National Bank wants to tighten rules regulating state support for banks

According to Chair Timur Suleimenov of the National Bank of Kazakhstan, the country’s government will tighten the terms of state support to banks to make it available to only systemically important financial entities.

«When the International Monetary Fund and the World Bank conducted the Financial Sector Assessment Program (FSAP) of Kazakhstan in 2022-2023, they made several recommendations to the country’s government related to tightening control over the public funds: use public funds only to support the systemically important banks; use public funds only after the distribution of losses between shareholders and creditors through mandatory restructuring; and participate in the settlement of insolvent banks through direct participation in equity capital,» Suleimenov said in a response to an MP inquiry.

The official also noted that the National Bank and the Agency for Regulation and Development of the Financial Market (ARFDM) are already working out relevant amendments to the legislation to meet these recommendations.

Since January 1, 2023, commercial banks in Kazakhstan that received public funds as an aid, have been banned from making dividend payouts unless they have returned part of these public funds. According to the terms and conditions of profit distribution and dividend accrual approved by the ARDFM Resolution No. 21 on April 27, 2023, a bank shall ensure early repayment of state funds in the amount proportional to the share of the discount in the bank’s equity capital. It should be not less than 10% and not more than 66% of the amount of dividends to be paid. So far this year, only two banks have partially returned public funds ahead of schedule: Halyk Bank of Kazakhstan and Bank RBK returned $61.5 million and $27.9 million, respectively, while the remaining recipients of state support haven’t made dividend payouts, Suleimenov underlined.

In addition, the National Bank in conjunction with the cabinet and the ARDFM is working on the issue of increasing the role of the banking sector in the country’s economy. To this end, the National Bank has developed proposals including some fiscal incentives to increase banks’ lending to the economy. For instance, it is proposed to introduce a tax on banks’ revenue from government securities issued by the Ministry of Finance, the National Bank and local executive bodies (akimats) and differentiated rates for corporate income tax (CIT) in order to make banks more interested in lending to businesses. Banks’ income received from issuing loans to businesses will be taxed at a lower CIT rate, while other types of income, including income from consumer lending, will be taxed at a higher CIT rate.

According to Suleymenov, these proposals were already considered and approved at a meeting of the Council on Financial Stability of the Republic of Kazakhstan, held on September 14, 2023.

The World Bank estimated financial assistance provided by the government of Kazakhstan to the country’s banks over the period from 2009 to 2020, in $17.7 billion, while only $4.1 billion was paid back. When the National Bank asked the World Bank how they came to this conclusion, they explained that the calculation was based on reports published by the banks. With the help of this method, the WB estimated the total amount of public funds received by the banks at $12.1 billion. Taking into account the discounting of cash flow at 10% per annum (the sovereign debt rate as of the end of 2020), the total sum amounted to $17.7 billion (net value including debt repayment – $13.6 billion). In turn, Madina Abylkassymova, head of the ARDFM, reported to MPs that she believes that the sum of $17.7 billion in state aid (11.6% of the national GDP) is incorrect, although she didn’t provide any new figures.

The ARDFM decided to restrict dividend payouts by banks that received state aid after some of them had paid significant amounts of money as dividends to shareholders. As of today, the agency applies dividend restrictions to six banks that have state aid on their balance sheets.

Over the period from 2017 to 2020, Jusan Bank (called Tsesnabank until July 2019) and ATFBank, which it acquired at the end of 2021, received significant funds from the government within a state program aimed at improving the financial resilience of banks, as well as from sales to the state of its portfolio of bad loans and credits and liabilities restructuring to public sector companies.

In the summer of 2019, Jusan exited the banking sector’s financial resilience program and started making big dividend payouts. In 2020, the bank paid $245.7 million in dividends to its shareholders for the period from 2013 to 2019. In 2021, the bank paid another $246.7 million in dividends for 2020.

The bank’s consolidated profit amounted to $569 million in 2019 and $559.5 million in 2020. According to Kanat Nurov, a member of the Mazhilis (the lower house of the country’s parliament) Finance and Budget Committee, Jusan Bank’s profit in 2019-2020 was «almost entirely formed at the expense of income gained with the help of state aid.»