Interview of the deputy head of the National bank of RK Oleg Smolyakov to Kursiv, with a telling title “There won’t be NKVD trio in National bank” didn’t catch a widespread attention of the public. Meanwhile, Mr. Akishev’s ally insolently announced ideas that, in the case of successful realization will once again prove that it is good intentions that pave the road to hell.
We will quote the key things, said by Mr. Smsolyakov (we outlined them in bold). Thus, to journalist’s question: “This isn’t the only measure. National Bank is developing a system of economic judgement”, deputy head of the National bank of RK announced:
“We are introducing our own procedure, which follows the standards of IFRS. These aren’t regulator’s ambitions, that is done in order to increase stability of the banking sector. What we are going to do is a supervisory review. Right now we have rules, prudential norms, we can implement the measures of early reacting. These are general rules that suppose a minimal threshold for both high and low risk banks. Thus, all of our reacting to situations on the market happens post-factum.
Now, however, we want to make an emphasis on rules rather than risks. The first thing a regulator needs to do in regards to this, is to have a map of risks of each bank from the standpoint of liquidity, sufficiency of capital, operational risks. And having gauged these data we will understand which bank is more risky and which one is less.
Next point: if we are working based on risks, we cannot have common rules for all the second-tier banks. Regulator will work personally with each bank. We estimate, whether it has enough liquid assets, enough capital. After that, decisions will be made separately for each bank, based on its risks.
Let’s say the bank is fulfilling the requirement of the regulator on sufficiency of the capital, but we see risky operations, in the legal field, which will most likely lead to weakening of financial stability. And at this point we see supervisory raise, i.e. this bank’s provisions will be higher, than others, so we limit operations. The same goes for risks of liquidity of second-tier banks – we will judge cash flows of banks from the viewpoint of their vulnerability.
Thus reaction of the National bank won’t be post-factum, but rather before the onset of violations. As soon as we see big risks, we start implementing our own set of measures: putting out demands, etc.
Right now the regulatory deduction will be put in place; it is the difference between the scope of risks and provisions, formed in accordance with IFRS. In the next five years, this demand towards capital will be enforced softly – for now, due to insufficiency of capital the bank will have to either work with its own assets, or with the capital, and in five years this surcharge will be deducted directly from its main capital.
Oleg Smolyakov answered the next question from the Kursiv’s journalist – who will make such decisions? in the following way:
Firstly, the decisions will be made collectively. This will either be an existing platform – the National bank’s board, or we will create a new qualified platform, where the entire profile of bank’s risk will be examined and the judgements of the regulator will be made. Then we will promptly discuss this decision with the bank. We will be able to familiarize ourselves with the second-tier bank, because we might not be able to see some things, from the distance. And most importantly, the bank will have the right to appeal the measures of the supervision, but these measures won’t be stopped.
When the interviewer wondered “Aren’t you afraid of corruption?” deputy head of National bank of RK, confidently said:
“The market has concerns about how this system will work. But we base everything on the justification of our measures of reaction and on the collegial decision. There might be a problem with one-two people, but if we have a well-written system, then there can not be NKVD trio in the National bank. This will be a professional group of people that deals with issues of regulation, is constantly having a dialog with banks and rechecks all data. I repeat, all second-tier banks will have a right to appeal.
We are not saying that using the means of economic judgement, licenses will be instantly recalled or stopped, we are talking about means of reacting, which will be the more effective the sooner they are put in place. I think there will be more arguments, when we will start working with banks that have really high risks and our actions will be harsh on the part of demands for capitalization, shareholder structure, change of management. In these cases, some appealing is possible, but when we are talking about changes by our demand of the bank’s system of risks, I think we won’t have a court format of dealing with STBs.
Key mistake of Oleg Smolyakov and his ilk, is that they are trying to realize sensible ideas in wrong conditions.
The main problem of modern Kazakhstan in the sphere of government administration is the complete lack of recognized, effective and transparent mechanisms of coordination of interests of parties. As a result – decisions on even monumental, high-profile issue, political or economic or even literary in nature, are made by a narrow circle of individuals as a result of inter-elite agreements (clashes).
As a result, any government body, including National bank of RK, is automatically a performer of others’ will. Those who doubt us, should remember confessions of Kairat Kelimbetov on devaluation of currency.
In the meantime, in Kazakhstan in the last few years manual management of everyone and everything has become dominant in the sphere of government administration. And it is clear why: in the conditions of prolonged economic crisis, which is exacerbated by social grievances and serious foreign policy issues, of countries allied with Kazakhstan, considerable fall of quality of life of population, increasing disorder in society and anxieties caused by the coming transfer of power in the country, government mechanism simply doesn’t have time to self-improve in an organized and normal way.
This is why, intentions of the National bank of RK, once again voiced by Oleg Smolyakov, must cause anxiety in Kazakh society. More so, they were publicly supported by the president; the key decisions in the banking sector will be put not only de-facto but formally, into the hands of people who do not carry responsibility to the people for their actions. Thus even if regulator will be able to avoid corruption among its managers, it will be forced to fulfill political demands of Akorda. And thus, it follows that the promise, given by the deputy head to journalists to not create NVKVD trio wont be fulfilled.
A whole different story is that decisions to “sink” a certain bank will of course be made not by the trio but by someone in Akorda, possibly by the “leader of the nation” or someone close to him. In the same way that it recently happened with Kazkomercbank, whose salvation cost the government five times more than that of all other Kazakh banks, and only for it be gifted to People’s bank of Kazakhstan (or more precisly its majority shareholders, the daughter and son-in-law of elbasy.
And the last thing. From the interview of Oleg SMolyakov to Kursiv, it follows that regulator doesn’t have a system of gauging and estimating risks of domestic financial institutions. This is scary – because such practices are not only a required norm but a condition of existence of any bank, if of course, it doesn’t wont to lose loans given to it and go bankrupt. Turns out that in Kazakstan, the cobbler’s (National bank’s) children have no shoes.
A question arises, if until now the regulator didn’t have the right to pass judgement after which customization of certain norms followed, then who or what was in its way of creating a system of estimating risks? If not for everyone’s knowledge than at least for itself? It is this lack of professionalism in the actions of administration of National bank of RK, tied with the plans of increasing subjectivism of regulatory impact on the banking sector, that cannot be called anything less than voluntarism. And this voluntarism combined with political authoritarianism in the country will lead to the state where repressions in the financial sector will become the norm, and they will be fulfilled in the interest of not so much government or society, but rather those clans that dominate in Akorda and that today already control all of the largest Kazakhstani banks excluding Russian ones.