ORDER OF THE GOVERNMENT OF THE REPUBLIC OF KAZAKHSTAN

of August 27, 2014 No. 954

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

The government of the Republic of Kazakhstan DECIDES:

1. Approve the enclosed Concept of development of the financial sector of the Republic of Kazakhstan till 2030.

2. This resolution becomes effective since September 1, 2014.

Approved by the Order of the Government of the Republic of Kazakhstan of August 27, 2014 No. 954

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

1. Introduction

Development of the financial sector of the country depends on determination of its place and role in national economy taking into account requirements of society and state. At the same time owing to the different points of view purposes before the financial sector of each certain economic agent shall not dominate. Otherwise there are conditions for growth of inefficiency of system and increase in systemic risks.

The state expects that the financial sector will be capable to provide sufficient amount of resources at reasonable price for financing of priority industries of economy within programs of economic development.

For consumers (legal entities and physical person) satisfaction with quality, amount, cost and the list of the services rendered by financial system irrespective of phases of economic cycle is important.

The financial organizations are faced by the purpose of increase in current value of business, maximization of its profitability, first of all, due to growth of amount of services from the main activities in case of the managed risks and cost structure.

Common goal both for society and the state, and for the financial organizations is forming of the financial sector which is most effectively performing the function of the financial intermediary.

The directions of development of the financial sector also shall consider the changes happening on a global scale. Against the background of strengthening of integration processes the approved unified approaches to regulation of the national financial markets are developed (standards Basel III, Solvency II). The Republic of Kazakhstan and its financial market do not remain away from world tendencies. There is active implementation of the best international practice and standards of regulation.

Integration into the World Trade Organization (further - the WTO) and the Common economic space (further - EEP), in turn, creates prerequisites for further liberalization of the market of financial services. Subsequent strengthening of the competition in the financial market, on the one hand, shall entail improvement of quality and expansion of range of the provided services. On the other hand, degree of vulnerability of the financial sector of the Republic of Kazakhstan to external shocks will raise, so-called risks of "infection" will increase that, in case of implementation of the adverse scenario of development, can lead to capital outflow and means of creditors and investors from bank system, to credit compression.

In these conditions the financial system shall not create new risks or increase the scale of the existing risks in economy. It requires development of the optimum mechanism of regulation when possible consequences of realization of risks are minimized, at the same time requirements are not excessive and do not suppress activity of the financial sector.

The concept of development of the financial sector of the Republic of Kazakhstan till 2030 is discussed with participation of the financial organizations, National chamber of entrepreneurs and consolidation of legal entities "Association of financiers of Kazakhstan", the scope of different opinions, offers, the ideas directed to improvement of functioning of the financial sector became result of what. Besides, the document within the project "The program of assessment of the financial sector also considers conclusions and recommendations of the International Monetary Fund: the stability module" (Financial Sector Assessment Program) which was implemented in the 4th quarter 2013 - in the first half of 2014.

2. The purposes and tasks of the Concept of development of the financial sector of the Republic of Kazakhstan till 2030

The concept of development of the financial sector of the Republic of Kazakhstan till 2030 is aimed at creation of the competitive financial sector and increase in its efficiency in redistribution of resources in economy based on the best international standards, including standards of Organization for Economic Cooperation and Development (further - OECD).

For the solution of effective objective realization of the following tasks is provided:

1) cost reduction of society and state on maintenance of stability of financial system in case of potential shocks;

2) increase in efficiency of the financial sector in the conditions of economic integration and globalization;

3) enhancement of infrastructure and creation of optimum conditions for high-quality development of financial system;

4) expansion of resources of growth of the financial sector, including at the expense of the financial products meeting requirements of economy;

5) maintenance of the balanced economic conditions and decrease in credit risks in economy.

The concept of development of the financial sector of the Republic of Kazakhstan till 2030 assumes several stages. At the same time the successful implementation of actions on each of them will create basis for further sustainable development of financial system till 2030 and further in the conditions of new world tendencies.

Till 2020 the main efforts will be directed to increase in stability of the financial sector by means of the solution of the existing problems and strengthening of its competitiveness, and also acceptance of adequate measures and creation of the base for functioning of the financial market after 2020. At this stage are expected completion of transition period after the entry of the Republic of Kazakhstan into the WTO, and also transition to international standards of regulation of financial activities.

During the period till 2025 it is planned to finish process of harmonization of legislations of member countries of EEP determining development of the financial markets of the countries. Creation of supranational regulating authority of the financial market will become the main result of harmonization. In this regard change of role and the place of national regulatory authorities is expected.

During the period after 2020 before the financial organizations there will be challenges connected with growth of penetration of the financial services rendered by global and regional leaders in the domestic market without business presence (through branches). It is necessary to take development of infocommunication technologies, and also hybrid models (strategic partnership of the conventional financial and technological organizations) into account that will change habitual way of provision of financial services. In this regard the domestic financial organizations shall be capable to win the competition for the consumer to players, appetite to risk and which opportunities above in the conditions of non-proliferation on them basic prudential standard rates and requirements is incomparable. In these conditions growth of competitiveness is impossible only due to extensive increase in scales of business. It shall be based on improvement of quality of the business strategy and processes allowing to adapt quickly new trends and technologies of provision of financial services to consumers also.

3. Analysis of the current situation and tendency of development of the financial sector of the Republic of Kazakhstan

1. Main internal structural problems and tendencies of development of the financial sector

Development of financial system of the Republic of Kazakhstan has unstable character and is caused by availability of number of key problems, many of which have long character that is also confirmed by intercountry estimates of the leading international organizations. Stagnation of the financial market for the last years is caused by both the internal reasons, and restrictions from the real sector, in particular:

1) priorities of crediting by banks reflect disproportions in structure of the economic growth which is based on the consumer demand, but not on investments;

2) limited set of the services rendered to large enterprises and inability of banks to accumulate independently essential amount of the resources necessary for financing of large-scale investment projects, determine dependence of financing of the priority directions of development of economy, including small and medium business, in many respects from the resources allocated by the state;

3) the distortion towards retail funding of bank system in case of the actual lack of the market of redistribution of liquidity and backwardness of mechanisms of refinancing does system subject to risks of "change of moods" of investors;

4) the high amount of idle loans reduces possibilities of banking sector to react flexibly to changes of the macroeconomic circle, situation in the separate markets;

5) discrepancy of structure of assets and liabilities of bank system on currency types as creditors of banks increase preferences to foreign currency, and borrowers - to national currency;

6) lack of internal points of growth of other segments, in particular insurance when development is provided thanks to obligatory types of insurance or the accompanying insurance as cross-sellings when crediting by banks, retirement annuities due to transfers of pension savings from the accumulation pension funds in insurance companies;

7) the systemic risk connected with high unprofitability of separate types of insurance as a result of legislative restriction of the size of insurance rates and deregulation of the state functions with transfer to their commercial insurance companies without due selection of risks;

8) the low potential of non-bank institutional investors in the market of private investments when possibilities of insurance companies are limited to transfer of essential amount of insurance premiums to nonresident overcautious persons of the Republic of Kazakhstan, and in management of pension money during creation of the Single accumulation pension fund (further - ENPF) comes question of ensuring safety of funds due to decrease in risks of investment to the forefront;

9) deficit of the offer and unattractiveness of tools of the security market concerning deposits of banks and the real estate market for retail investors;

10) as a result, lack of alternativeness to the market of banking services from the security market;

11) emergence and growth of the alternative (nonconventional) organizations providing financial services, and change of consumer behavior concerning where and as they acquire financial services and products can serve weakening of competitiveness of banking sector of the Republic of Kazakhstan.

12) noncompetitiveness of Regional financial center of the city of Almaty (further - RFTsA) in comparison with international financial centers as a result of the main problems of the security market of the country inherent at this stage of its development, and also the problems having system character (infrastructure, economic, investment, business, social, transport, ecological).

Banking sector. As of January 1, 2014 in the Republic of Kazakhstan 38 banks, from them 17 banks with foreign participation, 1 bank with 100% state participation and 3 banks with quasi-public equity participation functioned.

After several years of the stagnation caused by financial crisis since 2011, certain dynamics of growth of banking sector was noted. However indicators of level of financial intermediation testify to insufficient efficiency of banks on redistribution of resources in economy and to satisfaction of demand for the credits from economic agents and also reflect strengthening of regulation in the light of the international initiatives according to the problem resolution which led to emergence of the global financial crisis. For the last 3 years (2011 - 2013) assets of banking sector increased by % 28,5 to 15 462 billion tenges. Nevertheless, in relation to gross domestic product (further - GDP) assets of banking sector were reduced from 55% to 46% (rather non-oil GDP constitute about 64%). The credit portfolio of banking sector for January 1, 2014 constituted 13 348 billion tenges, having increased by % 47,2 since the beginning of 2011. Level of the credits to GDP which maximum value reached 70% in 2007 remains at a low level - 40% (rather non-oil GDP constitutes about 55%).

Low level of financial intermediation is more connected with unbalanced crediting and low diversification of loan portfolio, and also mainly short-term funding. In its structure the loans granted service sector, in particular trade industries (that is the credits with high share of turnover), constructions and to real estate transactions (the loans issued in many respects during the pre-crisis period) prevail. The insufficient involvement of banking sector into process of financing of small and medium business reflects the high level of debt load and unstable financial position of the last, including owing to their low capability to generate the capital that results in concentration of credit risk in this directions.

As a result, despite high level of demand on credit resources from the corporate sector, banks concentrate on provision of short-term high-profit, but at the same time high risk consumer loans more and more. For the last three years the share of consumer loans grew almost twice that causes certain concern as in the long term can increase credit risks of the population. Low current level of debt load of the population (the relation of total debt of households to GDP constitutes 11%) keeps certain inventory for further building-up of banking business in this direction. However the aggressive growth of unsecured consumer loans already requires taking measures to its restriction.

In these conditions one of questions of further development of banking sector is the solution of the existing problems of high level of idle loans and deficit of long-term sources of funding which make the discouraging impact on credit activity of banks.

As of January 1, 2014 the share of idle loans constituted 31,2 of % of total credit portfolio of banks which considerable share is the share of banks which carried out restructuring of obligations. For the last two years this indicator is at rather stable level within rather narrow range (from 30% to 32%). It demonstrates that the potential of use by banks of "classical" instruments of improvement of quality of assets, such as carrying out debt restructuring, is almost exhausted. For the low-quality problem resolution of assets in 2012 several cleanings mechanisms of balance of banks were enacted. These mechanisms assume sale of troubled assets to Fund of the Problem Credits joint-stock company (further - Fund of the problem credits) and the affiliated organizations of bank acquiring doubtful and bad assets of parent bank (further - OUSA), and also conditions of forgiveness of bad debt until the end of 2015 without emergence of the additional tax liabilities for banks. At the same time, the potential of use of the instruments of cleaning stated above declared by banks does not correspond to the opportunities given by the legislation owing to difficult and long legislative and procedural settlement of execution of debt obligations. In addition National Bank of the Republic of Kazakhstan within measures of early reaction entered limits for share of idle loans in loan portfolio of banks (since 2013 - 20%, since 2014 - 15% of loan portfolio). For activization of work of banks on improvement of quality of credit portfolios since January 1, 2016 as the prudential standard rate will be entered the maximum limit of idle loans, obligatory for banks, at the level of 10%.

Decrease in share of long-term funding in structure of obligations of banks is in many respects caused by decrease in obligations to nonresidents (on 42, % for the last 2 years) in view of limited access on the foreign market. As a result, basis of base of funding of bank system are deposits of clients (73,6 of % of amount cumulative obligations of banks for the end of 2013). At the same time the share of short-term obligations (till 1 year) reaches 2/3 from cumulative obligations. But even term deposits cannot be fully considered as stable source of funding as the legislation and the developed market conditions allow early claiming upon the demand of investors and in many cases without loss of percentage remuneration. It does resource base of banks volatile and expensive, and also limits opportunities for full long-term lending by banks of economy and the population, in particular it concerns crediting in national currency which is most demanded.

This circumstance is complicated by the fact that essential part of deposits is expressed in foreign currency that increases financial risks of both banks, and the borrowers who received crediting in foreign currency but not having currency earnings or effective hedging instruments. At the same time even the moderate tendency in dynamics of rate of tenge in the domestic market leads to noticeable change of currency structure of deposit base.

Possibilities of the domestic market of bonds were historically weak, and reducing demand for bonds of banks turned out to be consequence of reforms in the pension sector of the Republic of Kazakhstan in 2013 from private pension funds. As a result the amount of bonds of the banks which are in circulation was in the last two years reduced by % 32,2 to 1 006, by 3 billion tenges.

Insurance sector. As of January 1, 2014 34 insurance companies, from them 7 on life insurance perform activities for insurance and reinsurance. At the same time the number of insurance companies on general insurance has distinct downward tendency. For the last three years 6 insurance companies on general insurance stopped the activities and if to consider circumstances on possible merges and absorption in 2014, the number of insurance companies on general insurance can be reduced still.

Despite the dynamic growth of assets of insurance companies, their share in GDP remains at quite low level (less than 2%). The indicator of amount of awards per capita in 2013 did not exceed threshold in 100 US dollars while the population of the Republic of Kazakhstan constitutes 17,2 of one million people. All this testifies to the huge potential of the Kazakhstan insurance market.

The total volume of assets of insurance companies for January 1, 2014 constituted 523, 4 billion tenges, having increased by % 52,5 since the beginning of 2011. Obligations of insurance companies for the same period grew by % 99,8 to 268, of 8 billion tenges. Dynamic growth of assets of insurance sector is explained by the requirement of authorized body for step-by-step capitalization of insurance companies during the period from 2010 to 2012.

To 80% of assets of insurance sector constitute investments: securities - 51%, deposits to banks - % 24,5, money - % 3,7 that testifies to high liquidity of assets of insurance sector.

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