|                                                                                                                                                             |  | KAZAKHSTAN BUILDS NEW COMMERCIAL BANKING SYSTEM                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsPublicationsSourcesof FinanceLeadsand EventsExchangeRatesState ExportsOtherSources** |  | March 1998by Philip H. de LeonAlthough many Kazakhstani banks are undercapitalized and inexperienced, ongoing reform of the
country's banking system is building a framework for future development that will provide better
support for U.S. firms doing business in Kazakhstan.  Like most other NIS countries, Kazakhstan 
now has a two-tier banking system.  After an initial period of rapid expansion in the early 1990s,
the banking system has been consolidating in recent years.  Regulatory requirements are being
tightened by the National Bank of Kazakhstan (NBK), and a number of relatively strong
domestic banks are beginning to emerge.Tightening Regulations
Since 1995, when the NBK toughened  liquidity and capitalization requirements for Kazakhstani
banks, Kazakhstan's banking system has experienced a period of stabilization and consolidation
which continues today.  The number of banks has declined steadily through mergers, acquisitions,
withdrawal of licenses by the NBK, and the liquidation of banks not meeting minimum
requirements within a specified time frame.  According to NBK Deputy Chairman Anvar
Saidenov, the number of Kazakhstani banks fell from 101 at the beginning of 1997 to 84 by
December 1997.  There were 77 banks by January 1, 1998.Kazakhstan's commercial banks have been divided into two groups, each composed of 30 banks. 
A NBK decree on the transition of Kazakhstani banks to international standards requires the first
group to reach international standards by the end of 1998, while banks in the second group have
until December 31, 2000.  These standards address capitalization, quantity and diversification of
assets, management, accounting, and the transmission and protection of information.  Seventeen
remaining banks do not belong to either group, either because they already operate in accordance
with those standards or because they are  supervised by the NBK.Failure to meet the standards can lead to a bank's liquidation or reorganization.  Since the banking
system is still in transition and undercapitalization is a widespread problem, however, dissolution
is not automatic.  Instead, the NBK requires banks to come up with a reorganization strategy and
gives them time to meet the capital requirements.Leading Kazakhstani Banks
The three most important Kazakhstani commercial banks are Kazkommertsbank (KKB) and
Halyk Savings Bank, which were both graded B+/Stable/B in October 1997 by Standard &
Poor's, and Turan-Alem Bank.  These are the largest Kazakhstani banks in terms of assets, the
extent of their branch networks, and the role they play in the country's economy.  All have
headquarters in Almaty.  KKB  is the leading private commercial bank.  "The EBRD (European
Bank for Reconstruction and Development) has been working with [KKB] through its loan
department to finance a credit line for small and medium-sized enterprises" says Kazuya
Murakami, of the EBRD's Banking Department.  The Kazakhstani bank also takes part in a
twinning program arranged for it by EBRD, and is partnered with Credit Commercial de
France.Halyk Savings Bank is the local successor to Sberbank of the Soviet Union and holds more
than 60 percent of individual savings in Kazakhstan--63 percent of Halyk's capitalization.  Halyk
is the only Kazakhstani bank with a comprehensive branch network.  Turan-Alem Bank is the
result of the forced merger of two insolvent commercial banks imposed by the NBK and the
Kazakhstani Government.  The deposits of account holders of the former Turan and Alem banks
are guaranteed by the new Turan-Alem Bank, which is  under NBK supervision.Foreign Banks
On January 1, 1998, there were 20 banks with foreign participation in Kazakhstan, representing a
cumulative registered capital of 4 billion tenge ($52.6 million; 12.9 percent of the total).  This
leaves room for an increase in foreign bank capital, since the NBK has set a limit of 25 percent on
foreign ownership of the total capital of all banks in Kazakhstan.  Twelve foreign banks have full
operating licenses, but the only branch of a foreign bank is operated by ABN AMRO.  The rest
are joint ventures with foreign capital.  Two of them, Lariba Bank and TexaKaBank, have U.S.
equity participation and have been in business for several years.In spite of the NBK's efforts to rehabilitate the system, "a number of fundamental problems still
persist: low levels of capitalization, tight liquidity, and high levels of nonperforming loans" says
George Mouskides, Assistant Vice President of Moody's.  Other problems include the lack of
commercial lending, the short duration of credit, inexperienced loan officers, and uncertainty in
applying new banking laws.  As a result, the NBK plans to focus in 1998 on strengthening banks
and their capitalization.  Proper capitalization would allow Kazakhstani banks to finance major
projects throughout the country.According to NBK Chairman Saidenov, the closure of weak banks will continue in 1998.  First to
go will be banks in the first group that fail to meet a 300 million tenge ($4 million) capital
requirement by year's end.  Some banks may be transferred from group 1 to group 2 to give them
a two-year extension--the Kazakhstani Government and the NBK aim to strengthen the banking
system without causing a banking crisis.   For more information on doing business in
Kazakhstan, visit BISNIS Online at
www.mac.doc.gov/bisnis/country/cntasia.htm#Kazakstan.Philip H. de Leon works for BISNIS in Washington, D.C.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)