IMF Reports on the 2018 Article IV Consultation with Kazakhstan
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 ArticleBCRA Updates Rules on Capital Requirements and Information Regime
Next ArticleIAIS Publishes Newsletter for Summer 2019
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
MFSA Sets Out Supervisory Priorities, Issues Reporting Updates
The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023
German Regulators Issue Multiple Reporting Updates for Banks
Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.