Bank formation in Kazakhstan has a two-tiered banking system. The first tier is comprised of the National Bank of Kazakhstan (NBK), which reports to the president. The second tier includes 28 commercial banks, including one state-owned bank and 14 banks 30% or more of which are held by foreigners, 12 of which are subsidiaries of foreign banks. In addition to its monetary policy responsibilities, the National Bank performs the functions of a financial regulator. In that role, the NBK is charged with overall supervision of the banking sector, insurance, pension system, stock market, microcredit organizations, debt collection agencies, and credit bureaus. In May 2019, the NBK proposed changes to legislation providing for establishment of a new independent regulatory body that would take charge of financial markets control and development, as well as consumer rights protection, while the NBK will concentrate on monetary policy and inflation control. The function split should eliminate conflict of interests within the NBK, improve financial market regulation and prevent malpractices.
Although prohibited from creating retail banking branches in Kazakhstan until 2020, foreign banks may establish subsidiaries, joint ventures, and representative offices. As of April 2019, 20 foreign banks had representative offices in Kazakhstan. The legislation mandates equal treatment for foreign and Kazakhstani investors, a position reinforced in 2005 by legislative amendments that lifted restrictions on the participation of foreign capital in the banking sector. Notably, no individual may own more than 10% of a bank’s shares (unless that bank is a subsidiary of another bank) without permission from the National Bank.
Foreign individuals and companies can open bank accounts in local banks as soon they present identification documents and confirmation of local registration, including taxpayer registration.
According to the IMF’s April 2019 Regional Economic Outlook for Central Asia and September 2018 Staff Report, the banking sector remains saddled with weak underwriting and reporting standards, poor payment culture, a related party, and directed lending, the opacity of ownership, and reliance on state support. Legacy non-performing loans (NPLs) from the 2007-2008 global financial crisis and Kazakhstan’s real estate market collapse continue to hinder banks’ profitability and their ability to extend credit. From 2013-2016, the drop in oil prices precipitated a 40% currency depreciation and economic slowdown that further weakened the banking sector, which was overexposed to domestic dollar lending.
In response to these crises, the government facilitated several rounds of bank bailouts to ensure stability and facilitate the sector’s consolidation, with mixed results.
Banking sector recovery remains a top priority for the government, and the NBK has adopted policies to strengthen oversight and capital requirements, de-dollarize, resolve bad assets, and encourage consolidation NBK policies have somewhat improved the situation and helped to preserve banking sector stability. For example, the share of NPLs dropped from 31% in January 2014 to .6% in April 2019(although analysts believe the figure has always been much higher with restructured loans and interest gaps included). However, the sector has yet to fully recover and the NBK has more work to do to clean it up. The regulator introduces the risk-based supervision approach in 2019 and performs an AQR which should help assess banks’ capital adequacy and establish follow-up measures.
1) The registration process of the joint-stock company (for a bank in Kazakhstan it is required to have the particular legal form of the entity – joint-stock company).
2) Collection and preparing of the required documentation to apply to NBK, submitting of the documents to the NBK.
3) Approval process of the UBO of the bank and obtaining of the approval to establish a banking institution from NBK.
4) Issuance of the banking license.
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