Government will no longer be able to support banks on nonmarket conditions in Kazakhstan

According to the Agency for Regulation and Development of the Financial Market (ARDFM), the mechanism for public support to unviable banks must be improved. To achieve this, the country will introduce a ban on any form of nonmarket government intervention in banking activities.

Authorities plan to specify the forms and mechanisms of government participation in rescuing troubled banks. The ARDFM particularly aims to set clear boundaries for the National Bank, the Ministry of Finance, the Kazakhstan Deposit Insurance Fund (KDIF) and the agency itself.

Moreover, authorities want to introduce Total Loss Absorbing Capacity (TLAC) requirements. These primarily consist of subordinated debts, which banks could convert into capital during a crisis to maintain stability. The rule requires that minimum convertible liabilities must reach a specific level, determined by a bank’s assets multiplied by a risk coefficient. However, the exact level authorities are considering remains unclear.

The ARDFM proposal also suggests that the government may enter the capital of systemically important banks only if they have already exhausted all their TLAC assets.

On the other hand, the National Bank’s role in any future rescue of troubled banks will be limited to issuing loans secured by their credit portfolios as collateral.

In 2017, Kazakhstan introduced a financial sustainability program allocating $1.4 billion to support banks. Among the financial institutions that received public funds were ATFBank, Eurasian Bank, Tsesna Bank, Bank RBK, Kazkommerzbank, Bank CenterCredit and Nurbank.

Under the program, most Kazakhstani banks in need of support received funds primarily by issuing subordinated bonds. The Kazakhstan Sustainability Fund purchased these bonds at 4% per annum with a maturity of 15 years. Eight years later, only Halyk Bank repaid public funds, announcing this in April 2024.