services. "This is extremely low compared to Western Europe where banking penetration stands at 80-90% of the population," Sarilar points out.

Retail push

DKIB, which was launched by Turkish businessman Halit Cingillioglu in 1997, has historically focused on the corporate sector, expanding into retail three years ago. Now, it is keen to build up its business in the areas of salary products, consumer loans and credit cards. The bank already works with international corporates active in Kyrgyzstan, including Coca Cola, Gazprom and the mobile operator Beeline.

Demir has launched its own incentive schemes to promote card usage in the country, but is also working with the government on additional ideas. "Today, even relatively well-off people don't understand the benefits of using cards," Sarilar says. "Increased card usage will benefit the banks, the customers and the government, because when payments are made by card companies, companies have to declare their official sales figures, giving the government the opportunity to collect more tax."

Demir officials met recently with interim President Roza Otunbayeva and made several proposals including the introduction of a law requiring salary payments to be made via banks. Some state organisations started doing this in 2009, but Kyrgyzstan is still largely a cash economy. Demir also proposed a lower VAT rate for card payments. According to Sarilar, the government was receptive to the bank's ideas.

Despite the turmoil in Kyrgyzstan in the last six months, Sarilar says Demir has performed well this year, growing its loan portfolio by almost 15% since April even as many other banks' portfolios shrank. The European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC) are shareholders in DKIB with a 15% stake each. In June 2009, DKIB agreed credit lines totalling $9m with the two organisations, but has not yet used these since it has sufficient liquidity. "We have been in the country for the last 14 years and seen two revolutions. We are used to working under such circumstances. After the June events in the south, we had some problems, but our loan portfolio in Osh was not large. Of course, we will still be indirectly affected," Sarilar tells bne. "One of the reasons why our loan portfolio increased was that after the revolution our biggest competitor AUB has had some problems, as did Manas Bank and several of the smaller banks."

Turkish interest

On a more positive note, Sarilar says that at a recent business forum in Turkey, attended by President Otunbayeva, there was considerable interest shown in the country. "Several Turkish investors said they were aware of Kyrgyzstan's potential, but wanted to wait to see have a more stable political environment" Sarilar says. "In my opinion, the next government will provide this kind of stability. The current government is already trying to change conditions in the country, in order to attract new foreign investors."

But the April and June violence has had a strong impact on the attitude of international investors. "Some companies would of course like to wait till after the [October] elections before making decisions," admits Sarilar.

In addition to the banking sector, Sarilar also sees potential in other sectors, in particular agriculture, tourism, mining and hydroelectric power. "Unfortunately, this potential has not been realised, mainly because of the need for additional know-how," he says. " If Kyrgyzstan becomes more stable in the coming years, there will be a greater chance to attract more investors, which will help to develop the economy."