Kazakhstan - Banking Systems Kazakhstan - Banking Systems
Kazakhstan has a two-tiered banking system. The first tier is comprised of the National Bank of Kazakhstan (NBK), which reports to the president. The second tier includes 28 commercial banks, including one state-owned bank and 14 banks in which foreigners hold 30% or more of the bank’s shares, 12 of which are subsidiaries of foreign banks. In addition to its monetary policy responsibilities, the National Bank performs the functions of a financial regulator. In that role, the NBK is charged with overall supervision of the banking sector, insurance, pension system, stock market, microcredit organizations, debt collection agencies, and credit bureaus. In May 2019, the NBK proposed changes to legislation providing for establishment of a new independent regulatory body which would take charge of financial markets control and development, as well as consumer rights protection, while the NBK will concentrate on monetary policy and inflation control. The function split should eliminate conflict of interests within the NBK, improve financial market regulation and prevent malpractices.
Although prohibited from creating retail banking branches in Kazakhstan until 2020, foreign banks may establish subsidiaries, joint ventures, and representative offices. As of April 2019, 20 foreign banks had representative offices in Kazakhstan. Legislation mandates equal treatment for foreign and Kazakhstani investors, a position reinforced in 2005 by legislative amendments that lifted restrictions on the participation of foreign capital in the banking sector. Notably, no individual may own more than 10% of a bank’s shares (unless that bank is a subsidiary of another bank) without permission from the National Bank.
Foreign individuals and companies can open bank accounts in local banks as soon they present identification documents and confirmation of local registration, including taxpayer registration.
According to the IMF’s April 2019 Regional Economic Outlook for Central Asia and September 2018 Staff Report, the banking sector remains saddled with weak underwriting and reporting standards, poor payment culture, related party and directed lending, opacity of ownership, and reliance on state support. Legacy non-performing loans (NPLs) from the 2007-2008 global financial crisis and Kazakhstan’s real estate market collapse continue to hinder banks’ profitability and their ability to extend credit. From 2013-2016, the drop in oil prices precipitated a 40% currency depreciation and economic slowdown that further weakened the banking sector, which was overexposed to domestic dollar lending.
In response to these crises, the government facilitated several rounds of bank bailouts to ensure stability and facilitate the sector’s consolidation, with mixed results. Halyk Bank, Kazakhstan’s largest private bank, now controls 35 percent of all banking assets following a series of government-facilitated mergers involving BTA and Kazkommertsbank. n 2017, the NBK announced a USD2 billion troubled asset facility, but, following public criticism from President Nazarbayev over the bailouts, abruptly closed it in February 2018, having limited participation to five mid-sized banks, which, however, continued to struggle.
In Autumn 2018, one of those banks received a bridge loan from the NBK and was subsequently bailed out by First Heartland Securities, brokerage company controlled by Nazarbayev University. Three other defaulted banks of no systemic importance lost their banking licenses and went bankrupt.
Banking sector recovery remains a top priority for the government, and the NBK has adopted policies to strengthen oversight and capital requirements, de-dollarize, resolve bad assets, and encourage consolidation NBK policies have somewhat improved the situation and helped to preserve banking sector stability. For example, the share of NPLs dropped from 31% in January 2014 to .6% in April 2019(although analysts believe the figure has always been much higher with if restructured loans and interest gap included). However, the sector has yet to fully recover and the NBK has more work to do to clean it up. The regulator is to introduce risk-based supervision approach in 2019 and perform an AQR which should help to assess banks’ capital adequacy and establish follow-up measures.