Work of foreign banks is going to be easier in Kazakhstan

The Agency for Regulation and Development of the Financial Market (ARDFM) has prepared and published a new draft regulation on easing requirements for foreign banks working in the financial market of Kazakhstan.

The main goal of the draft document is to change the 2012 decision of the National Bank, when all foreign majority stakeholders of Kazakhstani banks, as well as foreign banking holdings operating in Kazakhstan and foreign banks with subsidiaries and branch offices in Kazakhstan, were obliged to have long-term credit rating not lower than BBB according to S&P grading scale or its peers.

The ARDFM doesn’t apply this requirement to those residents of foreign states with sovereign ratings not lower than BB- by the S&P grading scale as long as there are agreements between the ARDFM and those countries on information exchange.

Foreign banking holdings that started operating in Kazakhstan and received this status before 2013 aren’t required to have a BBB rating either. However, such a holding must have a credit rating not lower than AAA according to the Japan Credit Rating Agency grading scale, while its country of origin must have a rating at BB- under the S&P standards and an information sharing agreement with the ARDFM.

The new initiative of the agency implies that those entities that have obtained the status of foreign banking holdings by acquiring a share in the existing Kazakhstani holding will also be exempt from the rating requirement. So far, only those companies that control directly or indirectly at least 25% of a local bank might be considered as a banking holding.

In order to get the new preferences a holding must meet several requirements. It must have a rating not lower than B- under the S&P scale; its country of origin must have a rating not lower than A under the S&P scale; its own capital should be not less than $200 million; its return on equity must be not lower than 3%; quick assets ratio not lower than 0.8%, and capital adequacy ratio not lower than 8%.

Moreover, shares of such a holding must be traded on at least one international stock exchange, while its financial audit must be conducted by one of the Big Four (Deloitte, EY, KPMG or PwC).

According to an explanatory note to the document, all these changes are focused on lifting barriers for foreign companies controlling stakes in Kazakhstani banks through participation in a banking holding that operates in the local market.