Financial Crime World

Kazakhstan’s Banking and Finance Sector: A Growing Force

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Overview

The Kazakh banking sector has undergone significant changes in recent years, with Halyk Savings Bank (HSBK) emerging as a dominant player. According to a report by the National Bank of the Republic of Kazakhstan, HSBK accounts for approximately 60% of total sector assets and 63% of deposits.

Halyk Savings Bank: A Dominant Player

  • Extensive Network: HSBK has over 1,143 structural units, including branches in rural areas, making it the only bank with such a strong presence.
  • Full Range of Services: The bank offers a full range of banking services to its clients and has established relationships with numerous financial institutions.
  • Government Agency: As the country’s largest bank, HSBK plays a crucial role as an agent for the Government of the Republic of Kazakhstan, implementing state programs aimed at financing the real sector of the economy.

Competition and Challenges

  • Foreign Banks: Competition in the banking sector is expected to intensify, particularly from foreign banks, which have been aggressively entering the Kazakh market.
  • Decline in Market Shares: Citibank (US) has been successful in capturing blue-chip companies away from local banks, leading to a decline in market shares for smaller Kazakh banks.

Non-Bank Financial Institutions

The Kazakh Stock Exchange has made significant progress in recent years, with the government encouraging local companies to raise capital through stock issues. Domestic bond issues by two banks on the exchange are a testament to this trend.

  • Insurance Sector: The insurance sector is at an early stage of development, with around 70 insurance companies operating in the country.
  • Life Insurance: Life insurance remains underdeveloped, while car insurance has helped expand the sector.

Pension Funds

Since reforms in the pension sector, pension funds and asset managers have developed dynamically. By early 2001, pension funds had accumulated over $800 million in contributions since the start of the fully funded system in January 1998.

  • Private Pension Companies: Private pension companies are becoming a competitive force on the segment of large blue-chip companies.
  • Mandatory Pension Payments: The transferability of individual accounts between funds remains low, but private pension companies are receiving substantial mandatory pension payments, which they are required to invest in assets meeting stringent risk and liquidity parameters.

Outlook

As the Kazakh economy continues to grow, the banking and finance sector is expected to play an increasingly important role. With foreign banks entering the market, competition is likely to increase, driving innovation and efficiency. However, there remains a need for increased consumer lending and micro and small enterprise financing to address the country’s under-banking issues.

In conclusion, Kazakhstan’s banking and finance sector has made significant progress in recent years, with HSBK emerging as a dominant player. While challenges remain, the sector is well-positioned for continued growth and development.