BANKING LEGISLATION

As at 1 March 2021, 25 second-tier banks are operating in the Kazakhstan financial market.  As at 1 January 2021, the aggregate assets of Kazakhstan second-tier banks make up 31,171.7 billion tenge (approximately 74 billion US dollars).

Over the last few years Kazakhstan has been showing a trend of bank consolidation through mergers, thus reducing a number of banks operating in the country.


The principal regulatory acts governing banking in Kazakhstan are: 
- Law of the Republic of Kazakhstan On Banks and Banking in the Republic of Kazakhstan of 21 August 1995;
- Law of the Republic of Kazakhstan On the National Bank of the Republic of Kazakhstan of 30 March 1995; 
- Law of the Republic of Kazakhstan On Government Regulation, Oversight and Supervision of the Financial Market and Financial Organizations of 4 July 2003; and
- Law of the Republic of Kazakhstan On the Development Bank of Kazakhstan of 25 April 2001.


Kazakhstan has a two-tier banking system.  The National Bank is the country's central bank and represents the upper (first) tier of the banking system.  All other banks represent the lower (second) tier of the banking system.

The unique feature of the Kazakhstan banking system is that banking services are offered only by private banks.  The Development Bank of Kazakhstan and the Housing Construction Savings Bank of Kazakhstan (Otbasy Bank) established with government participation have a special status and perform specific functions in the financial sector.


The National Bank of the Republic of Kazakhstan, which reports directly to the Kazakhstan President, plays the key role in government regulation of banking.
The National Bank of the Republic of Kazakhstan is the government authority which is in charge of the formulation and implementation of the state’s monetary policy; operation of payment systems; currency regulation and exchange control; financial security of the country; government statistics; as well as the regulation, oversight and monitoring (within its authority) of financial markets, organisations and other persons with regard to their compliance with Kazakhstan financial laws and regulations.
The primary goal of the National Bank of the Republic of Kazakhstan is to ensure price stability in the country for achievement of which the National Bank is vested with the following functions:
1) developing and implementing the country's monetary policy; 
2) ensuring operation of payment systems; 
3) exercising currency regulation and currency control; 
4) promoting stability of the financial system; and
5) providing banking, monetary, financial market and exogenous sector statistics.
Figuratively speaking, the National Bank provides banking services to its major client, the State, represented by its central authorities through traditional banking operations.  On the other hand, the National Bank is vested with regulatory functions in the financial sector (performs currency control functions, issues regulations, grants licenses, etc.) and is responsible for proper functioning of the entire financial system.
Before 1 January 2020, the principal regulatory and supervisory functions in relation to banks, as well as other financial organizations, were vested in the National Bank of the Republic of Kazakhstan.


On 11 November 2019, the Kazakhstan President issued Decree On Further Improvement of the Public Administration System of the Republic of Kazakhstan No. 203 which introduced a new agency of the Kazakhstan Government, namely, the Kazakhstan Agency for Regulation and Development of the Financial Market (the “Agency”).

The Agency is the government authority whose mission is to ensure the adequate protection of the legitimate rights and interests of financial services consumers, stability of the Kazakhstan financial system and development of the financial market, and to perform the regulation, oversight and monitoring (within its authority) of financial markets, organisations and other persons.

The Agency subordinates and reports, as does the National Bank, to the President of the Republic of Kazakhstan.


The Agency pursues the following objectives: 
1) regulation and development of the financial market, including the regulation of activities conducted by financial institutions, Kazakhstan branches of nonresident banks, Kazakhstan branches of nonresident insurance/ reinsurance companies, and Kazakhstan branches of nonresident insurance brokers; and improvement of corporate governance for financial institutions;
2) monitoring of the financial market and financial institutions, Kazakhstan branches of nonresident banks, Kazakhstan branches of nonresident insurance/ reinsurance companies, and Kazakhstan branches of nonresident insurance brokers for the maintenance of the financial system sustainability;
3) concentration of oversight resources in the most vulnerable sectors of the financial market for the sake of financial stability;
4) maintenance of adequate protection for consumers of financial services, and provision of consumers with complete and easily accessible information about the performance of financial institutions, Kazakhstan branches of nonresident banks, Kazakhstan branches of nonresident insurance/ reinsurance companies, Kazakhstan branches of nonresident insurance brokers, and financial services provided by them; improvement of financial literacy and financial inclusion;
5) implementation of measures preventing infringement of legitimate rights and interests of financial services consumers;
6) creation of equal opportunities for the functioning of relevant types of financial organizations based on the principle of fair competition; and

7) improvement of standards and methods of regulation and supervision of the activities of financial organizations and implementation of measures ensuring the prompt and complete performance of their assumed obligations. 


For the purpose of the government regulation and supervision of financial organisations performance, the Agency is vested with the following functions:
1) the issuance and revocation of accreditations to establish/incorporate financial organisations, Kazakhstan branches of nonresident banks, Kazakhstan branches of nonresident insurance/ reinsurance companies, and Kazakhstan branches of nonresident insurance brokers, and permits for their voluntary reorganization/liquidation (including voluntary reorganization of banking and insurance holdings) and voluntary liquidation of Kazakhstan branches of nonresident banks and Kazakhstan branches of nonresident insurance/ reinsurance companies, and the determination of the procedure for such accreditations/permits issuance;
2) the granting of, or refusal to grant, consent to elect/appoint candidates to management positions in financial institutions, Kazakhstan branches of nonresident banks, Kazakhstan branches of nonresident insurance/ reinsurance companies, Kazakhstan branches of nonresident insurance brokers, bank holdings and insurance holdings; and the determination of the procedure for such consent granting or refusal to grant on reasonable grounds, including the lack of impeccable business reputation;
3) the issuance of licenses for financial operations and operations associated with the concentration of financial resources;
4) the adoption of regulatory legal acts binding upon financial organisations, Kazakhstan branches of nonresident banks, Kazakhstan branches of nonresident insurance/ reinsurance companies, Kazakhstan branches of nonresident insurance brokers, financial services consumers and other individuals and corporations in the Republic of Kazakhstan;
5) the adoption of prudential standards and other ratios and limits binding upon financial organisations, Kazakhstan branches of nonresident banks, Kazakhstan branches of nonresident insurance/ reinsurance companies, Kazakhstan branches of nonresident insurance brokers, including on a consolidated basis;
6) the monitoring of financial organisations’ compliance with the established limits and ratios, as well as the Kazakhstan accounting and financial reporting standards;
7) probe into and off-site supervision of the operations of financial organisations; and

8) the application of limited correctional administration and supervisory response measures to financial organisations.


The development of banking legislation is aimed at improvement of the banking regulation mechanism which will ultimately promote stability of the entire financial sector of the Republic of Kazakhstan.  In particular, a number of amendments increasing transparency of banks' structure and management have been introduced over the past few years, including the definitions of "bank holding company" and "bank conglomerate" and new rules for issuing permits and approvals by competent authorities to those acquiring the status of bank holding company or major bank participant or participation of banks in the activities of their subsidiaries and affiliates.
In particular, a bank holding company is a legal entity (other than where the owner is the state or a national management holding company or an entity dealing with improvement of loan portfolio quality of second-tier banks or subsidiaries of the Kazakhstan National Bank, and other than where the Law On Banks and Banking requires otherwise) who, subject to a written consent of the competent authority, may own, either directly or indirectly, twenty five or more percent of the bank’s outstanding shares (excluding preference shares and shares repurchased by the bank) or is able to:
• vote directly or indirectly with twenty five or more percent of the bank’s voting shares; or
• determine decisions made by the bank by virtue of an agreement or otherwise or to have control over the bank.
A banking conglomerate is a group of legal entities comprised of a bank holding company (if any) and a bank or subsidiaries thereof and/or organizations where the bank holding company and/or its subsidiaries and/or the bank have significant capital participation.
A bank conglomerate may not include national management holding companies and bank holding companies that are not residents of the Republic of Kazakhstan, as well as nonresident subsidiaries and organizations in which a nonresident bank holding company has significant capital participation. 
A major bank member is an individual or legal entity (other than where the owner is the state or a national management holding company, or an organisation dealing with the improvement of loan portfolios of second-tier banks, and other than where the Law On Banks and Banking requires otherwise) who may, subject to a written consent of the competent authority, own, either directly or indirectly, ten or more percent of the bank’s outstanding shares (except for preference shares and shares repurchased by the bank) or is able to:
• vote directly or indirectly with ten or more percent of the bank’s voting shares; or
• determine decisions made by the bank by virtue of an agreement or otherwise in the manner prescribed by a resolution of the competent authority.
The Agency, as a competent authority, is authorised to grant consent to the acquisition of the status of a major shareholder (either individual or corporate) of a bank or bank holding.
A bank may be established in Kazakhstan subject to the relevant permit of the Agency which has full force and effect until the Agency decides to issue a banking license to such bank.
Kazakhstan banks are organised in the form of joint stock companies.
Bank founders and shareholders may be represented by legal entities or individuals, either residents or nonresidents of the Republic of Kazakhstan, unless otherwise provided for by the Kazakhstan Law On Banks and Banking.
Please note that, pursuant to the general rule, legal entities incorporated in the tax havens blacklisted by Kazakhstan competent authorities may not, either directly or indirectly, own and/or use and/or dispose of voting shares in Kazakhstan resident banks.

The above restriction is one of a few provided by Kazakhstan law.


Nonresident banks may open branches in the Republic of Kazakhstan subject to an appropriate accreditation by the Agency.

The Law of the Republic of Kazakhstan On Banks and Banking of 31 August 1995 determines the following transactions as exclusively limited to banks: 
1) acceptance of deposits from, as well as opening and maintenance of bank accounts for, legal entities;
2) acceptance of deposits from, as well as opening and maintenance of bank accounts for, individuals;
3) opening and maintenance of correspondence accounts for banks and organizations performing certain bank transactions;
4) opening and maintenance of metals accounts for individuals and legal entities reflecting physical quantities of refined precious metals and coins minted in precious metals owned by another person;
5) cash transactions, such as acceptance and payment of cash by banks and the National Post Service, as well as changing, exchanging, recounting, sorting, packing and storing;
6) transfer transactions, such as performance of instructions from individuals and legal entities on money payments and transfers;
7) discounting transactions, such as discounting of notes and other debentures for individuals and legal entities;
8) bank lending transactions, in particular, granting by a bank, mortgage organization, non-bank organisation engaged in brokerage and/or dealership activities on the securities market, or any subsidiary of a national agriculture-related management holding company of cash loans on the basis of serviceability, maturity and recoverability;
9) organization of currency exchange transactions, either cash or non-cash;
10) collection of banknotes, coins and valuables; 
11) acceptance of payment documents (other than promissory notes) for collection; 
12) opening (issuance) and acceptance of letters of credit and fulfilment of obligations thereunder;
13) issuance of bank guarantees securing performance of financial obligations; and
14) issuance of bank guarantees and other warranties securing performance of financial obligations by third parties.


Prior to any of the above transactions, a bank must obtain an appropriate license from the competent authority.

In general, banks are prohibited from (i) engaging in any business operations or transactions which do not fall under the category of banking activity, (ii) acquiring interests or shares in legal entities, (iii) founding or participating in non-profit organisations, except for the membership in the Kazakhstan National Chamber of Entrepreneurs, unless otherwise provided for by the Law, and (iv) transacting in securities as provided by the Law.
Nowadays, Islamic banks operate side by side with ‘conventional banks’ in Kazakhstan.
In Kazakhstan Islamic banking regulations were introduced in 2009 when the Law of the Republic of Kazakhstan On Amendments to Certain Legislative Acts of the Republic of Kazakhstan Concerning Organization and Operation of Islamic Banks and Organization of Islamic Financing of 12 February 2009 amended the Law of the Republic of Kazakhstan On Banks and Banking of 31 August 1995, as well as certain other legislative acts related to the organization and operation of Islamic banks and the arrangement of Islamic financing. 
In pursuance of the aforementioned law, the Kazakhstan National Bank has drafted and adopted a number of relevant resolutions and regulations.

As is evident from the foregoing, the recent legislative amendments make it possible to introduce alternative forms of financing and may encourage reduction of interest rates on banking services in Kazakhstan.