National Bank of Kazakhstan
Kazakhstan: Banking capitalization
strategic management
November 7, 2014
Kazakhstan Financial Sector Development Concept 2030:
banking sector
Main objective of FSDC 2030: to create a competitive financial sector, increase its effectiveness in terms of
financial resources redistribution in accordance with the best international standards
Our tasks:
Reduction costs of maintaining stability of the financial system in the event of shocks:
• formation of an effective shocks absorption through the implementation of Basel II and III international standards
• improvement of banks' assets structure and NPL reduction to an acceptable level, without limiting lending ability of banks to
economy
• improvement of the system of early warning, rehabilitation and liquidation of banks
The improvement of the financial sector efficiency in light of economic integration and globalization:
• institutional development of the banking system («medium-sized banks»/«banks-champions»), the development of individual
business strategies of banks and adequate regulation of their risks
• creating favorable conditions for creation of an effective model of «Bank of the Future»
• promoting competitiveness in conditions of international integration
Infrastructure improvement and creation of optimal conditions for qualitative development of the financial system:
• automatization of business processes for bank's risk minimization
• infrastructure development of payment services market
Expansion of financial sector growth resources, incl. through the financial products that meet the needs of the economy:
• formation of the banks resource base that diversified according to different sources of funding
•
creation of an effective refinancing system.
Maintenance of a balanced economic environment and reduction of credit risk in the economy.
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Increasing the capitalization of banks /1
Aims are:
- increase Loans/GDP coverage ratio
- build banking capacity, strengthen top 10 competition
- provide cost-effective and technologically more advanced financial services
- set up rigorous risk management systems
Components
of capital
Dates
Minimum amount of OC
from January 1, 2016
from January 1, 2017
from January 1, 2018
from January 1, 2019
30 bln.
50 bln.
75 bln.
100 bln.
Dates of limits on the amount of attracted deposits for banks, not planning to increase the size of OC
OC< 30 bln. tenge
10 bln.
10 bln.
10 bln.
10 bln.
30 bln. tenge ≤ OC < 50 bln. tenge
without limitation
50 bln.
50 bln.
50 bln.
50 bln. tenge ≤ OC < 75 bln. tenge
without limitation
without limitation
75 bln.
75 bln.
75 bln. tenge ≤ OC < 100 bln. tenge
without limitation
without limitation
without limitation
100 bln.
OC≥ 100 bln. tenge
without limitation
without limitation
without limitation
without limitation
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Increasing the capitalization of banks /2
A.
B.
C.
OC Limits
OC < 30 bln.
30 bln. ≤ OC< 50 bln.
50 bln. ≤ OC< 75 bln.
75 bln. ≤ OC < 100 bln.
OC ≥ 100 bln.
Limits for deposits of
individuals
Up to 10 bln.
Up to 50 bln.
Up to 75 bln.
Up to 100 bln.
without limitation
Number of banks
22
4
2
2
8
These requirements will be implemented gradually and provide the possibility of continuing banking activity to small and
average banks , including taking of deposits of individuals within the set limit.
From 38 banks only 8 have the OC of over 100 billion and the opportunity to attract deposits from individuals without
limitation. For banks with capital less than 100 billion the amount of deposits will depend on the size of OC.
The limits introduced on individual deposits will provide a full coverage of deposits of the population in banks with capital
less than 100 bln. by reserves of Kazakhstan deposit insurance fund (KDIF).
Note:
Number of banks with capital < 100 bln. = 30
Aggregate individual deposits in banks with capital < 100 bln. = 363 bln. (reserved by KDIF)
Overall reserves of the Kazakhstan deposit insurance fund = 305 bln.
D.
Phased in capitalization approach :
I.
will support confidence in banks
II.
will continue consolidation trend but not concentration
III. will decrease the costs through the economy of scale, as well as develop the new capital-intensive and
technological financial services
IV. will strengthen the competition among ten large banks of Kazakhstan and the competition with 50 large banks of
Russia
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Transition to Basel III capital standards
Gradual transition schedule
Dates of introduction
Minimum requirements
Own capital
Kazakhstan
Russia
ЕС
Basel III
Overall level of capital
Kazakhstan
Russia
ЕС
01.01.2014
01.01.2015
01.01.2016
01.01.2017
01.01.2018
01.01.2019
5%
5.5 %
6%
6.5 %
7%
10 %
12 %
5%
4%
4%
4.5 %
4.5 %
7.5 %
8%
10 %
8%
8%
Basel III
Conservation buffer
Kazakhstan
Russia
ЕС
Basel III
9%
1% (2,5%*)
2% (3%*)
3%
2.5%
0.625%
0.625%
1.25%
1.25%
1.875%
1.875%
2.5%
2.5%
* for systemically important institutions (SII)
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Peculiarities of implementing Basel III in Kazakhstan
A.
B.
C.
D.
E.
F.
G.
H.
According to assessments Kazakhstani banks can withstand the new capital adequacy requirements under Basel III.
The additional level of capitalization needed for the banking system is estimated at 2,7% of RWA (by estimations of banks and NBK).
Normative values ​of own capital adequacy and buffers are reviewed by the authorized body at least once in every three years to
ensure sustainable and at the same time competitive banking sector
According to the calculations of NBK banks’ capital adequacy with specific risks can be ensured when establishing requirements
higher than those recommended by Basel III, which is also confirmed by international practice.
Minimum core capital and own capital ratios will be set at the 7% and 12%, both are subject to 5 year phased in period
The Additional Tier 1 Capital instruments (irredeemable financial instruments) and Tier 2 Capital (subordinated debt), that don’t
meet the Basel III standards, are subject to flat rate depreciation from banks’ capital from 2015 to 2019 (over 5 years, at a rate of
20% per year)
From January 1, 2016 calculation will be carried out on an unconsolidated basis (IAS), in case of affiliated organizations - on a
consolidated basis (IFRS)
A conservation buffer, a counter-cyclical buffer and a separate buffer for systemically-important banks are defined. The timing of
introduction of the minimum values of buffers will be set later.
Issues for further analysis
a.
b.
Supervisory capital add-ons for banks based on assessment of risk profile, risk management and internal control will be introduced
Improvement of legislation of the Republic of Kazakhstan in the part of introduction of the concept of financial instruments that
meet the criteria of Basel III: cumulative preferred stock, bonds convertible into shares, subordinated debt
c.
Implementation of instruments to improve the health of banks in case of problems at the expense of shareholders and creditors of
the bank (bail-in tool)
Expansion of the list of banking operations and their types (investment banking operations in the securities market).
d.
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