And the reasons why are clear, according to banking analyst Ekaterina Trofimova, an author of the recently released report, "CIS Banking Systems: Mixed Prospects But Common Risks."
Trofimova said that Central Asian economies are among the world's riskiest. Poor transparency, weak capitalization, and large business concentrations make them vulnerable to economic and political shocks. Corruption and unhelpful officials also make it difficult for foreign investors.
But Trofimova said the current state of banking systems -- and the differences among them -- is a result of macroeconomic policies the Central Asian governments adopted at the start of the independence period.
"Absolutely, the government policies vary to a great extent. We can see Kazakhstan where the privatization has been very aggressively pushed by the government," Trofimova said. "Over 90 percent of the banking system is now controlled by private investors. For Uzbekistan, we see very strong state influence. For other countries, like Turkmenistan, the level of state ownership is also very high in the banking sector, which is almost 80 percent. For Tajikistan, we see some privatization going on, but this was just a part of a deal of debt restructuring."
Just as privatization has been key to Kazakh success, analysts suggested, the lack of it has been central to the stagnancy found in other countries.
Uzbekistan and Turkmenistan are cases in point. The Standard & Poor's report says the largest state-owned banks there control more than 70 percent of banking assets.
The National Bank for Foreign Economic Activity of Uzbekistan dominates the local market with over $3 billion in assets, or about 70 percent of total assets. In Turkmenistan, the two largest state-owned banks, the Bank for Foreign Economic Affairs and Daykhanbank, account for about 80 percent of banking assets.
But experts said high market concentration by the government means high risks.
Dafne Ter-Sakarian, an analyst with London's Economist Intelligence Unit (EIU), said that "in places like Turkmenistan and Uzbekistan that would involve dismantling the whole economic systems they have. So, it's not that simple. They haven't shown any willingness to do it, because it' quite risky."
Ter-Sakarian said that as the current economic system gives subsidies to the population and inefficient enterprises, any big changes could trigger social unrest. On the other hand, by not making any changes, economies are getting worse -- and people are getting poorer. It's a vicious circle.
Kazakhstan, however, stands in contrast. The country has three dominant banks -- Kazkommertsbank, Bank TuranAlem, and Halyk Savings Bank of Kazakhstan. They represent about 60 percent of the sector. And they have been successful in expanding activities to neighboring countries, such as Kyrgyzstan, where Kazakh banks control some 40 percent of banking assets.
Oraz Zhandosov is a former chairman of the Kazakh National Bank. He said a key to that country's banking success has been liberalization and a hands-off government approach.
"There was no political interference in the process of reforming the banking system," Zhandosov said. "This is the major factor. I don't know why, but President [Nursultan] Nazarbaev decided it would be better not to get involved in this process. He decided so either independently or listened to our advice at that time. But the fact is that he has not been interfering."
But over in Tashkent, the story is less sanguine. Although Uzbekistan has the biggest market in the region with 26 million people, Zhandosov said its government has been unwilling to allow foreign investment -- to the detriment, in his opinion, of the country's economic development:
"I believe, at present, the Uzbek government has a policy of barring foreign capital, particularly Kazakh capital in the banking system," Zhandosov said. "Several Kazakh banks applied for opening their representative offices [in Uzbekistan], but got no permission. It's difficult to give an explanation on behalf of Uzbekistan. But I think everything that's going on there is a big mess."
Jamshid Mirza is an independent economist in Tashkent. He said there is a debate on between different groups within the Uzbek government on privatization.
"On one hand, there are some wings in the government that propose rapid privatization of the banking sector, because it would represent additional revenues for the state budget," Mirza said. "At the same time, there is the other wing in the government that would not like to lose the banking sector, and especially the largest banks, because that would mean that if these banks were privatized, some of the people in the government would lose their control over the economy."
So it's no surprise, said the EIU's Ter-Sakarian, that Central Asia has attracted very little investment from international banks and businesses.
"Foreign investors by large are not interested in Central Asia with the exception of a few large extractive enterprises, for example oil and gas in Kazakhstan and then gold mining operations in the Kyrgyz Republic, there are investments in aluminum in Tajikistan," Ter-Sakarian said. "But outside of these few sectors, there is no real interest."
Meanwhile, the experts agreed that the economic development of all five countries could benefit from regional cooperation. However, Ter-Sakarian said there have been few efforts to regional economic ties to boost investment from banks in neighboring countries.
"It's very bad because they all compete in similar markets, and they all need the same resources, namely water," Ter-Sakarian said. "So, although there is a lot of talk about eternal friendship between the countries, at the end of the day there is not much goodwill to lower trade barriers, for example, which, you know, if they did, could make a considerable difference."
Both Trofimova and Ter-Sakarian said that the main determinant to longer-term growth and prosperity for banks and the Central Asian region as a whole will be the ability and willingness of governments to maintain and accelerate the pace of economic, regulatory, and legislative reform.
(Full text of the Standard & Poor's report can be found at http://www2.standardandpoors.com)