KAZAKHSTAN - Finance
Governor, National Bank of Kazakhstan
Grigori Marchenko occupied a wide range of positions as an engineer and editor in Kazakhstan, assuming a top position in a scientific research institute and working as an expert on foreign economic relations for an ecological consortium. From 1992 to 1994 he was the Assistant to the Vice-President of Kazakhstan, and later became the Deputy Governor of the National Bank of Kazakhstan. He first became the Governor in 2004, and has also worked as a top advisor to the President on economic issues.
In 2011, the banking sector showed a positive trend of development. Issued credit grew by 15.7%, the deposit base by 14.3%, and assets by 6.5%. Despite these figures, the problem of loan portfolio quality persists. Credits to the economy could have grown at a higher rate, but the large share of non-performing loans (NPLs) in the banking sector—around 30%—mitigated such growth. In order to solve this problem, a set of measures were adopted by the government and National Bank that were intended to remediate the balance sheets of the banks. On the one hand, amendments were made to the tax legislation that proposed deductions of income on the recovery of provisions from taxable income when writing off bad loans. On the other hand, a concept for the improvement of bank asset quality was developed, which suggests the use of a centralized and decentralized approach in the process of remediation for bank balance sheets. As part of its implementation, the National Bank established a special purpose vehicle (SPV), the Problem Loans Fund, which will be buying up troubled bank assets and taking action to restore their quality. The concept also suggests that SPVs would be established with a view to buy out bad-quality assets and take actions to restore their value by the banks themselves, which is a decentralized approach. In connection with the implementation of these measures, in 2012 we can expect that the quality of the credit portfolio for the majority of large- and medium-sized banks will improve.
In accordance with the Decree of the President of the Republic of Kazakhstan No. 61 dated April 18, 2011, the functions of the Agency for the Regional Financial Center of Almaty (RFCA) and the Agency for Regulation and Supervision of the Financial Market and Financial Organizations (AFN) were consolidated under the National Bank. This concentration of control of the financial system in the hands of the National Bank is consistent with international practice. A similar practice is observed in the UK, Australia, Canada, Singapore, and Bahrain. The task of Almaty becoming a regional financial center does not entail only the development of the stock market and the provision of services by brokerage firms, as it was until today. Our task is more global; to develop the infrastructure of the entire city. While achieving this task, it is important to coordinate all government agencies, primarily the Almaty Municipality. And of course, the role and status of the National Bank, whose structure now also includes the Development Committee of the RFCA, is much higher than it was at the now-defunct agency. The target indicated by the President is to become one of the top-10 financial centers in Asia by 2020. The committee fully inherited the tasks, functions, and powers of the abolished agency. However, with the transfer of structures to the National Bank, more opportunities have appeared to help realize the set tasks. The reorganization stage is complete and the committee is working on a new concept of development at the RFCA, taking into account the changed conditions and new opportunities. To date, we have identified three main activities for the committee: the provision of public services, improving financial literacy, and the development of Islamic finance.
The IMF’s concern is related to major problems in Kazakhstan’s banking system, including a low-quality credit portfolio and the low credit activity of the banks. In this regard, it is worth mentioning that 2011 marked the start of a positive trend of development in the banking sector. After three years of stagnation the banks began to show growth in credit activity. Moreover, the 14.3% growth in the deposit base indicates the maintenance of trust in the banking system. In regard to systemically important financial institutions and the whole banking sector, the National Bank plans to introduce Basel III requirements starting from 2013, despite the fact that the capital requirements are higher than those used in the Customs Union, the EU, and the US. This step will allow for a strengthening of the resilience of bank capital, and will contribute to financial stability in the banking sector.
The National Bank will support the country’s macroeconomic development plans within its competence, such as from the standpoint of ensuring the money supply growth rate and encouraging adequate economic development. In this case, given that the priority for the National Bank is price stability, the conduct of monetary policy is carried out so that the monetary component is at an optimum level and does not provide additional inflationary pressures. In the medium term, the President has set an important task—to achieve 7% growth in the economy. Already, state agencies have developed the necessary measures to achieve this target. Furthermore, it should be noted that during the design and implementation of economic policy, the government and the National Bank will take into account all the risks that could adversely affect the macro-economic development of Kazakhstan. The present government and the National Bank are working to develop a set of policy measures aimed at ensuring social stability, the stability of the financial sector, the provision of low inflation, and the stability of the tenge.
The President instructed that the means of the National Oil Fund should be invested in the internal development of the country and the diversification of the domestic economy. There is much work to be done, including identifying which industries require large investments. A way needs to be found to transition from strategic planning to specific projects, with verified feasibility studies supported by full cost calculations. Prior to this, it was impossible to talk about the exact amount of investment from the National Oil Fund for this purpose. At the same time, I would like to clarify that in accordance with the current concept formation and use of the National Oil Fund’s means, the Decree of the President of the Republic of Kazakhstan No. 962 dated April 2, 2010 established a minimum balance of 20% of the forecasted value of GDP at the end of the financial year. The National Bank supports the focus of the National Oil Fund. Economic diversification and the development of non-oil sectors are of strategic importance to Kazakhstan.
KAZAKHSTAN - Real Estate & Construction
CEO, Mercury Properties
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