PRESIDENTIAL DECREE OF THE REPUBLIC OF KAZAKHSTAN

of September 26, 2022 No. 1021

About approval of the Concept of development of the financial sector of the Republic of Kazakhstan till 2030

According to Item 1 of article 40 of the Constitution of the Republic of Kazakhstan POSTANOVLYAYU:

1. Approve the enclosed Concept of development of the financial sector of the Republic of Kazakhstan till 2030 (further - the Concept).

2. To the central executive bodies, state bodies, directly subordinate and accountable to the President of the Republic of Kazakhstan, and also the interested organizations (in coordination), responsible for implementation of the Concept:

1) to take measures for implementation of the Concept;

2) to provide information on course of execution of the Concept according to the procedure and the terms established by the System of state planning approved by the order of the Government of the Republic of Kazakhstan of November 29, 2017 No. 790.

3. To impose control of execution of this Decree on Administration of the President of the Republic of Kazakhstan.

4. This Decree becomes effective from the date of its signing.

Approved by the Presidential decree of the Republic of Kazakhstan of September 26, 2022 No. 1021

The concept of development of the financial sector of the Republic of Kazakhstan till 2030

Astana, 2022

Section 1. Passport of the Concept

Name	The concept of development of the financial sector of the Republic of Kazakhstan till 2030
Basis for development	the order of the President of the Republic of Kazakhstan of November 22, 2021 No. 21-4903
State body responsible for development	Agency of the Republic of Kazakhstan on regulation and development of the financial market
State bodies and organizations responsible for realization	state bodies, directly subordinate and accountable to the President of the Republic of Kazakhstan, central executive bodies, organizations
Realization terms	2022 - 2030

Section 2. Analysis of the current situation

2.1. Current status of the financial sector

The financial system of the Republic of Kazakhstan is characterized by bankotsentrichny model. The main share of assets of financial system is concentrated in banking sector. About 78% of assets of financial system, 8% - Development bank of Kazakhstan, the remained 14% - other sectors of the financial market are the share of banking sector.

Structure of assets of financial institutions *, % (without public pension funds)

Sources - the Regulatory reporting, The Global Competitiveness Report 2019, the official sites of Central Banks of Russia, Poland and the Czech Republic

* Financial institutions include Development bank of Kazakhstan which according to the legislation of the Republic of Kazakhstan has special status and treats the institutes of development performing financial services without license of the regulator

Dynamic growth of assets of the financial sector is observed - since 2017 total assets of financial system increased by % 74,5 to 44, of 3 trillion tenge, assets of banks increased by 56% to 37, of 6 trillion tenge, assets of other financial organizations increased by % 190,5 to 6, of 7 trillion tenge.

Along with the financial organizations financing of business in Kazakhstan is performed directly by subjects of the quasi-public sector which role significantly grows. So, assets of Development bank of Kazakhstan increased since 2017 by % 48,2 with trillion 2,5 to 3, of 7 trillion tenge.

Assets of financial institutions *, trillion tenge

Sources - the Regulatory reporting

Financial institutions include Development bank of Kazakhstan which according to the legislation of the Republic of Kazakhstan has special status and treats the institutes of development performing financial services without license of the regulator.

The relation of assets of financial institutions (taking into account Development bank of Kazakhstan) to GDP following the results of 2021 constituted 57% that considerably yields to indicators of the countries which are at similar stages of economic development and testifies to the available potential of further growth.

The relation of assets of financial institutions to GDP following the results of 2020, %

Sources - the Regulatory reporting, the official sites of Central Banks of Russia, Turkey, Poland, the Czech Republic and China the Relation of assets of the financial sector to GDP of Kazakhstan is specified for 2021

Since 2017 growth of gross value added of the financial sector in structure of GDP of the country is observed. For the period 2017 - 2021 the contribution of the financial sector to economy increased from 2 trillion tenge to 2, 4 trillion tenge. As a result of the advancing rates in other industries the share of gross value added of the financial sector in GDP decreased with % 3,7 in 2017 to % 2,9 in 2021.

By results of the last research of the World Economic Forum (WEF) conducted in 2019 within assessment of global competitiveness in the international comparison the level of development of financial system of Kazakhstan is low. The major restraining factors at the time of evaluating were the high level of idle loans (NPL), problems of stability of separate banks and the low level of insurance premiums.

Line item of Kazakhstan in ranking of "Global Competitiveness Report 2019"

Sources - The Global Competitiveness Report 2019

At the same time, after carrying out the specified assessment number of system measures for increase in stability of banking sector was realized, including in 2019 - 2020 independent assessment of assets of banking sector and stress testing by results of which supervising measures are taken is carried out and the level of idle loans - with % 8,1 in 2019 to 3, of % in 2021 is considerably reduced. International financial institutions and rating agencies gave positive assessment to measures for strengthening of the financial sector. So, in the conclusion of the IMF following the results of mission in 2021 it is noted that thanks to carrying out quality check of assets in 2019 and the subsequent supervising interventions, the bank system successfully transferred impact of the shock caused by COVID-19, having kept at the same time high rates of liquidity and capitalization of banks.

Since 2022 change of global geopolitical situation exerts impact on the financial sector. At the same time, the financial sector continues to function steadily that is confirmed by estimates of the international rating agencies. In June, 2022 Fitch Ratings confirmed the sovereign rating of Kazakhstan at the level of VVV with the stable forecast that including it is caused by stability of banking sector taking into account the potential risks connected with sanctions.

Banking sector

For January 1, 2022 in the Republic of Kazakhstan 22 banks, from them 14 banks with foreign participation, including 11 subsidiary banks of the second level function.

As a result of the happened consolidation, and also revocation of licenses of insolvent banks the market was left by the participants who had considerable amounts of troubled assets and inefficient risk management.

Assets of bank system during the period since 2017 grew in relation to GDP from 45% to 46%, having constituted 37, 6 trillion tenge. At the same time about 66% of assets of all sector are the share of 5 banks. For the beginning of 2022 Gerfindalya-Hirschman's (NN) index on banking sector of Kazakhstan constitutes 1407 (the moderate concentrated market).

Sources - the Regulatory reporting

The credits to economy since 2017 grew by % 26,5 to 18, of 5 trillion tenge. In structure of the credits to economy increase in share of retail crediting is observed. Decrease in share of the credits of the corporate sector is caused by increase in direct lending of business from institutes of development - the credits of Development bank of Kazakhstan which are not included in statistics of crediting of economy since 2017 grew by 27% to 1, of 9 trillion tenge. Besides, decrease in corporate credits is connected with measures for clarification of banking sector from problem loans, write-off of loans of insolvent and unfair borrowers, and also liquidation of insolvent banks.

Sources Monetary statistics

Following the results of 2021 implementation of measures of support of MSB was resulted by growth of the portfolio of loans of MSB for 29%, at the same time the credits to large business decreased by 3%. The share of MSB in portfolio of the credits to legal entities since 2017 increased from 53% to 60%.

Sources - the Regulatory reporting

The main driver of growth of the credits of physical persons are consumer loans which growth since 2017 constituted 110%. Since 2020 the active growth of mortgage lending which share in the credits to physical persons for 2019-2021 grew from 27% to 31% is also observed.

The amount of mortgage lending since 2017 grew more than by 3 times. Start since 2018 of programs of preferential housing crediting "7-20-25", "Baspana Heath", and also provision in 2021 of the right to use part of pension accruals for improvement of housing conditions became major factor of growth of mortgage lending.

Sources - the Regulatory reporting

Measures for improvement of banking sector promoted gradual reducing share of idle loans in portfolio of banks - with % 9,3 in 2017 to % 3,3 following the results of 2021.

NPL level, %

Sources - the Regulatory reporting

Deposits of clients remain basis of base of funding of banks.

Since 2017 the amount of deposits increased by % 54,7 to 27, of trillion tenge. The share of deposits in structure of obligations of banks since 2017 remains at the level of 79%. Household deposits increased since 2017 by % 63,0 to 13, of 4 trillion tenge. As a result the share of retail deposits in the total amount of deposits since 2017 increased from 43% to 49% following the results of 2021.

In 2018 types of deposit products are legislatively expanded and the new type of deposits - savings deposits is entered. By this type of deposits essential restrictions for early withdrawal are compensated by higher rate in comparison with other types of deposits. The amount of savings deposits since launch at the end of 2018 grew to 1, 07 trillion tenge for January 1, 2022 or 7,9 of % of all deposits.

Stability of banking sector is provided with sufficient amount of the equity which reached 4, 5 trillion tenge. Since 2017 the equity of banks increased by 51%, as a result value of coefficient of sufficiency of equity k1 on system increased from 17% to 19%, value of coefficient k2 increased from 22% to 23%. Key factors of improvement of level of capitalization of banks became improvement of banking sector with emphasis on decrease in dormant assets.

Insurance sector

The insurance sector for January 1, 2022 is provided by 27 insurance companies, including 9 organizations for life insurance. 2 insurance companies from 100% with the state participation, 9 insurance brokers and 60 actuaries operate on the market.

Assets of insurance companies since 2017 grew by 97% to 1, of trillion tenge, from them 1 trillion tenge - assets of insurance companies on industry of general insurance, 0, of 8 trillion tenge - assets of insurance companies on life insurance industry. Despite the dynamic growth of assets of insurance companies, their relation to GDP remains low - increase with % 1,7 in 2017 to % 2,2 following the results of 2021. At the same time about 62% of assets of all sector are the share of 5 insurance companies. For the beginning of 2022 Gerfindalya-Hirschman's index on insurance sector of Kazakhstan constituted 983 (the low-concentrated market).

On growth of assets of insurance companies considerable impact was exerted implementation of new insurance products on voluntary classes of insurance, by online insurance development, and also provision at the legislative level of possibility of the conclusion of the contract of retirement annuity with use of pension accruals.

Assets of insurance companies, one billion tenges

The total volume of insurance premiums in 2021 constituted 699 billion tenges, having increased in comparison with 2017 twice. The relation of insurance premiums to GDP slightly increased with % 0,6 to % 0,8.

The indicator of amount of awards per capita increased by 77% and constituted 36 thousand tenges.

The main driver of growth of awards is voluntary personal insurance. In comparison with 2017 the amount of awards on classes of voluntary personal insurance increased by 3 times, having made 300 billion tenges following the results of 2021. As a result the share of voluntary personal insurance in structure of awards increased from 28% to 43%. In turn, growth is caused generally by increase in availability of retirement annuity, provision of tax benefits on long-term accumulative products of life insurance and implementation of new insurance products.

The share of property insurance in structure of insurance premiums was reduced from 49% in 2017 to 38% following the results of 2021. The share of awards on compulsory insurance remains insignificant in comparison with voluntary personal and property insurance and constitutes 19%.

Amounts of the awards transferred to reinsurance made 107 billion tenges, having decreased since 2017 by 18%. The share of the insurance premiums transferred to reinsurance decreased from 37% in 2017 to 15% following the results of 2021. From them 92% of awards are transferred to nonresidents of the Republic of Kazakhstan to reinsurance. Reducing since 2018 amount of the awards transferred to reinsurance is caused by increase in possibility of insurance companies on own deduction of insurance risks, and also strengthening of requirements to transparency of transactions on reinsurance.

The total amount of insurance payments for insurance contracts increased since 2017 by 55% to 127 billion tenges. The maximum amount of insurance payments fell on 2019 - 218 billion tenges which was connected with availability of severe loss on proprietary insurance class from damage.

The coefficient of payments over the last 5 years was in the range from 18% to 47% without payments of future periods for accumulative life insurance.

The amount of insurance reserves for the end of 2021 made 892 billion tenges, having increased since 2017 by 94% that is caused by growth of insurance premiums during the specified period.

Stock market

For January 1, 2022 in the market 38 brokers, 19 managing companies, 51 investment funds, 9 banks of custodians, the 2nd transfer agent, the KASE stock exchange performing functions of the central partner, the central depositary and trade repository function. Besides, in jurisdiction of MFTsA the MFTsA exchange - AIX and the central depositary of the MFTsA exchange - AIX CSD functions.

The stock market of the country since 2017 is classified by the international services of the MSCI, FTSE and S&P indexes as "The border markets (Frontier Markets)". Work on improvement of line item of Kazakhstan in the MSCI, FTSE and S&P indexes is conducted.

Total assets of professional participants of the security market constituted 505, 1 billion tenges, having increased in five years in time 2,7, assets under management constituted 1, 0 trillion tenge, having increased in time 3,1. Increase in assets was promoted by growth of cost of financial instruments and inflow of investments.

Procedure for 80,2 of % of assets of the organizations exercising control of investment portfolio it is the share of 5 professional participants. For the beginning of 2022 Gerfindalya-Hirschman's index on the security market of Kazakhstan constituted 1807, that characterizes it as moderate concentrated the market.

Exchange indicators show stable growth that demonstrates increase in role of the stock market in financing of national economy. Capitalization of the Kazakhstan stock exchange (KASE) for the beginning of 2022 constituted 44, 2 trillion tenge, or % 52,6 in relation to GDP, having increased since 2017 by 73%.

Major factor of preserving growth rates of the bond market is the growth in volumes of borrowings from the quasi-public sector and banks of the second level.

One of the reasons interfering active development of the Kazakhstan stock market is rather low activity of retail investors. The number of accounts of physical persons in the security market in 5 years increased by 107 thousand to 218 thousand accounts that constitutes 2,5 of % of occupied population. Low interest of retail investors in the stock market is connected with low liquidity of tradable securities and the limited offer of securities of high-quality issuers.

Since 2017 in Kazakhstan the MFTsA exchange - AIX which is federated member of the European and Asian stock exchanges FEAS functions. The AIX group includes the Central Securities Depository of AIX CSD and registrar AIX Registrar which are responsible for daily transactions with cash, payment under securities and depository activity, and also storage and support of the central shareholder register.

The official listing AIX included 136 issues of securities of 86 issuers. In 2021 the trading volume in the AIX security market constituted 134, 3 billion tenges.

Following the results of 2021 35 trade members of AIX provide direct access to the AIX exchange, from them 12 are foreign. The number of accounts in AIX CSD for similar date made 160,5 of one thousand accounts. At the same time the main part of these accounts are the share of clients of the brokers licensees of the Agency having remote membership on AIX.

Microfinancing market

Since 2020 the perimeter of regulation of the Agency included all non-bank credit institutions, including credit partnerships, pawnshops and online creditors, and since 2021 licensing of microfinancial activities is entered.

Disclaimer! This text was translated by AI translator and is not a valid juridical document. No warranty. No claim. More info