Measures to improve business climate in Kazakhstan: Suspending payments, refinancing and postponing loan payments 

Since the beginning of the coronavirus pandemic, the government of Kazakhstan has been taking a number of anti-crisis measures to resume economic growth. Small and medium-sized businesses in the most affected industries will be provided with a deferral of loan payments until Oct. 1, 2019. Deputy Chair of the Board of the Agency for Regulation and Development of the Financial Market Nurlan Abdrakhmanov told in more detail about measures to support business in the new conditions.

— Nurlan Almasovich, good afternoon! Since the start of the coronavirus pandemic, the Agency for the Regulation and Development of the Financial Market has taken a number of measures to defer loans to individuals and legal entities. Can you tell us how many clients received approval to suspend payments and received deferrals and for what amount? 

— Good afternoon! Indeed, the Agency, within the framework of supporting entrepreneurs and the population in connection with the state of emergency, which was introduced in March 2020, and also by quarantine, took measures to suspend payments on loans. On March 26, 2020, the Agency adopted a procedure for deferring payments on loans to individuals and entrepreneurs for 90 days — from March 16 to June 15. During this period, 1 million 890 thousand citizens who had bank loans (33% of all borrowers) received a deferment for a total of 268 billion tenge. Also, 12 thousand business entities (42% of all borrowers) received a deferment for a total of 164.8 billion tenge. 

Later, on June 15, 2020, a new procedure was adopted, which, in addition to granting a deferral, also provided for the refinancing of affected entrepreneurs within the framework of banks' internal refinancing programs or within the framework of three state programs that are currently in force. 

On Aug. 3, 2020, the Agency took additional measures to support entrepreneurs in connection with the extension of quarantine. In particular, a more simplified procedure for considering and approving an application for a deferral was introduced for entrepreneurs whose activities were suspended under the order of the Chief State Sanitary Doctor of the Republic of Kazakhstan dated July 5, 2018. They received a deferral until Oct. 1. 

As of Aug. 10, banks have already approved about 6,236 applications, of which 1,542 received refinancing and about 4,694 entrepreneurs were deferred until Oct. 1. 

— Does the borrower's credit history suffer when he asks the bank for an extension in the current situation?

— The suspension of payments or the granting of a grace period is not indicative of a deterioration in the financial situation or a significant change in the terms of the loan agreement. In this case, the postponement provides for the transfer of payments to a later date and the signing of a new payment schedule by the borrower with the bank. In this regard, a postponement — suspension of payments — is not a deterioration in the borrower's credit history. 

— You are implementing the Program of Concessional Lending to SMEs. What effect do you see from this program? 

— At present, the Agency, together with the National Bank, is implementing a program of concessional lending to entrepreneurs from affected industries to replenish working capital. This program was implemented in accordance with the instructions of the Head of State. The total volume of this program is about 600 billion tenge. Within the framework of it, loans are provided for working capital for 1 year at a rate of 8% per annum. Currently, about 3,125 loans have already been issued for a total amount of about 380 billion tenge. 

The Economy of Simple Things program is also being implemented. This is more of an investment program. Its budget was increased from 600 billion to 1 trillion tenge. Under this program, loans are provided at a rate of 6% per annum. 

In parallel, the program Business Road Map-2025 is operating, which is very convenient for entrepreneurs. It allows them to reduce their debt burden. It is especially useful for those entrepreneurs who have difficulty providing collateral for banks to obtain a loan. Under this program, loans are issued at a rate of 6% for the final borrower. Guarantees are provided up to 85% of the loan. 

— As part of anti-crisis initiatives, the Agency and the National Bank stimulate the economy through financing state programs and prudential response measures. Can you tell us more about these actions?

— The banking sector is currently undergoing quarantine. Granting a deferral is a certain loss incurred by banks. For these losses, the banks have created and have the necessary reserves. The agency continues to work. To accept additional losses associated with quarantine and postponements, the Agency used a prudential regulation mechanism. As a countercyclical measure, the Agency temporarily reduced capital adequacy requirements, that is, we freed up a certain part of the capital buffers. We have also lowered the capital adequacy requirements for loans issued to small businesses. This measure allows to stimulate the issuance of such loans. Also, the requirements for the liquidity ratio were reduced. Taken together, these measures made it possible to release about 468 billion tenge of equity and liquidity in the amount of 1.8 trillion tenge. These funds were directed to the economy to support bank lending. 

— Before July 1, microcredit organizations had to undergo state registration. What are the outcomes of this process? How many organizations have you registered? How do you plan to regulate the market of microcredit organizations?

— Until last year, we observed a process when our citizens actively used the services of micro-companies, micro-crediting. In this regard, certain problems have accumulated in this sector. People often suffered from the fact that such organizations set high interest rates, introduced penalties and fines. Also in the past year, we observed some cases of fraud. In this regard, last year a law was adopted that introduced, at the beginning of this year, the regulation of microcredit companies, as well as their mandatory registration with the Agency until July 1, 2020. But due to the quarantine, the activities of many microcredit companies were limited, suspended, not all of them had the opportunity to undergo registration, so we extended the registration period until Sep. 1. 

As of the current moment, about 1,104 microcredit companies have already been registered, including 562 pawnshops, 380 microfinance companies and about 182 credit partnerships. 

On behalf of the Head of State, compulsory licensing will be introduced starting next year. That is, now — registration, and from next year there will be compulsory licensing of all microcredit companies. The Agency has developed appropriate amendments. They stipulate that from Jan. 1, 2021, only an organization that has received the Agency's license can issue microcredits. 

— How will risk-oriented supervision be carried out? 

— In 2019, we switched to risk-based supervision. This was done to improve the regulatory supervision system. This was also done in order to improve financial performance and minimize risks in the banking sector. At the heart of risk-based surveillance is the European model of the European Union known as SREP. SREP provides for diagnostics of the financial condition of the bank, early identification of negative phenomena in its activities and prompt adoption of corrective measures. Supervisory judgment is at the heart or key element of the SREP. Legislatively, the Agency is an independent body and has the authority to exercise supervisory judgment. In the future, to improve risk-oriented supervision, the Agency will continue to work on strengthening supervision over the risk management system of banks, consolidated supervision will also be expanded, and stress testing of banks will be carried out on a regular basis. 

— The Agency is a regulator. How will the Agency develop the market? 

— The new economic reality requires the transformation of the financial sector to create an economy with high added value and high income. For this, the financial sector and services must be more accessible to the population and business. At the same time, the financial sector must maintain the required level of resistance to various shocks. Taking this into account, our future plans will be aimed at developing the financial sector, making it more high-tech and competitive. As part of the regulation of supervision, work will continue to ensure the stability of the financial sector, including the infrastructure of the financial market. Also, work will continue to improve and transition to international standards for risk-based supervision. Steps will be taken to shape a new model of prudent behavior among financial consumers. To this end, the Agency has developed comprehensive approaches. They are aimed at ensuring the stability of the financial system, increasing the role of the financial market in supporting economic growth, attracting investment, developing the stock market, insurance market, microcredit market, protecting consumers of financial services, developing financial technologies, innovations, as well as integrating the internal market of the global system. To implement these comprehensive approaches, the Agency plans to adopt a new version of the Concept for the development of the financial market until 2030 in the third quarter of this year. 

— Thank you for participating in the interview.

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