KAZAKH BANKING SECTOR ANOTHER BRIGHT SPOT IN A STRONG ECONOMY.

Consolidation and stabilization continue to mark Kazakhstan’s financial sector. Although the financial sector as a whole represents only 15 percent of GDP, Kazakhstan has one of the most developed banking systems in the CIS. The banking system withstood the shocks of the 1998 Russian financial crisis and the subsequent devaluation of the Kazakh tenge in 1999 quite well. At the end of 2000 there were forty-eight banks operating in Kazakhstan versus fifty-five a year earlier. In 1993 there were 271. With consolidation has also come greater efficiency and transparency. The banking sector now includes nineteen banks with foreign capital, which account for 25-26 percent of all banking assets. Foreign banking capital cannot exceed 50 percent of all banks’ assets (Reuters, February 7). But in comparison with Russia’s ownership limit of 12 percent for nonresident banks, Kazakhstan’s treatment of foreign investors seems quite liberal.

Kazakhstan officially completed its transition to international banking standards by the end of last year. All local banks are now expected to act in line with international norms and to conduct accounting and auditing in compliance with international standards. By April 1, all domestic banks are to undergo audits conducted under international accounting standards. Banks operating in the commercial capital Almaty and the new capital Astana should already have shareholder capital of at least 1 billion tenge (US$7 million), while those working exclusively in the regions must have capital of at least 500 million tenge. Sixteen domestic banks had already achieved international standards in 1997 while over twenty others are likely to join this group in 2001. Moreover, the establishment of a bank insurance fund in early 2000 in which the country’s largest seventeen banks are participating has helped build popular trust in the system (Russian agencies, December 2000).

The banking system’s strength is apparent in the fact that private deposits grew some 73 percent in 2000 to 216 billion tenge (US$1.49 billion), while domestic banking assets rose 55 percent to 530 billion tenge (US$3.65 billion) during this time. The recent passage of legislation to provide an amnesty for flight capital could further boost inflows into Kazakhstan’s banking system this year. Kazakhstani banks are not just sitting on this money: Lending to the manufacturing sector accounted for nearly 60 percent of all bank credits in 2000 (Russian agencies, January 14). When compared to the Russian banking system– where strong resistance to the adoption of international accounting standards, regular audits, deposit insurance and foreign investment continue–these developments underscore how Kazakhstan has become the unquestioned leader in financial reform among the CIS countries.

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