The new Banking Law provides for introduction of a new mechanism for regulation of insolvent banks which complies with the best international practices.

Madina Abylkassymova, Chairperson of the Agency for Regulation and Development of the Financial Market, made this statement at a presentation to the Majilis of Parliament of the draft laws ‘Banks and Banking Activities in the Republic of Kazakhstan’ and ‘Changes and Amendments to Certain Legislative Acts of the Republic of Kazakhstan on the Regulation and Development of the Financial Market.’ The draft laws were developed for the purpose to implement the 2024 and 2025 Addresses of the Head of State.

"Key difference from the current approach is a switch to a clear system of anti-crisis regimes, which will be applied sequentially depending on the extent of deterioration of a bank's financial condition. The regulation mechanism consists of three anti-crisis regimes: enhanced supervision, restoration of financial stability, and regulation of an insolvent bank." "The switch between regimes will be carried out according to pre-established triggers, which will ensure a timely response and predictability of the regulator's actions," said Madina Abylkassymova.

It should be noted that this approach is an international standard and has been implemented by most leading regulators, including the EU, US, and UK.

"With a view to prevent deterioration of banks' financial condition, new requirements are being introduced for development of bank recovery plans and regulation plans. Recovery plans contain detailed measures to bring a bank out of a crisis situation and prevent its insolvency. Development and annual update of such plans will become the responsibility of banks," added the ARDFM Chairperson.

Backbone banks will be required to maintain a sufficient level of loss absorption capacity, which will allow them to convert their liabilities into capital in case of insolvency and reduce the need for external support.

State participation in bank support will be permitted only as a last resort, only for backbone banks and only if their share capital is fully utilized and liabilities are converted into capital.

"The only form of state support will be direct state participation in capital of a backbone bank to maintain stability of the financial system. State participation will be temporary and compensated, and will be limited to the minimum necessary amount. It will be accompanied by a replacement of the bank's shareholders and management, a ban on dividend and bonus payments, restrictions on risky transactions, and implementation of a financial recovery plan," emphasized the Head of the financial regulator.

After financial stability is restored, bank will be sold to a new investor, and the invested state funds will be returned to the budget.

Powers of public authorities in regulation of bank activities are also clearly delineated. Competence of the Government and the National Bank in regulation of backbone banks is established. The Agency will be responsible for supervision of the implementation of recovery and regulation plans, as well as application of the anti-crisis measures for all banks. The Financial Stability Council, responsible for decisions on application of regulation measures and participation of the state in support procedures, will play a key coordinating role.

"Thus, a modern system for regulation of insolvent banks is under development that will meet international standards and ensure a balance between stability of the financial sector and protection of clients' interests," summed up Madina Abylkassymova.

The new Banking Law takes into account technological changes, growing role of the banking sector in economic financing, increased competition, and involvement of new market participants, as well as issues of promoting the fintech and liberalizing the circulation of digital assets.

Source : https://www.gov.kz/memleket/entities/ardfm/press/news/details/1071029?lang=kk