Ms. Madina Abylkassymova named the main results of the financial sector development
- Madina Erasylovna, what results has the banking sector reached by 2025? How do you assess the situation in the financial market considering external and internal challenges?
- In 2024, Kazakhstan's economy and financial sector were developing in the context of external and internal challenges.
At the global level, tough macro-financial conditions persisted due to increased geopolitical risks and sanctions restrictions. The global energy commodities market experienced increased volatility amid regional conflicts, as well as slowing growth in major EU countries and China.
At the local level, Kazakhstan has faced economic consequences from floods, as well as high inflation and rates limiting business access to long-term financing. Inflation at year-end was 8.6%, but remains at a high level. Its slowdown is mainly due to moderately tight monetary policy (the NBK's base rate is 15.25%) and lower food prices.
Despite external and internal challenges, Kazakhstan's economy is demonstrating progressive growth, which totalled 4.4% YoY in the first 11 months of last year. The basic sectors of the economy maintain positive growth rates. The highest growth is observed in agriculture (+13.4%) and construction (+10.3%). Trade grew by 8.2%, transport - by 8.1%, manufacturing - by 5.3%.
In turn, the banking sector remains stable and grows, actively supporting the economic goals of the state. Positive dynamics is observed in all key financial indicators. Banks’ assets increased by 15.1% in the first 11 months of last year, reaching 59 trln tenge (2.2 times growth since 2020). Deposits grew by 13.3% to 40 trln tenge (2.2 times growth since 2020), indicating growing confidence in the banking system on the part of economic agents.
The banks' loan portfolio grew by 17.2% to 35 trln tenge (2.4 times growth since 2020). Loan quality remains at a high level, the share of NPLs is 3.2% or 1.1 trln tenge (NPL ratio of 8.1% in 2020).
In 2023, the International Monetary Fund and the World Bank conducted the Kazakhstan Financial Sector Assessment Program (FSAP) to assess the compliance of banking regulation and supervision with the Basel Committee's principles of effective banking supervision.
The IMF and World Bank experts noted significant progress in the development of risk-based supervision in Kazakhstan, including the introduction of risk-based supervision under the SREP methodology, regular asset quality review (AQR) and supervisory stress testing, which have become annual activities that complement the supervisory assessment process. A positive assessment was given to the implementation of Basel-3 standards, including the introduction of systemic, conservation and countercyclical capital buffers and new liquidity (LCR) and funding (NSFR) standards.
According to the results of the assessment of compliance with the Principles, it was noted that banking regulation and supervision in Kazakhstan fully or significantly comply with 22 out of 29 Principles (more than 75%), partially compliant - 7.
At the same time, the FSAP Mission recommended to take measures to finalize the alignment of certain capital and liquidity requirements to the Basel standards.
In implementation of the FSAP recommendations, supervisory add-ons to the minimum capital adequacy based on the results of supervisory review (SREP), asset quality review (AQR) and stress testing were introduced from 2024. To enhance bank resilience, the conservative capital buffer for banks was increased from 2.0% to 2.5%, if breached, restrictions on dividend payments are imposed.
With a view to enhancing financial stability, the implementation of all elements of consolidated supervision of banking conglomerates was finalized last year. In particular, a new procedure for calculating the adequacy of a banking conglomerate's own capital was introduced to ensure a more accurate assessment of the minimum requirements for the own capital of the banking conglomerate's participants and to eliminate the risk of overestimating the conglomerate's financial stability indicators.
In order to strengthen supervision over banking conglomerates, requirements were introduced to the risk management and internal control system of a banking conglomerate, the role of the board of directors of a banking holding company was strengthened, requirements were introduced to capital management, stress testing and sensitivity analysis of the main types of risk inherent in the activities of a banking conglomerate, and requirements were established for monitoring liquidity risk of the banking conglomerate's participants.
To improve credit risk management and accurately assess asset quality, the concept of non-performing loans (NPLs) was introduced, with the value of NPLs set at no more than 10% of the loan portfolio.
In order to enhance co-operation and ensure effective cross-border supervision of banks in accordance with the standards of the Basel Committee, Memorandums were concluded with the US Office of the Comptroller of the Currency, the Financial Services Commission and the Financial Supervisory Service of the Republic of Korea and the Hungarian National Bank.
This year, in order to increase the stability of the banking system and prevent excessive increase of the borrowed capital, it is planned to introduce a new prudential norm - leverage ratio, which will be set at the level of 3% of risk assets and contingent liabilities.
The Agency also plans to introduce legislative amendments aimed at tightening transactions with related parties and establishing requirements for auditing related parties. The relevant amendments are planned to be envisaged within the framework of development of the new law on banks.
Our measures to reduce risks in the banking system of Kazakhstan were highly assessed by S&P Global Ratings and raised the country's position in the BICRA rating. The experts improved the assessment of risks in the banking sector from group «8» to group «7». This was achieved due to, among other things, an effective policy of strengthening supervision over the financial sector. Improvement of rating led to increase of ratings of seven Kazakhstan financial organizations.
S&P Analysts also noted the resilience of the banking sector to macroeconomic challenges and geopolitical risks. The assessment of the quality of assets and financial performance of banks exceeded their expectations. As a result of the implementation of systemic measures, the level of problem loans in the system decreased from 18% in 2020 to 7-7.5% in 2024, which contributed to the improvement of the country's financial stability.
In general, the completion of the reforms being implemented will ensure full compliance with the standards of the Basel Committee on Banking Supervision, which will contribute to improving the sustainability of the banking system and strengthening risk management mechanisms.
What measures is the Agency taking on its part to expand corporate lending?
- Along with improving regulation and ensuring stability of the financial system, the Agency is actively working to fulfil the Head of State's instruction to expand lending to the real sector of the economy.
First. The Agency has introduced a number of incentive prudential measures. The key condition for expanding lending is that banks have sufficient capital and liquidity.
When deciding to issue a loan, banks assess risks and determine the necessary capital to cover potential losses. Traditionally, for loans to small and medium enterprises (SMEs), the risk-weighting ratio is 100%. In order to reduce the burden on capital when lending to such entities, we have decided to reduce this ratio to 50%. This measure should encourage banks to lend more actively to SMEs, including start-ups. Similar relaxations were introduced for syndicated loans.
Reduced LCR and NSFR liquidity ratios of 0.9 will be applied to free up liquidity for banks until 2026, provided that the released liquidity is redirected to lending to the real sector.
These measures reduce pressure on banks' capital and liquidity, freeing up additional funds for lending to the real sector.
Second. One of the main factors constraining entrepreneurs' access to credit is the requirement of banks to have collateral. When assessing collateral, banks apply various discounts, which leads to a reduction in the loan amount or even a refusal to grant it.
Since 2020, we have been conducting an annual assessment of banks' asset quality (AQR), including collateral. This allows us to determine the real value of collateral and set more accurate liquidity ratios. Initially, these ratios were higher, but now we have brought them in line with the actual value of collateral. Thus, we increased liquidity ratios for pledges in the form of motor vehicles, equipment and cash under public-private partnership agreements and off-take contracts. Given the limited quality of collateral available to agricultural producers, we also recognized grain receipts as hard collateral.
In order to reduce the amount of provisions created by banks, the requirements for their calculation in terms of forced restructuring criteria were also revised. Separate impairment criteria were introduced for investment loans. This measure will give banks more opportunities to lend investment loans both individually and as part of project financing.
In addition, to reduce administrative barriers and ensure prompt decision-making on SME lending, the maximum loan size within which a simplified procedure for analyzing the borrower's creditworthiness is applied was revised from the current level of 0.2% of the capital to 500 mln tenge or 0.2% of the bank's capital.
Third. Subsidiary foreign banks represent a great potential for business lending. Today there are 9 subsidiary foreign banks operating in Kazakhstan. The total capital of their parent organizations is about 1.3 trln USD, and the loan portfolio of subsidiary banks is 2.9 trln tenge.
In this regard, it is important to use the capabilities of parent banks to expand lending to the real sector. To this end, last December we introduced new prudential measures. In particular, we increased the maximum value of banks' capitalization ratio to non-resident liabilities. In addition, we recognized foreign currency bonds of international financial institutions as domestic assets when calculating the domestic asset allocation ratio. These measures enhanced the access of foreign bank subsidiaries to funding from parent banks for subsequent financing of entrepreneurs.
Fourth. Due to the high base rate and existing tax incentives, investments in highly liquid assets, including government securities, remain attractive for banks. In addition, high-margin consumer lending remains attractive against the background of demand from the population.
In this regard, the new Tax Code considers fiscal measures to increase the attractiveness of bank corporate lending. In particular, it is planned to introduce differentiated corporate income tax rates for banks and microfinance organizations, providing for a lower rate for income from business lending. In addition, tax arbitrage between banks' income from investments in government securities and business lending will be eliminated.
Along with this, we have taken measures to discourage the active issuance of consumer loans. Thus, the risk weighting for such loans was increased from the standard 100% to 350%, depending on the loan amount and interest rate.
Last June, legislative amendments for the development of syndicated lending were also adopted. They provide for the expansion of syndicate participants to include non-resident banks and AIFC banks, as well as the possibility of converting a bank loan into a syndicated loan. A project office for syndicated financing has been established on the basis of Baiterek Holding, which is actively working with development institutions and private banks. As a result, financing of five projects worth 835 bln tenge has already been approved, and 12 more projects totalling 6.5 trln tenge are under consideration.
One of the problems in expanding corporate lending is the short-term funding base of banks. In order to provide banks with long-term funding for lending to investment projects, together with the National Bank, a mechanism was launched to invest pension assets of the Unified Accumulative Pension Fund in bank bonds of up to 500 bln tenge for a period of up to 7 years on market terms. To date, banks have attracted 220 bln tenge for further lending.
To digitize business lending procedures, banks' information systems were integrated with 49 services of state databases on legal entities, real estate, tax data, licensing, income and others. Work will continue to expand the remote submission of loan applications by business entities.
The measures taken have created favourable conditions for further economic growth and are already yielding results. In January-November 2024, the issuance of new loans to real sector entities increased by 19.3% compared to 2023 and totalled 16.1 trln tenge. The aggregate portfolio of loans to businesses increased by 12.0% to 12.6 trln tenge.
To expand the potential of the guarantee system, the creation of the SME Loan Guarantee Fund with the participation of banks is being discussed. This model envisages that guaranteeing will be carried out not only at the expense of the state budget, but also with the participation of banks and SMEs themselves.
Participation in the system of guaranteeing banks and SMEs reduces dependence on the state budget, making the system more self-financing, and facilitates risk sharing between the state, banks and businesses, increasing the overall sustainability of the system.
In general, to increase the availability of credit to business, it is important to create appropriate macroeconomic conditions to ensure low and stable inflation and interest rates, as well as a stable national currency exchange rate. It is also important to increase the transparency of the ownership structure and governance of the corporate sector, and to introduce advanced standards of corporate governance and information disclosure.
- What measures are needed to strengthen the fight against financial fraud?
- Effective counteraction to financial fraud requires coordinated work of both law enforcement agencies, financial regulators and financial organizations.
To solve this task, last year the National Bank created a special Anti-Fraud Centre, which allows exchanging information in real time between banks and the Ministry of Internal Affairs, maintains «black» and «grey» lists of fraudsters, and blocks funds for suspicious transactions. Since its operation, almost 13,000 incidents worth over 1 bln tenge have been blocked.
In order to strengthen inter-agency coordination, the Roadmap for the implementation of mechanisms to counter financial fraud was approved on 5 December last year, which provides for a number of measures, including the adoption of legislative amendments aimed at countering fraud in the financial market.
Among them is the introduction of a so-called «cooling-off period» when issuing a consumer unsecured loan of more than 150 MCI (more than 589,800 tenge in 2025). That is, now the bank will not immediately transfer the loan amount to you, but will give you a day to think about it. This will allow the borrower to change the decision and refuse the loan within 24 hours.
The power of the Anti-Fraud Centre will also be expanded by involving law enforcement and special agencies, defining the procedure for interaction with mobile operators aimed at timely identification and blocking of mobile numbers involved in fraudulent operations.
Consideration is being given to requiring lenders to conclude a loan agreement with a citizen only in person at a bank or MFI branch if the citizen is applying for a loan for the first time. The bank or MFI would have to verify the identity of the client and obtain confirmation that the loan is indeed being arranged at the client's initiative. This will enable the lender to fully educate and ensure that the client understands the terms of the contract and recognizes the possible risks of defaulting on the loan.
To prevent fraudulent loans to vulnerable categories of citizens (young people under 21 years of age, the older generation and citizens who have not previously entered into loan agreements with a bank or MFI), it is proposed to establish an automatic ban on unsecured consumer loans for these groups with the possibility of cancelling it on the e-Gov portal.
Together with the Ministry of Digital Development and the Aerospace Industry, the creation of a Single Contact Centre with a short number to receive citizens' complaints about telephone fraud is being worked on. The Contact Centre will collect information on fraudulent calls, carry out initial verification and classification, and then take a decision on blocking the mobile number, withdrawing the SIM card from the mobile operator and blocking the messenger account. In addition, it is planned to oblige telecom operators to create mandatory anti-fraud departments, which, among other things, should assess the risks of telephone fraud similar to risk management systems in second-tier banks.
To prevent uncontrolled use of SIM cards, it is planned to introduce a requirement for mandatory biometric identification when registering a mobile phone number, also to consider limiting SIM card registration to one person and prohibiting registration to distributors/legal entities.
In addition to blocking devices used by fraudsters, consideration is being given to tightening regulation to restrict the use of SIM boxes in Kazakhstan.
The roadmap also envisages regular large-scale awareness-raising work among the population on cybercrime, internet fraud and methods of protection against them, training for law enforcement officials, and the creation of a single regulated process of interaction between all involved parties.
All these measures will make it possible to increase the effectiveness of risk counteraction, improve monitoring and ensure greater security in the financial sphere.
– How has the insurance sector developed in 2024? What are the key initiatives planned for the development of the sector this year?
– In 2024, the insurance sector demonstrated significant growth in all key indicators. Insurers' assets increased by 21% over 11 months to 3 trln tenge, which is 2.5 times more than five years earlier. Such growth became possible due to an increase in the number of concluded insurance contracts and active investment activities of insurance organizations.
The number of concluded contracts in 2024 amounted to 21 mln, a 38% increase compared to 2023. Over the past five years, the number of contracts has doubled. The volume of collected insurance premiums exceeded the level of 2023 by 53% and totalled 1.3 trln tenge, a historical maximum. Premiums have tripled over the last five years, which indicates growing confidence in insurance and increasing demand for insurance services.
Insurance payouts for the first 11 months of 2024 totalled 301 bln tenge, up 23% from 2023. The leaders are the mandatory types of insurance, with payouts increasing by 64%. Over the last five years, payouts have increased 1.5 times.
The main trend in the development of the insurance sector is digitalization.
From 2024, insurance payments for all compulsory classes of insurance have been automated. Now it is possible not only to conclude an insurance contract online, but also to send an application and a package of documents for insurance payments via the website or mobile application of an insurance organization.
Last year the first digital insurance product Europrotocol was launched. Now car owners involved in minor road accidents can apply for insurance payment in a simplified procedure via a mobile application without calling the traffic police or going to court. Thanks to the Europrotocol, insurance payments under compulsory motor insurance have increased significantly. Last year, 2.3 bln tenge was paid out in 15,276 cases under the simplified procedure. The average payment period was reduced to 15 calendar days, whereas previously this procedure took an average of 2-3 months from the date of the road accident.
An important element of digitalization is the integration of the Unified Insurance Database (UID) with 38 state databases. Today, the Unified Insurance Database generates complete statistics on all insurance contracts. This ensures transparency in the insurance sector and simplifies the process of obtaining insurance services.
Large-scale integration has made it possible to automate the calculation of compulsory motor insurance tariffs in the Unified Insurance Database. Starting from 2024, tariffs are recalculated in the Unified Insurance Database considering current loss rates by region, which allows car owners in regions with low accident rates to pay less for insurance.
From April this year, insurance organizations will be able to give their customers discounts for driving without accidents for 5 years. Scoring of drivers will be carried out automatically with the help of the Unified Insurance Database.
The «bonus-malus» system, which is familiar to every driver, will now consider the severity of the accident and compliance with traffic rules. For example, if there are victims as a result of an accident, the driver was in a drunken state or committed serious violations of driving rules, the coefficient of the ‘bonus-malus’ system will be reduced more, respectively, the cost of insurance for the next year will increase.
In 2025, the development of digital services and increased accessibility of insurance will continue. An important step will be the possibility for insurance organizations to invest in IT companies, which will help to improve the availability and quality of services for population and businesses.
In addition to digitalization, the expansion of insurance types and the emergence of new insurance products contribute to the sector's growth.
From 2024, insurance companies offer products under the State Educational Savings System. This system allows Kazakhstani citizens to save money for their children's education, receiving an annual state premium of 5 to 7% and investment income from the insurance company. To date, more than 3,000 contracts have been concluded for the amount of 670.5 mln tenge.
In addition, at the end of 2024, legislative amendments were adopted to introduce a unified voluntary savings system «Keleshek». Now, for each insurance contract or bank deposit contract concluded within the scope of the State Educational Savings System, the state will accrue start-up capital in favour of a child who turns five years old in the current year. These measures will help citizens save for education and expand the scope of application of savings insurance products.
In order to encourage our citizens to accumulate funds using insurance products, we plan to extend the guarantees of the Insurance Payment Guarantee Fund to all types of accumulative life insurance. Now the Fund's guarantee covers all compulsory classes, pension annuities and State Educational Savings System contracts.
From 1 January 2024, new insurance benefits were introduced in the compulsory occupational accident insurance system. Employees with more than 7 years of service in hazardous industries can retire earlier (from the age of 55), receiving monthly payments from the insurance organization in the amount of 1 living wage until the age of 63. Already 2.9 bln tenge has been paid to more than 10 thousand citizens. From 2025, the Mandatory Accident Insurance will provide rehabilitation payments to injured workers to restore their health and preventive payments to the employer to improve working conditions.
Over the last 7 years, 7 new types of imputed insurance have appeared on the market. These include professional liability insurance for lawyers, legal consultants, private bailiffs, customs representatives, customs warehouse owners and medical insurance for labour migrants.
In 2024, imputed liability insurance for medical professionals was introduced. This type of insurance protects the interests of patients against substandard medical services. As of today, 140,000 employees of medical organizations are insured and this number continues to grow.
In 2025, it is planned to introduce imputed liability insurance for owners of mass gathering facilities against fires.
An important project in the insurance sector is the development of an optimal catastrophic insurance model for Kazakhstan.
This is especially important for the protection of citizens' property in areas with a high risk of natural disasters. At the moment, the coverage of the population with such insurance is extremely low - 3.2% on average in the country.
International experience shows that effective catastrophic insurance systems are always multi-level and include payments from several sources. Kazakhstan will work on the creation of such a system, including public-private partnership and reinsurance of risks from international companies. Consideration is also being given to introducing compulsory home insurance in regions with high catastrophe risk in order to maximize insurance coverage for citizens.
– What results and key changes can be noted in the securities market sector? What are the plans for the development of the securities market for the current year?
– The securities market is actively developing and demonstrates steady growth of key indicators.
Since the beginning of 2024, the capitalization of the equity market has increased by 23% to 32.9 trln tenge, over 5 years this indicator has increased by 72.3%. At the end of 2024, 84 Kazakh companies registered on KASE 99 names of shares.
The corporate bond market also demonstrated strong performance. The volume of corporate debt in circulation on KASE reached 13.7 trln tenge. The trade lists include 511 bond issues from 126 issuers, 29 of which are new issuers.
The capital market has seen significant growth in the number of retail investors. This has become possible due to digitalization of brokerage services and IPOs of large national companies. As a result, the number of accounts in the nominee holding system of the Central Securities Depository (CSD) increased by 40% and reached 3.4 million. Over the last 5 years, this indicator has increased 25 times.
Last year, the Agency continued its work to improve the integration of the stock market infrastructure into the ecosystem of global capital markets. The key innovations were the creation of conditions for the activities of an account operator and a foreign accounting organization.
As part of the first direction, domestic banks have been granted the right to provide management services for depositor accounts opened in the Central Securities Depository in the name of the depositor. This will allow global custodians to directly conduct transactions with Kazakh securities and manage operational risks on the local stock market.
Following the example of the EU countries, Kazakhstan regulation introduces norms allowing a foreign accounting organization to record and confirm the rights to equity securities held on the account in the Central Securities Depository. Now global custodians, such as Euroclear and Clearstream, will be able to confirm ownership of Kazakhstan securities in their nominee holding systems. This will simplify the process of concluding transactions, reduce settlement time, which will reduce their final cost.
At the same time, the Agency continued its efforts to improve the settlement and clearing systems. Last year, measures were taken to expand the activities of the Clearing Centre and the Central Securities Depository.
As a result, the Clearing Centre is vested with the right to carry out brokerage and dealing activities. This measure is aimed at increasing the efficiency of the Clearing Centre's performance of its functions and ensuring the guarantee of execution of trades in the market.
In addition, the functionality of the Central Depository in the OTC market has been significantly expanded, with the possibility of carrying out conversion transactions and maintaining bank accounts for individuals. In addition, the Central Securities Depository can service transactions of retail investors with financial instruments in the OTC market within the framework of its OTC platform.
Thanks to the well-established trading, clearing and settlement infrastructure, in 2024 KASE and the Clearing Centre joined the digital exchange Tabadul Hub (Abu Dhabi), providing access to trading in foreign securities on various international markets.
The measures taken to develop infrastructural institutions are highly recognized by international experts. This year, the British rating agency Thomas Murray assigned the Clearing Centre an A+ rating. The same rating is given to the top 30 central counterparties in the world. The Thomas Murray report also confirmed the compliance of clearing activity regulation with the CPMI-IOSCO PFMI principles.
Thus, today the infrastructure of Kazakhstan's capital market has all the resources and technical capabilities to become a regional hub of Central Asia and EAEU.
The key tasks in the securities market sector in 2025 are the development of the collective investment market and the introduction of a new legislative framework on rating activities.
In accordance with the latest global trends and standards of financial market regulation, last year work was carried out to update the Law «On Investment and Venture Capital Funds» and to develop a new Law «On Credit Rating Agencies».
The main emphasis of the updated Law «On Investment and Venture Capital Funds» is on liberalization of regulation of the collective investment market and expansion of investment opportunities for private investors. The legislative level will provide for the possibility of establishing funds in any organizational and legal form, and a new classification and types of funds will be introduced.
As part of the new Law «On Credit Rating Agencies» the main principles of the operation of rating agencies will be regulated, including the management of conflicts of interest, disclosure of information, and corporate governance.
The implementation of these legislative initiatives will help establish a domestic competence center for independent credit risk assessment. This, in turn, will expand financing for the real sector of the economy and provide the market with high-quality, objective, and accessible rating services. It is expected that the adoption of the new law will reduce the cost of rating services for Kazakh companies, including SMEs, and ensure the protection of the rights of non-qualified investors.
Another important area of capital market development is stimulating institutional demand and expanding the investor base.
To strengthen the potential of the domestic securities market, we are developing legislative amendments aimed at increasing the share of domestic placements of securities by Kazakh issuers when they are simultaneously placed on foreign markets, from 20% to 50%. These changes are intended to increase the liquidity and capitalization of the domestic securities market, as well as expand access for local investors to high-quality financial instruments.