Though uncertainty surrounds the benefits of further consolidation of the banking sector, the National Bank believes the sector requires higher capitalization and gradual consolidation to remain stronger.

For Kazakhstan's banking sector, 2016 was the year of the “consolidation talks." Despite the fact that the regulator, the National Bank of Kazakhstan, had clearly expressed more than once its intentions to reduce the number of banks in the country's financial landscape, it was a discussion between two largest banks in the country on a potential merger that cemented the possibility of such a development, which would represent a further step of a radical change in the market.

Qazkom, Kazakhstan's largest bank, underwent a two-year rebranding process that culminated in October 2016 with the bank renaming itself from the old Kazkommerts Bank. Just weeks after the launch of the brand new bank's name and enhanced customer-oriented strategy, Reuters reported that Qazkom and Halyk Bank, the country's second-largest bank by assets, were discussing a merger, the rumours of which, however, were initially denied by both parties. In January 2017, both banks admitted to being in discussions over a possible merger. With assets that stood at KZT5.21 trillion and KZT4.64 trillion, respectively, a merger between Qazkom and Halyk, if successful, would establish a “superbank" with an asset portfolio of nearly USD30 billion or 38% of total bank assets of Kazakhstan.

Despite the gossip surrounding a Qazkom-Halyk superbank, triggering reactions and the interest of the general public, the proposed deal will not be the first sign of the transformation of the banking sector: Consolidation talks had already started in 2015, when local banks were grappling with the aftermath of the 2008 crisis and an extremely high number of non-performing loans (NPLs). An economic slowdown of Kazakhstan's two main trading partners, China and Russia, in conjunction with a severe devaluation of the tenge also placed additional pressure on the banking sector. To tackle the situation, the National Bank intervened by introducing stricter regulations with regards to banks' capital requirements. Qazkom was among the few banks—including Halyk—that were able to meet these higher requirements. As a result of the turbulence in the banking sector and Qazkom's relative stability, Kenges Rakishev, a controlling shareholder of the bank, agreed to acquire the more troubled yet similarly-sized BTA Bank, whose NPLs stood at a concerning 89%. That acquisition was subsequently deemed the “Best M&A transaction in the CIS by the Kazakh-British Chamber of Commerce.
The National Bank's stricter approach toward commercial banks prompted a wave of consolidation: The same year of the (then) Kazkommertz Bank and BTA Bank merger, Eurasian Bank acquired BankPozitiv while Forte Bank took over two banks, TemirBank and Alliance Bank. 2017 similarly will not see this trend reversing. In an interview with TBY in early 2017, Daniyar Akishev, National Bank Governor, confirmed his firm position on the need for higher capitalization and a gradual consolidation of the sector. According to him, the tendency towards consolidation is due to significantly reduced room for business activity following a sharp GDP decline of USD70 billion in just two years.

There is no general consensus among the business community as to whether further consolidation will benefit the banking sector and the country's economy. In early 2017, the National Bank's Deputy Chairman, Oleg Smolyakov, explained that the trend of consolidation of the banking sector is “characteristic for many countries, including Kazakhstan, in terms of the ongoing globalization of financial markets and strengthening integration processes." At a business roundtable organized in conjunction by TBY and the American Chamber of Commerce in Kazakhstan, Citibank CEO Andrey Kurilin, echoed this view, stating, “There is no rule of thumb regarding the ideal number of banks for a given size of the economy. Over the years, as in many countries after the financial crisis, the number of banks has significantly reduced," concluding that the underlying economy determines the number of banks, rather than short-term variables. On the other hand, many believe that a more consolidated market would reduce competition and establish “too-big-to-fail" institutions. During the roundtable, Capital Bank CEO Gani Uzbekov highlighted the importance of smaller banks as disruptors, to whom “innovation is a matter of survival, whereas for big banks it is not essential since they will always rely on a fixed stream of revenue."

The overall effects of the wave of consolidation will only be clear in the coming years. At the moment, however, President Nazarbayev has stated his intentions to fully support any decision that Akishev takes. The Qazkom-Halyk superbank may not be the only superpower to take shape in Kazakhstan's uncertain banking sector.