Basic and General: Two Types of Licenses Planned for Banks

Kazakhstan plans to introduce two types of licenses for second-tier banks – basic and general licenses.

Madina Abylkassymova, Chairperson of the Agency for Regulation and Development of the Financial Market, made this statement at a presentation to the Majilis of Parliament of draft laws ‘Banks and Banking Activities in the Republic of Kazakhstan’ and ‘Changes and Amendments to Certain Legislative Acts of the Republic of Kazakhstan on Financial Market Regulation and Development.’ The draft laws were developed for the purpose of implementation of the 2024 and 2025 Addresses by the Head of State.

"This approach pursues creation of a stable and competitive environment that will ensure development of not only large banks but also new market participants. International practice demonstrates that banking activities can be carried out under different types of licenses. For example, Russia, Lithuania, Singapore, and the United States provide for a separate basic license for small banks. The European Union, the United Kingdom, Switzerland, and Japan have proportional requirements within a single license," the Agency Head indicated.

Given the international experience, the draft Banking Law comes up with two types of banking licenses: basic and general. The basic license will differ from the general license in terms of its scope of permitted operations and the level of regulatory requirements.

"For banks with a basic banking license, the draft Law establishes restrictions to a maximum size of assets and a minimum size of equity capital. Along with that, specific thresholds will be fixed by subordinate legislation. Currently, it is planned to limit assets to 500 billion KZT and minimum equity to at least 10 billion KZT," said M. Abylkasymova.

The chief of the financial regulator pointed out that banks with a basic license will be prohibited from lending to non-residents and affiliated entities. This will ensure sustainability of small banks.

As for prudential standards and supervisory requirements, reduced prudential standards will be established for a number of indicators.

"Supervision of banks with a basic license will be simplified." "The law envisages a simplified annual supervisory review and assessment process, a reduction in frequency of inspections and reporting requirements," added the ARDFM Chairperson.

The new banking law must take into account technological changes, growing role of the banking sector in economic financing, increased competition, and involvement of new market participants, as well as issues of promoting the fintech and liberalizing the circulation of digital assets.