The National Bank’s Policy for 2019, Part IV

Theoretically speaking, the problem of the money overhang* (money bubble) that has been the constant headache of the National Bank of the Republic of Kazakhstan and its Chairman Daniyar Akishev can be solved quite easily. Based on’s crude estimates, the volume of excessive liquidity in Kazakhstan constitutes about US $10 bln and can be easily moved out of the county’s banks.

Provided, of course, that the depositors (both physical and legal bodies) will be offered a reliable, simple and accessible alternative. For instance, the possibility to directly invest in the US and the other developed countries’ government securities with a rising earning power.

If the Kazakh non-qualified investors receive the opportunity to buy, say, the US treasures with low transaction costs and without any kind of technical and organizational problems while the Kazakh government and the National Bank, through the KASE and International Financial Center Astana, maintain the liquidity of this new local financial market’s sector, then a large part of the aforementioned 10 bln will be moved abroad thus reducing the size of the money overhang. 

The problem, however, lies in the fact that, once opened, this channel is unlikely be closed it in the future. And, having received the opportunity to earn money on the foreign markets, the Kazakh depositors may never want to “come back” to the country which is bound to become a huge problem for the authorities in the case the domestic demand for investments in the non-resource sector of the economy starts to grow. And even though the dedollarization of the banking system (but not of the cash savings) will be an unavoidable consequence of such an extraordinary step, it is unlikely that Akorda will take the risk of making it simply out of fear.

The other reason why Akorda and the National Bank as the agency responsible for carrying out the monetary policy are interested in preserving the money bubble in the banks lies in the fact that, by taking excessive liquidity off the market, they, de-facto, are supporting the Kazakh banking system and, most importantly, the banks closely “related” to them.

Without the constant, non-risky and high earnings from the investments in the regulator’s notes, the total volume of the Kazakh banks’ earnings would have been significantly lower than it is now. We are not prepared to give you the exact estimates since it requires a rather vast research and access to the banks’ internal documentation. But, as a rough estimate, they would have been lower by 50%.

Thus, the current monetary policy of the National Bank and Daniyar Akishev, with all its rationality and soundness, is not so much a manifestation of the NBK top-management’s high intelligence and professionalism as a forced necessity.

With that, the likelihood that it will be successful once the inflation rate is reduced to the required minimum (say 4% per year) and the banks start to intensify the crediting of the non-resource economy which will have a life-giving effect on the latter is not too high. We would even say it is minimal. Moreover, judging by the fact that foreign investors are not lining up to pump their money into Kazakhstan and the state must constantly subsidize domestic investors by lowering the real interest rate, the problem does not lie in the absence of money in the country.

In this context, the National Bank and its Chairman Daniyar Akishev can but assert their confidence in the currently pursued monetary policy while physical and legal bodies are left to choose between the current realia and the promised bright future. All things considered, they choose the former.

Let us confirm our observation by using the regulator’s data. Here are some quotes from a publication on (text in bold by

“At the same time, due to the persisting high volatility on the foreign currency exchange market (in November, the dollar exchange rate grew by 2.6%), the dollarization of deposits in November grew from 46.9% to 49.9%. “The dollarization level had returned to the 13-month high. For example, the November data shows a 13.3% increase of legal bodies’ foreign-currency deposits while their national-currency deposits decreased by 8.1%. Against this backdrop, the dollarization of legal bodies’ deposits in November grew from 44.9% to 50.2%”, say the analysts of the Association of Financiers of Kazakhstan (AFK).

In November, the weighted average rate on the foreign-currency deposits of physical bodies constituted 9.7% (against 9.5% in October), on the deposits of legal bodies, it constituted 7.2% (against 7.0% in October). “From the beginning of the year, the said rates have been reduced by 0.8%. The AFK observations are roughly consistent with the aforementioned dynamics. For instance, the nominal rates on the fixed-term retail tenge deposits in the absolute majority of the second-tier banks fall within the range of 10.0%-11.3% per annum having been reduced by 1.0%-1.8% since the start of the year. At the same time, the banks’ price offers for both the tenge and the dollar deposits did not change in December. Recall that on November 29, Kazakhstan Deposit Insurance Fund (KDIF) made a decision to keep the existing rates on physical bodies’ deposits until April 1, 2019. As they had explained in the agency, the banks were given an additional time to complete the transfer to the new terms of settlement on the fixed-term deposits market and to wait for the clients to understand the advantages of the new deposit products”, explain the AFK analysts”.

“With that, the weighted average rate on the tenge-denominated loans given to physical bodies had continued moving downward having decreased in November to 17.1% against the previous 17.3%. “At the same time, the rates for legal bodies stayed the same - 12.5%. Note that, from the start of the year, the said rates have decreased by 2.1% and 0.7% correspondingly. We would like to point out that the likely toughening of the monetary policy due to the growth of the pro-inflation risks may lead to some increase of the market rates. The first National Bank’s 2019 session on the base rate will be held on Monday, January 14th”, say the AFK analysts”.

Let us estimate the economic efficiency of the National Bank advertised monetary policy for a physical body with US $100 000 to deposit.

Having deposited it at the beginning of 2018, they would have received a small reward, about $1000. But if they converted their savings into tenge and deposited them at 10%-11% per annum, they would have lost since the official exchange rate as of January 1, 2018, was 332.33 tenge per $1 while on January 1, 2019, it was already 384.2 tenge per dollar. In other words, it has dropped by 15.6%.

In the tenge terms favored by the regulator, the dynamics will look as follows: 33.233 mln tenge (US$ 100 000) put in a bank at the beginning of the year as a foreign currency deposit will increase to 39.192 (US$101 000) or by 17.9% by the end of the year. Whereas 33.233 mln tenge put in a bank as a tenge deposit at 11% rate will increase, in the course of the year, to 36.889 mln.

The difference is 2303 mln tenge, and it is not to the physical body’s advantage. This is the price they will have to pay for believing the National Bank and Daniyar Akishev.

Of course, if the National Bank will, de-facto, be able to stabilize the national currency exchange rate (which, by the way, is what individual experts insist on), then the efficiency of these tactics will change. Today, however, it is essentially impossible to keep the tenge within a reasonable rate limits; therefore, one should trust oneself and not the Kazakh regulator.

Now let’s ask ourselves – how “digestible” the 12.5% annual rate loans are for the Kazakh non-resource business.

There is no point in guessing, even. They are unliftable. And not only because the local entrepreneurs are not as qualified and motivated as their foreign colleagues but also due to the objective reasons: the domestic market is competitive enough and the prices can be raised only by certain individuals, in certain places and not even in every instance.

For example, according to the data of Kursiv Research, in 2917, the sales margin of the country’s 40 fastest-growing companies that is calculated as the ratio of the net profit to the operating profit constituted 14% on average. Note that the resource companies were present among the enterprises analyzed, for instance, Nova Zink LLP with its 41.2% profit margin.

However, it is the high rates of the loans provided to the local business that:

  • first, dramatically decrease the number of high-quality borrowers in the country since they set the key parameter for determining and selecting the latter at too high a level;
  • second, they literally push those entrepreneurs who still borrow such unliftable loans into a corner basically turning them into the slaves of the banks;
  • third, they automatically render local businessmen non-competitive in comparison with their foreign colleagues.

These are the roots from which there originates the constant demand on the part of the Kazakh business to decrease the interest rates. Akorda is trying to satisfy these demands via the numerous support programs including providing cheap loans through the quasi-governmental structures or subsidizing bank interest rates.

All in all, however, this is but a drop in a bucket. And since this kind of state support is usually accompanied by bribery, the benefits received by the business are rather questionable.


 *Money overhang is phenomenon when people keep the money on bank accounts or on hand only because of a lack of ability to spend it; there is not enough goods and services that the population is in need of.

The topic continues in the forthcoming articles of the series. 


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