EBRD: New banking law will enhance financial architecture of the country

Comment by Hussein Ozhan, Managing Director for Central Asia and Mongolia at the European Bank for Reconstruction and Development, on the draft new law on banks and banking activities

 

The European Bank for Reconstruction and Development (EBRD) views adoption of new laws on banks and banking activities in Kazakhstan as an important step for the national economy.

This law will enhance financial architecture of the country and open up new investment opportunities. We are pleased to support the Agency of the Republic of Kazakhstan for Regulation of Financial Market and Development (ARFMD) in preparing this ambitious reform, which reflects a commitment to transparency, sustainability, and alignment with international best practices.

In particular, we welcome introduction of a modern system for resolution of insolvent banks or potentially insolvent banks. This aligns Kazakhstan with the international banking legislation guidance and the key characteristics of bank resolution established by the Financial Stability Board (FSB). These changes are crucial for maintaining stability of the financial sector and ensuring that banks effectively service the economy.

We commend constructive engagement of the agencies with the banking community and its clear commitment to creating a more transparent and orderly banking system. These reforms will not only strengthen trust in the banking sector but also help attract new investment to Kazakhstan.

We also highlight importance of participation of the banking sector in financing the resolution of backbone banks in situations where bank’s losses are first of all absorbed (covered) by shareholders and founders of such bank. Soundness of each individual bank ensures stability of the entire sector, therefore participation in resolution financing is in the interests of all banks. The proposed legal mechanism for cash contributions to be collected by the banking sector after bank resolution is a pragmatic compromise. It prepares Kazakhstan's banking sector to more fully comply with the international regulations, which, since the 2008 financial crisis, have increasingly favored pre-financed resolution mechanisms.

Overall, the draft Law on Banks and Banking Activities is a conceptual and forward-looking document. This is essential for any economy seeking to overcome the financial crisis, ensure stability, and build long-term resilience. The law will also contribute to more active participation of global investors on the market of Kazakhstan.