Kazakhstan works out legislative amendments to strengthen protection of creditors rights

The block of amendments is aimed at reducing the population's creditworthiness, limiting the growth of debt burden, combating fraud and protecting the rights of consumers of financial services. This was announced at the Government session by Deputy Prime Minister – Minister of Finance Yerulan Zhamaubayev. 

It is planned to strengthen the activities of the Banking Ombudsman and reduce the risks of indebtedness in the segment of unsecured online lending. Deputy Minister reminded that the Head of State in his Address to the people of Kazakhstan emphasized the issues of creditworthiness of the population. The Government is instructed to scale the project "Karyzsyz qogam" throughout the country. 

"Work in this direction is carried out, the Road Map has been developed and approved. It includes 25 activities in 6 key areas. The Memorandum of cooperation between state bodies and the party "AMANAT" is concluded, responsible officials in akimats for coordination of work on each direction of the map are fixed," Zhamaubayev noted.

Regional project offices will be created in three cities of republican significance and 17 regions of the country to work with the population. Citizens will be assisted in settling overdue debts, as well as assisted on issues of protection from financial fraud, bankruptcy procedures, employment, support for business development. Akimats allocate premises and necessary material and technical base for opening of offices, and local branch offices will be assisted by the STB. 

Another important direction of the project is improving the financial literacy of Kazakhstanis. In addition to the introduction of financial literacy courses for university students, a special course for schoolchildren is being developed, as well as appropriate methods and teaching aids. In total, 750 thousand Kazakhstani schoolchildren and students are planned to be trained within the framework of this direction. 

Reducing the population's debt burden is a complex task that requires revision of prudential regulation of banks and Ministry of Finance. Legislative amendments to strengthen the protection of borrowers' rights are under consideration. The Government supports all proposals of the Agency for Regulation and Development of Financial Market on this issue, said Deputy Prime Minister. 

Legislative norms on the procedure of bankruptcy and restoration of solvency of individuals have come into force and are successfully applied. The most popular is extrajudicial bankruptcy, this procedure can be applied to debts to banks, MFIs and collection agencies. Citizens can submit applications through the Central Bank of Uzbekistan, e-government portal, e-Salyq Azamat and eGov Mobile mobile applications. A new information system on bankruptcy of individuals "Qoldau" was launched. It provides an opportunity to submit an application and automatic verification of the applicant's compliance with the entry criteria through the bases of 24 state bodies and organizations.

Yerulan Zhamaubaev said that since March 3, more than 70 thousand applications have been received. Of these, more than 80% do not meet the criteria for bankruptcy proceedings. The main reasons - the presence of property, the discrepancy of debtors on the amount of debt and terms of non-payment, the lack of debt settlement with the creditor.

In total, to date in Kazakhstan recognized bankruptcy of more than 6 thousand citizens, their total debt amount - more than 9 billion tenge. About 1,200 citizens have applied to the courts for judicial bankruptcy proceedings and restoration of solvency. 

For debtors who cannot apply the bankruptcy procedure due to existing legislative barriers, the following norms are proposed:

- expansion of the list of financial organizations subject to out-of-court bankruptcy;

- exemption of a citizen from the obligation to attach additional documents to the application for extrajudicial bankruptcy;

- lifting the ban on the debtor traveling outside the country after the approval of the solvency recovery plan.

"Of course, bankruptcy will not solve all problems and many citizens are well aware of all the consequences. The relevant explanatory work has had a positive impact on the correct application of this process," the Deputy Prime Minister said.

Explanatory work is carried out with the population. The websites of the Ministry of Finance and its agencies contain relevant explanations of the main provisions of the Law, as well as meetings with the population. Also, citizens are sent SMS-notifications about the possibility to receive advice on bankruptcy in the centers of services by phone number 14-14. 

Deputy Chairman of the Bankruptcy Commission Olzhas Kizatov reported that today the total volume of consumer loans of the STB is over 9 trillion tenge. For 2022 their growth amounted to 25.3%, for 8 months of this year by 20%. The share of loans overdue for more than 90 days is 5.2% or more than 500 billion tenge. Borrowers with arrears in Kazakhstan are 516 thousand people. 

In the microfinance sector, the portfolio of consumer microcredits increased by 46% in 2022 and by 11% to 1.1 trillion tenge in 8 months of 2023. Loans overdue for more than 90 days account for 8.8% or 98 billion tenge. The number of borrowers with overdue loans amounted to 347 thousand people.

To limit the growth of consumer lending in the country, the Agency has implemented a set of measures.

"The requirements to the capital of credit organizations have been raised. For banks, risk-weighting ratios for consumer loans increased from 150% to 350%. For microfinance organizations, risk-weighting ratios were raised from 100% to 500%. In addition, for MFIs the maximum limit on the share of overdue microcredits over 90 days in the loan portfolio of MFIs at the level of 20% was introduced," Kizatov said. 

To improve the quality of assessment of borrowers' solvency to banks and MFIs introduced a requirement to calculate the coefficient of debt burden of the borrower. The DLC is set at the level of 50% of the citizen's income. 

Also, in 2022, the number of types of indirect income has been reduced: from 18 to 12 types. This is expected to improve the quality of loans issued. To reduce the burden on borrowers, the cap on the nominal interest rate on microcredits up to 50 MRP has been reduced from 25% to 15%. A daily rate limit of 1% has also been introduced.

To support borrowers with overdue loans, a unified procedure for pre-trial settlement of bad debts was introduced in 2021. It includes a mandatory procedure for banks and MFIs to consider borrowers' applications for restructuring of overdue loans. It also provides for the borrower's right to apply to the Agency in case of failure to reach an agreement with the lender on the terms of restructuring.

Last year, the FRA requested from banks and MFIs individual plans to reduce problem loans to the population. Credit institutions updated them as part of the implementation of the Decree of the Head of State. By the end of 2024, the credit burden of 1,449 thousand borrowers will be reduced by 275 billion tenge.

"To strengthen the protection of borrowers' interests, since 2021 at the legislative level introduced qualification requirements for senior employees of collectors. The requirements for the minimum amount of capital of collection agencies have been raised to 100 million tenge. Together with the General Prosecutor's Office a block of legislative amendments on introduction of personal administrative and criminal liability of collectors has been developed, which is under consideration of the Majilis of the Parliament," the Deputy Chairman of the Agency said.

A block of amendments to legislative acts on the issues of reducing the creditworthiness and strengthening the rights of borrowers has also been developed. Thus, it is envisaged to introduce a ban on granting unsecured consumer bank loans to citizens with overdue debts over 90 days. It is also planned to introduce restrictions on the sale of consumer bank loans and microcredits to collection agencies. It is planned to include in the duties of collectors the settlement of debts on purchased loans.

As an additional measure at the legislative level it is proposed to set a limit on the maximum amount of consumer credit. Taking into account the remaining risks in the segment of online microcrediting, the issue of complete abolition of a special type of microcredit for a period of up to 45 days and an amount of up to 50 MRP has been initiated. As well as the establishment of a single annual effective interest rate for all microcredits.

The Government also discussed the proposed systemic measures to protect borrowers within the framework of enforcement proceedings in the collection of overdue debt on loans. For mortgage borrowers it is the introduction of a ban on eviction of families with minor children from the only housing during the heating season. Banks may also be given the option of renting out foreclosed homes to previous owners.

It is envisaged to protect the balance of money on the borrower's account from collection in the amount of one minimum wage, as well as the introduction of mandatory deferment of loans for the entire period of military service without interest.

In order to improve the mechanism of dispute resolution between consumers and financial organizations, the Agency proposes to expand the powers of the institute of bank ombudsman to consider disputes on all loans of citizens. Credit organizations will be obliged to execute the decisions of the ombudsman, otherwise the regulator will apply supervisory response measures and fines to banks and MFIs.

The Government session also considered the issues of compensation for damages from illegal actions of financial fraudsters. Together with the National Bank it is planned to create a single Anti-Fraud Center, which will ensure the collection of data on fraudulent transactions and allow market players to block suspicious transactions in real time.

At the same time, it is proposed to introduce voluntary refusal of citizens to receive loans and online transfer of information on loans issued by financial organizations to credit bureaus. The responsibility of a financial organization to compensate for damages or terminate claims against a client for fraudulent transactions conducted without complying with information security procedures is introduced.

In addition to the above-mentioned legislative initiatives, the Agency will take the following measures at the level of by-laws: together with the National Bank it is planned to establish increased risk-weighting coefficients; when calculating the CAR, it is planned to reduce the types of indirect income from 12 to 8; additionally, the requirements for calculating the CAR will be extended to all borrowers and all loans to individuals. Citizens under the age of 21 will be granted loans after confirmation of official income.

To further clean up the microfinance and collection services market from entities unable to comply with legal requirements, Kazakhstan will continue to gradually increase the minimum capital requirements for MFIs and collection agencies.

"Reducing the population's creditworthiness, countering fraud in the financial market and improving financial literacy of the population remain important priorities in the Agency's activities. Systematic work in these areas will be continued," Kizatov summarized.

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