IMF published its staff report and selected issues report under the 2018 Article IV consultation with the Republic of Kazakhstan. The Executive Board notes that certain risks and challenges remain, despite extensive and costly financial support to banks. Actions are needed in the areas of asset quality and governance, supervision and regulation, emergency liquidity assistance (ELA), credit subsidies, collateral and foreclosure, and disposal of distressed assets. Further strengthening of the resilience of the banking sector will contribute to sound macro-financial linkages and growth, while reducing risks.
The staff report notes that the authorities have taken major steps to secure the stability of the financial sector, although certain risks remain and nonperforming loans (NPLs) also remain elevated. Legal changes to enhance the National Bank of Kazakhstan's (NBK) regulatory powers, particularly on use of supervisory judgment, were adopted by parliament in June. NBK withdrew or suspended licenses of several medium-size and small banks that were in violation of prudential requirements. Long-term funding remains limited and a number of initiatives are being rolled out, including NBK support for mortgage lending and purchase of bank bonds by the pension fund. High NPLs and large volatility of deposits affected lending and, in 2017, private sector credit was flat.
Although certain actions of authorities actions have helped preserve systemic stability, state support has been costly. The banking sector continues to experience difficulties from weak credit risk assessment and management and needs to adopt a substantially stronger business model, with enhanced governance, management, operations, and profitability. The IMF staff urged that policy actions be taken in several areas:
- Large banks—including those that received state support and NBK subordinated loans—should undergo a thorough balance sheet evaluation. A comprehensive asset quality review—ideally by an external party—would help define the magnitude of remaining potential problem loans. Further capital support should come from shareholders or new private investors.
- Banks that received state support, and those with continuing constraints on portfolios and profitability, should undertake operational restructuring to ensure sound governance and proper risk assessment. This would address the moral hazard concerns.
- Recent amendments to the Law on NBK and the Law on Banks and Banking Activity aim to reflect international good practices in bank supervision and resolution. NBK should prepare regulations to formalize its use of broader powers. Another weakness that should be addressed relates to capital regulations, which allow banks to shift NPLs to non-bank subsidiaries that are not subject to consolidated capital requirements.
- The ELA framework for banks also needs attention. ELA should be provided only to institutions that are assessed as viable and should be adequately collateralized or provided under government guarantee.
- Further financial infrastructure improvements are needed, including in collateral valuation and foreclosure and disposal of distressed assets.
The selected issues report addresses fiscal risk management, key elements of the new regime of natural resource taxation, use of interest rate rules to inform monetary policy, reforms related to reserve requirements, macro-financial assessment, and economic diversification through trade. The report highlights that stronger and more effective macro-financial linkages would require improvement in the condition of banks and enhancements to the regulatory framework. Over the longer term, efforts are needed to promote financial development, which will be critical for diversified, sustainable, and inclusive growth.
Keywords: Asia Pacific, Kazakhstan, Banking, Article IV, NPLs, NBK, IMF
Previous ArticleOSFI Consults on Revised Guideline for Insurer Asset Securitizations
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).