Kazakhstan to tighten banking regulation

business and economy

Kazakhstan to tighten banking regulation

By SRI ⋅ January 28, 2010 ⋅

(SRI) - Kazakhstan should impose limits on banks’ profit margins to avoid “excessive incomes” that helped trigger a financial crisis and restrict their exposure to industrial, construction and insurance assets, Kazakh President Nursultan Nazarbayev told a government meeting on Monday.

According to Nazarbayev, perhaps alluding to allegations of fraud at BTA Bank and Alliance Bank, two of Kazakhstan’s largest banks which had defaulted on their debt in 2009, banks should “focus on banking” and avoid serving as a conduit to remove resources from the country.

“They will be used to suck out resources again, including overseas,” Nazarbayev said, according to the government’s official newspaper, Kazakhstanskaya Pravda.

In its efforts to clean up the country’s ailing banking sector, Kazakhstan may limit the size of bonuses and dividends that banks can pay and cap interest rates on mortgages and other loans, the country’s financial regulator, the Financial Supervision Agency (FSA), said on Wednesday, expanding on Nazarbayev’s earlier comments.

Echoing the President’s call for decreasing profit margins and income, the FSA head Yelena Bakhmutova said the agency will push banks to reduce their risk exposure and cut costs.

“Narrower margins are a consequence,” Bakhmutova told reporters on Wednesday. “The initial cause is the reduction of credit risk through increasing transparency of borrowers, which will allow for a reduction of provisions.”

Already, Kazakhstan took a step to increase transparency and reduce risk by introducing measures that require banks to make provisions equal to 100 percent of the value of loans to offshore companies and to companies in which offshore entities hold at least a 20 percent stake.

It is unclear whether the calls to tighten banking regulation and limit profit margins will result in substantial actions. “We see these comments more as another warning sign to bankers rather than an instruction for immediate action,” VTB Capital analysts Dmitry Dmitriev, Mikhail Shlemov and Svetlana Aslanova said in a note to investors.