Freedom Holding CEO: Current rates hinder banks’ lending activity

According to Timur Turlov, the founder and CEO of Freedom Holding Corp., current interest rates do not encourage banks to actively supply the economy with loans. Delivering a speech at the 12th Congress of Financiers of Kazakhstan in Almaty, he said that Kazakhstan’s financial system is in its comfort zone, which hinders the achievement of the country’s economic objectives.

«The banking system is once again in a state of absolute comfort — everything is fine, and there’s no need for any adjustments. However, I think, from a strategic perspective, we need to achieve the ambitious goal of doubling GDP, and to do so we have to be squeezed out of this zone of comfort,» Turlov said.

The businessman recalled measures undertaken by Western regulators in the past, when interest rates on risk-free instruments were reduced to zero or even turned negative. Such decisions helped banks move out of a state of caution following economic crises.

The U.S. Federal Reserve System dropped the interest rate to zero on Dec. 16, 2008, and kept it at this level until December 2015. The rate was increasing after that but slipped to the initial level during the pandemic in March 2020. The European Central Bank (ECB) introduced a negative deposit interest rate on June 11, 2014. 

Kazakhstani banks see no need to take risks and expand credit activities as they continue to earn steady income. Turlov emphasized that, to achieve the country’s strategic goals, banks must be «squeezed» out of this comfort zone.

On Oct. 11, the National Bank kept the base rate at 14.25% per annum with a corridor of +/- 1 percentage point. The resolution was adopted at the monetary policy meeting of the National Bank. It aligns with the regulator’s pledge to keep the base rate at the same level at least until the end of the year.