THE LETTER OF THE AGENCY OF THE REPUBLIC OF KAZAKHSTAN ON REGULATION AND SUPERVISION OF THE FINANCIAL MARKET AND THE FINANCIAL ORGANIZATIONS

of October 19, 2009 No. 08-20/7479/20635

Explanations about rates of remuneration of banks within the Law of the Republic of Kazakhstan "About modification and amendments in some legal acts of the Republic of Kazakhstan concerning stability of financial system"

Present the Agency of the Republic of Kazakhstan on regulation and supervision of the financial market and the financial organizations (further - the Agency) sends you explanations of the Agency about rates of remuneration of banks within the Law of the Republic of Kazakhstan "About modification and amendments to some legal acts of the Republic of Kazakhstan concerning stability of financial system" for use in work.

Appendix on 2 sheets.

Explanations of the Agency about rates of remuneration of banks within the Law of the Republic of Kazakhstan "About modification and amendments in some legal acts of the Republic of Kazakhstan concerning stability of financial system"

Article 39 of the Law of the Republic of Kazakhstan "About banks and banking activity in the Republic of Kazakhstan" (further - the Law on banks)

Rates and rates

1. Rates of remuneration and the commission, and also rates for rendering banking services are established by the banks, the organizations performing separate types of banking activities, independently.

1-1. In the agreements of bank loan signed with physical persons including agreements of mortgage loans, the banks of the second level, the organizations performing separate types of banking activities establish the fixed or floating rate of remuneration.

It is provided in part one of this Item that in the loan agreements signed with physical persons, including individual entrepreneurs (further - physical persons), the rate of remuneration of two types can be provided: fixed or floating.

At the same time fixed rate of remuneration - rate which size is fixed in certain value, floating rate of remuneration - rate which is calculated as amount/difference of basic indicator which the refunding rate of National Bank of Kazakhstan, and rates of interest spread of bank is.

We note that the fixed or floating rates of remuneration shall be without fail specified in the text of the agreement on the first two pages of the loan agreement.

The fixed rate of remuneration is not subject to change unilaterally and is invariable during the term determined by the agreement taking into account requirements of this Item. The minimum effective period of fixed rate shall constitute at least three years.

This regulation means that in the loan agreements signed with physical persons, both reduction of fixed rate of remuneration, and transition to floating rate of remuneration are possible only by agreement of the parties that it is also established by part three of Item 1-1 of article 39 of the Law on banks.

The fixed rate established at the time of the conclusion of the loan agreement by the agreement of the parties is invariable during the term determined by the agreement, but at least three years. At the same time after the specified term the fixed rate can be increased, but only by agreement of the parties, and on term at least Item 1-1 of article 39 of the Law on banks established by part two, that is three years.

Thus, under agreements which effective period constitutes less than three years it is invariable throughout all term of crediting. Under agreements over three years on the expiration at least three-year period of action the fixed rate by agreement of the parties can be increased by effective period by term at least three years again.

By agreement of the parties the fixed rate of remuneration can be changed towards reduction or by floating rate of remuneration during the term of the agreement.

By the specified part it is determined that at any moment of validity of loan by mutual consent of bank and the client the fixed rate of remuneration can be reduced or transferred to floating rate of remuneration. For example, in 1 month, 1 year, 1,5 of year, 3-5 years and so on the rate in the amount of 10% can be by agreement of the parties reduced to 8% or is transferred to floating.

The procedure for calculation, condition of action of floating rate of remuneration are determined by regulatory legal act of authorized body.

This procedure is established by the resolution of Board, of 29.11.08 No. 216 also provides that the floating rate of remuneration is calculated as amount/difference of basic indicator (official rate of refinancing of National Bank of the Republic of Kazakhstan) and rate of interest spread, in nominal size, estimated in percent points (further - interest spread).

The size of interest spread is calculated and established by bank independently and once in three years can be reviewed by bank, at the same time the next increase in the size of interest spread shall be the amount of discontinuous increase of interest spread which was no more specified in the agreement.

When calculating interest spread the bank considers the expenses connected with issue of loan including administrative expenses, rate of the minimum reserve requirements, expenses on creation special provisions (reserves), expenses on tax payment and other obligatory payments in the budget, expected return (ROE) calculated as the relation of the expected net income before payment of the income tax to equity (on balance).

The banks of the second level, the organizations performing separate types of the banking activities having no right to change unilaterally towards increase the conclusions of the agreement of bank loan established for date the sizes and procedure of payments of rates, commission fees and other expenses on servicing of loan.

This regulation means that during validity of the loan concluded with physical person, the bank has the right to charge rates, the fees and other expenses on servicing of loan in the amount of, established at the time of issue of loan.

Even in case of increase by bank in the sizes of the commissions, rates and other expenses on servicing of loans or changes of procedure for their calculation as a result of which these expenses will be increased on each separate loan such increase in expenses can be established only by agreement of the parties.

2. Banks, except for Islamic banks, the organizations performing separate types of banking activities shall specify remuneration rates in reliable, annual, effective, comparable basis which procedure is established by authorized body, in the agreements signed with clients and also in case of distribution of information on remuneration sizes on financial services, including its publication.

In case of non-compliance with the requirements established by Items 1-1 and 2 of article 39 of the Law on banks, the authorized body has the right to apply to bank, the organization performing separate types of banking activities, sanctions, the stipulated in Article 47 Laws on banks.

Note:

The law of the Republic of Kazakhstan "About modification and amendments in some legal acts of the Republic of Kazakhstan concerning stability of financial system" (further - the Law) gives retroactive effect to the regulations provided in Item 1-1 of article 39 of the Law on banks.

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