TOPIC OF THE WEEK: Rogue E&O bring about fresh EU action on Kyrgyz banks
Earlier in the month I argued that one should worry less about the snap Parliamentary vote in Kyrgyzstan and pay more attention to possible fresh sanctions on the economy, chiefly the banking sector. That threat has now materialized, with the EU slapping transaction bans on two Kyrgyz banks. I hypothesize a direct link between what I dub the "rogue" E&O in the BoP and the new sanctions on the banks.
Kyrgyzstan’s balance-of-payments position has been distorted by unrecorded trade with Russia since 2022, which manifested itself in huge CA deficits and equally prominent E&O surpluses, and the West has been constantly beating the drum about it, although it originally avoided slapping sanctions. Since 2023, Kyrgyz authorities have been claiming to have systematically upgraded trade-flow and payment reporting, integrated Eurasian Economic Union customs data, and improved remittance statistics. While these steps may have helped narrow the E&O gap over 2024, 2025 brought about a resurgence of these "rogue" flows (as demonstrated by the just released 2Q25 BoP data), suggesting that sanction-linked re-exports through the China–Kyrgyzstan–Russia corridor continued to slip under formal records. I claim that this has played a key role in the EU’s October 23, 2025, decision to target Tolubay Bank and Eurasian Savings Bank, following earlier US and UK measures against Keremet Bank and Capital Bank of Central Asia, which include asset freezes. While the EU’s transaction bans stopped short of asset freezes, together they effectively sever EU-side correspondent links and heighten compliance risks across Kyrgyzstan’s financial system.
I also broaden the sanctions analysis to Tajikistan as the EU simultaneously imposed transaction bans on Dushanbe City Bank, Spitamen Bank, and Commercial Bank of Tajikistan for similarly facilitating trade with Russia. The practical impact would likely be smaller as the banks are mid-tier, and Tajikistan’s economy depends less on trade than on remittances, which would likely continue flowing in via the CIS banking system.
Politically, both governments dismissed the measures the measures as unfair. However, Bishkek complained more loudly, offering third-party audits and emphasizing international-commitment compliance, while Dushanbe mounted more subdued, business-continuity-oriented protests. In practical effect, Kyrgyzstan poses a moderate-to-high risk, a reputational and compliance shock rather than a solvency crisis with delayed trade-finance flows and extended Western focus. Tajikistan’s risk is somewhat lower and limited to short-term disruption but moderate long-term compliance exposure. The episode underscores how opaque trade patterns can morph into geopolitical liabilities for small, Russia-linked banking systems.
Now read on...
Register to sample a report