ASTANA, Kazakhstan, September 9. The banking sector of Kazakhstan has become more resilient in recent years, Fitch Ratings says, Trend reports.
As Fitch Ratings noted, the decisive cleanup of the banking sector and strengthening of regulatory oversight have strengthened the sector and improved overall financial stability. The credit profile of most Kazakh banks is significantly better than several years ago. Fitch Ratings does not expect new regulations or the likely introduction of a tax on bank income from holding government bonds to materially weaken profitability.
In recent years, the National Bank of Kazakhstan and the Agency for Regulation and Development of the Financial Market have taken measures to strengthen supervision of the banking sector. One important measure was the cleanup of the sector in 2017–2022, through a combination of non-performing loans, direct capital support, and sector consolidation. The regulator has also become less tolerant of insufficient provisioning for problem loans.
In his yearly national address delivered on September 1, 2023, President Kassym-Jomart Tokayev voiced his concerns regarding the banking sector's overemphasis on unsecured retail lending while showing reluctance to increase lending to corporations and small businesses to bolster economic expansion. He further pointed out that banks had generated excessive profits attributed to elevated interest rates, and he indicated that the tax exemption on income from banks' investments in government bonds would be discontinued. Following the president's statements, the chairperson of the NBRK was removed from office on September 3.
Fitch estimates that securities income accounted for 28 percent of the sector's gross operating income in the first half of 2023. As noted, most of this income came from government bonds.
Fitch assumes that the introduction of a tax on bank income from government bonds should not significantly impact profitability. Fitch estimates that a 20 percent tax (the current corporate tax rate in Kazakhstan) on government debt income would have reduced the 10 largest banks’ return on average equity in 2022 to about 31 percent from 33 percent.