20 November 2018, 12:27
The national currency of Kazakhstan turned 25 on Nov. 15, 2018. In Kazakhstan, on this important day, the VIII Congress of Kazakhstani Financiers was held, during which issues of increasing the role of tenge and stabilizing inflation processes, as well as the challenges facing central banks in modern conditions were discussed.
More than 300 participants from 20 different countries of the world, including the heads of central banks, representatives of international financial organizations and professional participants of the financial market, arrived in Almaty to attend the Congress.
Congress participants noted that today the country managed to achieve macroeconomic stability, reduce inflation and inflation expectations, as well as the level of dollarization.
In the second half of 2015, when the transition to inflation targeting and a freely floating exchange rate was implemented, external conditions were unfavorable — world prices for the main positions of Kazakhstan's exports continued to fall, and the trading partner countries devalued their national currencies. These processes resulted in instability in the foreign exchange market, the increase in the number of speculative transactions, the flow of funds from tenge to foreign currency deposits, the reduction in tenge liquidity of banks and the sharp increase in money market rates. All this adversely affected the confidence in the national currency. Under these conditions, it is necessary to restore the balance in the money and foreign exchange markets, to reduce the level of inflation, to return confidence in the national currency and in the pursued policies, to preserve gold and foreign currency assets.
Despite the short term practice of inflation targeting, the country managed to achieve macroeconomic stability, reduce inflation and inflation expectations, as well as the level of dollarization.
The main instrument of the National Bank's monetary policy was the base rate, which allowed regulating nominal interbank interest rates in the money market. A toolkit was built for the implementation of monetary policy to achieve the inflation target, which can be effectively used in all situations. To ensure inflation in the given parameters, monetary policy was conducted with the main focus on the interest rate policy under the floating exchange rate of tenge.
Initially, in February 2016, to reduce inflation, the National Bank set the level of the base rate at a sufficiently high level. This allowed to stabilize the situation in the financial market, reduce devaluation and inflationary expectations. As inflation processes slowed down, the base rate gradually decreased. For three years, it was almost halved from 17% to 9%. Currently it is 9.25%.
For improving the efficiency of the interest rate channel’s functioning, work continued in several directions. The main measures were aimed at strengthening the role of the base rate. Special attention was paid to open market instruments, which play the main role in regulating short-term liquidity in the money market. In addition to short-term notes, auctions for the purchase of securities with a return sale (credit auction), the National Bank since 2019 has been considering the introduction of deposit auctions. Permanent access operations will be used to adjust the amount of short-term liquidity that has developed as a result of open market operations.
According to the National Bank, since the transition to inflation targeting, the task was set to reduce the inflation rate to 4% by 2020.
In order to reduce inflation gradually, without adversely affecting economic growth, intermediate targets for inflation were established:
Under these guidelines, the National Bank pursued a fairly successful policy to reduce current inflation. As a result of the ongoing monetary policy, as well as under the influence of favorable external and internal conditions, inflation slowed down. For two years, the inflation rate reduced almost threefold (from 17.7% in July 2016 to 6.1% in September 2018) and from 2017 it was maintained within the established target corridor.
Consistent anti-inflationary policies allowed to keep economic growth during the transition to the inflation targeting regime. According to the National Bank estimates, this year inflation will remain in the target corridor of 5-7%, and in 2019 it should be formed near the upper boundary of the new lower target corridor of 4-6%.
When making monetary policy decisions, along with the level of actual inflation, inflationary expectations are also taken into account. The main source of information on inflation expectations is the results of population polls conducted by GfK Kazakhstan, which specializes in conducting surveys for a variety of purposes. These surveys are conducted monthly starting in January 2016.
Successful reduction of inflation expectations is one of the main directions of the policy. The positive impact on inflation expectations is achieved in two ways. First, it is consistent and timely decisions on monetary policy that have contributed to positive trends in the economy. Secondly, an important factor is an active and transparent communication policy aimed at increasing public confidence in the actions of the regulator.
Resulting in the policy being pursued, the expected inflation, calculated on the population survey, gradually decreases, being close to the actual inflation rate. In September 2018, it was 6.4% (7.1% at the beginning of the year). The National Bank, in turn, will take all possible measures to further stabilize inflation expectations.
The main event in the financial market in the second half of 2015 was the transition to a freely floating exchange rate. Despite the unfavorable conditions under which the transition was made, the situation in the foreign exchange market quickly stabilized. This was facilitated by both the favorable situation in the external commodity markets and the measures of the National Bank.
From Nov. 2015, the National Bank minimized its participation in the foreign exchange market, which made it possible to determine the tenge rate, balanced between the supply and demand of foreign currency. The situation on the foreign exchange market and the factors of tenge exchange rate are explained in detail by the responsible bodies.
According to the National Bank, at present the population and companies have adapted to the realities of the tenge exchange rate, there is no excessive demand for currency. Market participants have significantly narrowed the opportunities for unnecessary speculative operations in the foreign exchange market. It has come to people that it makes no sense to constantly “run” to exchange offices, because the dynamics of the course changes both towards weakening and strengthening, and with high volatility, you can lose some of your savings.
In order to increase the effectiveness of the policies, tools are being continuously improved and new mechanisms are being introduced on the market. Thus, from Sep. 10, 2018, the official exchange rate of tenge to the US dollar is set on the basis of the average exchange rate after the trading sessions with T + 1 settlement terms, that is, the next day. Calculations of T + 1 allow you to better manage liquidity and help reduce volatility in the money market.
Additional innovation — from Oct. 1, 2018, Kazakhstan Stock Exchange JSC has started to fulfill the function of a central counterparty in the foreign exchange market and will insure these transactions. Creating a counterparty will improve credit risk management, ensuring stability in the market, as well as increase attractiveness for foreign participants.
In the swap market, from January 2019, it is planned to introduce longer-term instruments at the Kazakhstan Stock Exchange site, which will be insured through the central counterparty mechanism. New tools will allow second-tier banks to raise funds on a more long-term basis and hedge currency risks. It also opens up the possibility for banks to offer similar products to their customers.
For the first time in its practice, the National Bank is introducing hedging instruments in order to develop the financial market. This measure became possible after the creation of a central counterparty.
The National Bank stimulates the investment of money in bank deposits, especially in national currency. For this, an extended differential is established between the recommended rates for retail deposits in tenge and currency. Today, deposits are a popular and attractive financial instrument among the population, ensuring the profitability and safety of funds. Measures were also taken to increase the attractiveness of tenge instruments by developing the corporate securities market, expanding the opportunities of institutional investors, and stimulating exchange trading in financial instruments in tenge.
Foreign exchange loans to borrowers who do not have corresponding foreign exchange earnings and whose currency risks are not covered by appropriate hedging instruments are discarded. The pricing of goods in electronic commerce occurs exclusively in tenge.
In order to provide an additional investment and savings tool, a program for the sale and repurchase of gold bars for the population has been successfully implemented.
The measures taken increased the importance of the tenge as a means of calculating, accumulating, measuring the value in the country. The de-dollarization process has significantly advanced: the share of deposits in foreign currency decreased from a maximum level of 70% in January 2016 to 48% in September 2018. During this period, tenge deposits doubled, in addition, deposits in tenge showed a threefold increase, then as foreign exchange declined by almost a third.
One of the positive consequences of the measures taken to increase the attractiveness of the national currency is the growth of the tenge money supply. From the beginning of 2016 to September 2018, the tenge money supply increased by 83%.
In the conditions of monetary policy easing, from 2016 there was a revival in the credit market: the issuance of new loans grew, the cost of loans decreased, their availability increased. The banking sector has improved, which created a reliable infrastructure for the growth of lending to the economy in the future. Excluding the loan portfolio of banks undergoing restructuring and deprived of a license, lending shows a positive trend. The 7–20–25 Program is being successfully implemented. Legislative measures were taken to strengthen the deposit base of funding by introducing the practice of savings deposits. The approach to determining maximum interest rates on deposits of individuals has changed by differentiating interest rates by time and type of deposit, which stimulates the development of the time deposit market and increases the stability of funding. It is planned to take additional measures to ensure the long-term liquidity of banks for the further direction of lending to the economy.
From Jan. 1, 2019, the National Bank strengthens the regulatory and supervisory mandate, and transfers to the principles of risk-oriented supervision of financial organizations with the possibility of applying supervisory judgment about the real financial condition of a financial organization and preventive measures, up to limiting active and passive operations.
The problem banks settlement mechanism was improved by introducing new recovery tools: sharing losses with shareholders and creditors in order to minimize government spending. These legislative changes will prevent the recurrence of problems in the banking sector and strengthen the protection of the interests of consumers of financial services.
For the period from Jan. 1, 2016, to Oct. 1, 2018, the following measures were applied by the Department after monitoring of the activities of supervised entities:
Also in 2016, the interim administration conducted a transaction on the simultaneous transfer of assets and liabilities of Kazinvestbank JSC to Alfa-Bank JSC.
In order to ensure the financial rehabilitation of agro-industrial enterprises and their further lending, the Government, together with the National Bank, implemented a mechanism for buying out an agricultural loan portfolio from Tsesnabank JSC in the amount of 450 billion tenge. This will also strengthen the financial stability of Tsesnabank JSC. At the same time, shareholders of the bank will take part in the rehabilitation of borrowers at their own expense of 40 billion tenge.
The payment services market is an integral element of the financial sector of Kazakhstan. In July 2016, a new law “On Payments and Payment Systems” was adopted. This law introduced a comprehensive regulation of payments in the country, regulated the organization of payment systems and the use of payment instruments. New opportunities and conditions have also been created for increasing transparency, balanced development and improving the payment environment, taking into account the current and future needs of society and the state. In addition, the law has taken measures to improve the social security of customers when using payment services.
The National Bank was assigned new functions for the introduction of the register of payment systems, the accounting registration of payment organizations, and the regulation and control of the payment services market. As of today, 20 payment systems have been registered, of which 2 are national and 18 are private.
The national payment systems (the Interbank Money Transfer System and the Interbank Clearing System) are focused on conducting interbank payments in national currency in Kazakhstan and process the overwhelming volume of cashless payments in the country. On average, operations for 3.2 trillion tenge are carried out through these payment systems per day. In 2018, according to the results of nine months, the efficiency of national payment systems was 100%, which corresponds to high standards and the fulfillment of the goal of ensuring the uninterrupted operation of payment systems. Private payment systems are mainly focused on retail payments.
As of Oct. 1, 41 payment organizations have been registered. Payment organizations provide a range of basic services, increasing the availability of financial services for the public. The National Bank assigned registration numbers to these organizations, made entries in the Register of payment organizations, which is posted on the Internet resource of the National Bank of Kazakhstan.
Among other significant achievements in the field of payments, it is necessary to note the rapid growth in the last two years of non-cash payments through remote communication channels (Internet / mobile banking). The volume of public payments through the Internet and mobile banking in 2017 has tripled compared to 2016, and the popularity of these services is growing every year. As of Nov. 1, 2018, the number of Internet / mobile banking users amounted to 12 million people, of which an average of one third of users (4 million people) perform daily operations for 7 billion tenge via Internet / mobile banking.
In general, the total amount of non-cash payments using payment cards has increased over the past five years by a sum of six times. At the same time, thanks to the active development of remote services and infrastructure, payment cards are increasingly used for cashless transactions, rather than cash withdrawals. Today, more than half of all transactions with payment cards are non-cash payments — 62% of the total number of transactions (the share of these operations in terms of volume is 30%).
In the market of payment services in Kazakhstan, the electronic money system has been actively developing. Electronic money has become popular with the growth of the Internet audience and the spread of electronic commerce in Kazakhstan. Currently, there are 18 electronic money systems operating in the domestic market, the issuers of which are 10 banks and Kazpost JSC. According to the results of three quarters of 2018, 94 million transactions amounting to more than 421 billion tenge were effected using e-money issued by Kazakhstan issuers. Thus, for only three quarters of 2018, the number and volume of transactions using electronic money exceeded the figures for 2017.
In order to optimize state and financial services, and to exclude paper documents required from customers, projects on electronic interaction of financial organizations with government agencies have been implemented. So, on the electronic government portal from Jan.1, 2018, a comprehensive service of simultaneous opening of a bank account, compulsory insurance of an employee against accidents during electronic registration of a newly created legal entity has been launched. As part of this project, significant successive legislative reforms have been carried out to simplify the process of opening a bank account to a legal entity as much as possible. The list of documents required for opening a bank account was minimized, including remotely without visiting a bank office. To date, a number of banks open a bank account through this service during electronic state registration of a legal entity.
To improve the provision of public services, in 2017, work was completed on implementing the interaction of all second-tier banks with the e-government payment gateway. As a result, banks, after making client payments and / or money transfers to the budget, as well as paying for public services, instantly transfer information about them to state authorities and courts. The information transfer allows government agencies to provide services online, without waiting for the receipt of supporting documents on the budget payment, including the state fee. In addition, this service allows government agencies to promptly exclude debtors from the relevant registry, as well as to remove restrictions / prohibitions, including on leaving the country.
Currently, on the part of state bodies, the Ministry of Finance, the Supreme Court and the Committee on Legal Statistics and Special Accounting of the General Prosecutor's Office of Kazakhstan participate in and receive information from second-tier banks through the “electronic government” payment gateway.
The National Bank actively applies new technologies in its activities. March 27, 2018, the National Bank launched the Invest Online innovation system, which uses the blockchain technology. The population is provided with a convenient way to invest funds without intermediaries, commissions and taxes. Within the system, short-term notes of the National Bank are placed as an investment instrument. All services of the system are available remotely, around the clock, online and do not require visits to financial and other institutions. This product is aimed at further de-dollarization of citizens' consciousness and expansion of investment tools and savings of funds by the population. On average, citizens invest about 2 million tenge per day through the system, buying more than 20,000 short-term notes.
Currently, in order to expand digitalization of financial services, work is underway to introduce a system of instant mobile payments using a phone number and a remote client identification mechanism to enable remote opening of a bank account and receiving other popular services at home.
The system of instant mobile payments allows you to transfer money in national currency between clients of different banks using a mobile phone number and at any time of the day 24/7. Payments can be made through a bank account, payment card, and e-wallet between different systems and banks. Payments can be made remotely through any available device (tablet, smartphone, computer). Money to the recipient will be credited in instant mode (a few seconds). The project is aimed at building a new-generation payment system that meets the current and future needs of the population, economic entities and the state. Sep 7, 2018, Interbank Instant Payment System was launched in pilot mode.
The National Bank, together with financial organizations, is working to introduce a remote client identification mechanism based on biometric indicators for expanding remote financial services. The mechanism of remote customer identification will allow customers of banks and other financial / payment organizations to receive remotely any financial services using any available device (tablet, smartphone, computer), regardless of the geographical location of customers. Financial services, regardless of whether the client first applies to this bank or is already his client, can be obtained remotely at any time (the only condition is internet access). This service will contribute to expanding the coverage of population by banking services, including those living in remote areas of Kazakhstan. The system will bring significant convenience to customers, improve the level and efficiency of financial and other services, and will contribute to the further development of remote services.
The above projects will lead to an increase in the efficiency of the payment market, the expansion of digital financial services and the further development of non-cash innovative payment methods.
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