At Whose Expense Do Kazakh Banks Fatten?

On the last day of 2020, the Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market published its financial sector review for November 2020. In our opinion, it is an extremely interesting document that makes one think about sad things. So, we will present some of our comments on it here.

Let us start with a quote (text in bold hereinafter by

“According to the current data of the Ministry of National Economy, by the end of the 11 months of 2020, Kazakhstan’s economy had shrunk down to (-) 2.8% in per year terms”. At the same time, “in credit financing, the positive trends had continued in November – the volume of credit financing had grown by 1.4% (the growth constituted 5.6% from the start of the year). Based on the results of November, deposits had increased at a slight degree, by 0.01% (the growth constituted 15.3% from the start of the year). Dollarisation of the deposits constituted 39.3%”.

The quoted passage shows that coronavirus and other negative factors had staged the major strike on the country’s population and economy while sparing the Kazakh banking sector. Moreover, banks as well as large mineral corporations had even gone up in prices.

“Based on the results of November 2020, the KASE index had grown by 5.3% up to 2 586.34 points. KazTransOil JSC (+12.5%), The People’s Saving Bank of Kazakhstan JSC (+11.8%), KAZ Minerals PLC (+7.5%) had experienced the biggest stock pricing growth”.

Let is confirm this conclusion via several other quotes from the “Kazakhstan Financial Sector Review” for November 2020.

“As of December 1, 2020, the assets of the banking sector constituted 30 384.7 bln tenge or 43.6% GDP having grown by 0.6% in a month (growth by 13.4% from the start of the year)”.

“Two-tier banks have a significant liquidity cushion amounting to about 14 069 bln tenge or 46.3% of the assets of which 12 350 bln tenge are highly liquid assets. The availability of spare liquidity allows banks to meet their commitment in full.

The total liabilities of the banking sector constituted 26521 bln tenge having grown by 0.3% or 74.3 bln tenge in November 2020 (growth by 14.5% from the start of the year). The increase was associated with the growth of REPO transactions with securities by 44.4% (or by 98.0 bln tenge)”.

“The structure of the banking sector liabilities mainly consists of the deposit portfolio constituting 79.0% of the total banks’ liabilities (20 950.8 bln tenge). The percent of other liabilities such as issued securities and loans received from other banks and organisations constituted 7.0% and 2.1%, respectively”.

In other words, amid the 2020 global crisis, Kazakh banks had been doing if not great then good for certain. Their combined assets were growing at a record-setting speed while deposits of physical and legal bodies continued being their main source of financing. And, if we are to believe the Agency for Regulation and Development of Financial Market, the banking sector of the country is now more than stable.  

“As of December 1, 2020, the banking sector has sufficient capital cushion. The original capital adequacy ratio constitutes 20.8% (with the minimal required level of 7.5%;  for systemically important banks – of 9.5%), the corporate capital adequacy ration constitutes 25.9% (with the required minimal level of 10%, for systemically important banks – of 12%) which, on average, significantly surpasses the required norms”.

Apart from that, Kazakh banks had made a good haul during the year that had been so tough for everyone.

“Based on the results of the 11 months of the current year, banks’ net profit constitutes 742.4 bln tenge having decreased against the same period of last year by 0.5% (for 11 months of 2019, the net profit constituted 746.4 bln tenge)”.

At the same time, the profitability of the sector had decreased just slightly, within the margins of the market volatility.

“As of the reporting date, the ROA constituted 2.77% (3.11% as of December 1, 2019), the ROE constituted 21.11% (24.95% as of December 1, 2019)”.

However, despite the fact that the Kazakh banking sector a) possesses sufficient monetary funds, b) is stable and c) makes enough profit, its actors are not at all eager to seriously increase business loan provision.

“As of December 1, 2020, the total volume of provided business loans constituted 14 646.7 bln tenge having grown by 1,4% in November (growth by 5.6% from the start of the year).

“The total volume of the loans provided to legal bodies had increased by 0.1% up to 7 287.6 bln tenge in November (growth by 1.2% from the start of the year). With that, loan provision to small businesses had slightly increased by 0.3% down to 2 304.8 bln tenge (growth by 9.3% from the start of the year).

In November 2020, the volume of loan provision to physical bodies had increased by 2.8% up to 7 359.1 bln tenge due to the growth of mortgage loans (growth by 10.5% from the start of the year).

In November 2020, the volume of long-term loans had grown by 0.9% constituting 12 544.7 bln tenge (growth by 6.1% from the start of the year). The volume of short-term loans had increased by 4.9% to 2 102.0 bln tenge (growth by 3.0% from the start of the year).

In November 2020, the volume of the newly provided loans constituted 1 394.7 bln tenge thus showing a 5.1% decrease against the results of October 2020”. 

Moreover, even the growth of the population crediting registered above, to a large extent, turned out to be a result of the efforts to stimulate the mortgage loan provision.

“The volume of mortgage loan provision constituted 2258.3 bln tenge having grown by 4.2% in November 2020 (growth by 27.8% from the start of the year). Consumer loans had grown up to 4 322.9 bln tenge having increased by 1.7% in November (growth by 3.2% from the start of the year).

On the other hand, as far as consumer loan provision is concerned, Kazakh TTBs had shown scantiness: “for the period of January – November 2020, the volume of newly provided consumer loans had decreased against the same time period of 2019 by 17.0% (-692.5 bln tenge)”.   

Let us present a political assessment of the information given in the “Financial Sector Review” for November 2020. We believe that, for the past decade, the country’s banking sector has turned into a greedy, confrontational and spoilt “baby”. With that, both the Library and Akorda continue to cradle it allowing it to do whatever it wants to do and not what the country, the economy and the citizens need at a given moment. Moreover, they never fail to provide it with enough food by giving it an opportunity to list the spare liquidity at high interest rate and with a minimal risk.

Alas, it is the country’s citizens who pay for all this since the National Bank and governmental structures operate with the state funds, in other words, with the people’s money. In view of this, let us ask ourselves this question – when will the authorities finally see the light and force TTBs to do the business they have been licensed to do?

Our answer is this. It will happen as soon as the blood ties between those sitting and prospering in the Library and Akorda and those monitoring local financial institutes is cut off. We can see no other option at this point.

Hypothetically, of course, it is possible that, at some point, the national economy will become so prosperous that banks will be able to make honest money in a stable and risk-off manner, but we can see no such prospect in the nearest future.

Therefore, the likelihood that Kazakhstan’s TTBs will remain intermediaries between those who have the money and deposit it in the banks and those who need the money and, for this reason, ask for loans constitutes 100%. And all the rest will have to simply envy these “babies” and promote the nationalisation of TTBs (at least the systemically important ones). Simply because they have stopped doing what they are supposed to be doing in the context of a market economy and have turned into parasites that make profit on brokering.

To confirm our words, let us quote several other paragraphs from the “Financial Sector Review” that show the uniqueness of TTBs position in the country and the fact that they make profit on the country’s citizens and business. Just compare the interest rates at which they take and give away someone else’s money and prepare to get jealous.

“In November 2020, the national currency average loan interest rate for physical bodies had decreased down to 14.9% (16.8% as of December 2019), for non-bank legal bodies, it had decreased down to 11.9% (12.1% as of December 1, 2019)”.

“The national currency average deposit interest rate for non-bank legal bodies constituted 7.2% (7.4% as of December 2019), for physical bodies, it constituted 9.3% (9.0% as of December 2019)”.


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