Kazakh Banks Get Their Way by Foiling Bid to Cut Loan Rates

Nariman Gizitdinov
·4 min read
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(Bloomberg) -- A major Kazakh financial lobby group thwarted an effort to set a much lower cap on unsecured loans popular with the vast majority of the workforce, according to people familiar with the matter, all but undoing one of the signature initiatives in the country after last year’s deadly riots.

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Shaken by the unrest that’s been blamed on corruption and inequality, President Kassym-Jomart Tokayev tried to claw back popularity with such measures as legislation on individual bankruptcy filings. This past March, the financial regulator followed with a proposal to decrease the rate limit on credit without collateral, which is held by more than three-quarters of the country’s economically active population.

But it withdrew the draft days later following pressure from the Association of Financiers of Kazakhstan, the people said, asking not to be named because the discussions weren’t public. A top official at the Agency for Regulation and Development of Financial Market told colleagues that the decision to pull the document that sought a 44% cap came after a call from the presidential administration, they said.

The maneuver demonstrates the political clout still wielded by Kazakh banks despite repeated crises, defaults and debt restructurings that forced the government of Tokayev’s predecessor to provide at least $18 billion in state aid going back more than a decade.

For Tokayev, the walkback raises questions over his administration’s commitment to an issue the president made a priority after the January 2022 riots over surging fuel prices escalated into the country’s biggest crisis since independence more than three decades ago.

The industry lobby group — with over 160 members including banks, insurers and brokers — has countered with a watered-down proposal that’s currently under discussion and aims to keep the cap closer to the current 56%, the people said. The effort faces delays as talks with the association continue, they said.

The regulator and the presidential press service didn’t reply to a request for comment.

The Association of Financiers of Kazakhstan, or AFK, said in response to a query about its role that it had conveyed to the regulator “professional remarks of financial organizations” about the method of determining a planned rate cap calculation. After providing its conclusions in November last year, the AFK engaged in discussions with the watchdog on an expert level, it said.

“If there will be a need, the AFK is ready again to consider and consolidate positions of market participants,” the group said.

Risk for Margins

Relief for the poorest borrowers would have presented a particular threat to lenders including Kaspi.kz JSC and Home Credit’s local affiliate. Kaspi, a fintech that listed in London in 2020 and has become Kazakhstan’s most valuable company, is the largest domestic bank by unsecured consumer loans.

Initial suggestions made in March last year called for capping the effective interest rate on loans at as low as 35%.

Days after crushing the violent protests with help from Russian troops, Tokayev promised to take on inequality and denounced the extent to which the wealth divide has widened as the economy grew, forcing some to load up on debt.

“People are currently taking a lot of credit,” Tokayev said at the time. “Given this, it can destabilize financial markets and create the risk of social instability.”

Just in the past year, however, the volume of unsecured consumer loans has grown by 30% to reach 7.7 trillion tenge ($17.2 billion), the latest data showed in May. In that time, the number of borrowers grew by 822,000 people to 7.5 million.

Some 1.5 million people have delinquent loans with payments overdue by 90 days or more, according to Kazakhstan’s First Credit Bureau.

The International Monetary Fund has recently echoed concern about saturating the economy with consumer credit and urged action by authorities.

“Rapid retail lending growth has resulted in rising household indebtedness,” the IMF said in a report last December. “Prudential measures should preempt risks from rapid consumer lending growth and increased market concentration.”

(Updates with delinquent loans under Risk for Margins subheadline.)

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