Currency Imbalances in the Lending System and Their Impact on the Quality of Life of the Population and Social Stability
Abstract
This study investigates the multifaceted phenomenon of currency imbalances within the lending system of the Kyrgyz Republic, examining their influence on financial stability, credit accessibility, and social welfare. The paper aims to identify the structural and dynamic determinants of dollarization, temporal and denomination mismatches, and interest rate asymmetries, providing evidence-based insights for policy formulation.
A quantitative-qualitative approach was employed, combining empirical analysis of lending volumes, interest rates, and currency composition from 2020 to 2024 with a systematic assessment of structural vulnerabilities through tables capturing dollarization indicators, dynamic credit growth, and SWOT characteristics of the banking sector. Analytical frameworks integrated currency denomination, temporal alignment, interest rate structures, and regulatory oversight to evaluate systemic resilience and social impact.
The analysis reveals gradual reorientation toward national currency lending, with the FX loan share declining from 19.95 percent in 2020 to 16.25 percent in 2024, while som-denominated loans experienced sustained growth exceeding 240 percent cumulatively. Interest rate differentials widened, incentivizing foreign currency borrowing yet exposing households and enterprises to exchange rate volatility. Temporal mismatches, concentration risks, and regulatory gaps exacerbate systemic fragility, while digital lending platforms, competitive market dynamics, and state-backed credit mechanisms mitigate some vulnerabilities. Dollarization constrains monetary transmission, segments credit accessibility, and amplifies procyclical effects on asset quality.
The findings support diversified, digitally integrated banking strategies with calibrated interest rates to balance growth and risk. Targeted national currency lending and financial literacy strengthen household resilience and welfare stability.
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