Approximately two weeks after being elected the Republic of Kazakhstan’s second President in the country’s 28 -year history, Kassym-Jomart Tokayev publicly outlined to the international press his vision for reforming Kazakhstan’s economy. In a video interview with Bloomberg News on 26 June,1 President Tokayev declared that Kazakhstan’s banking system needs “new measures, new attitudes and new assessments” and that there should be no government bailouts of banks or government involvement with loans of private banks. He further told Bloomberg News that privatization of major state enterprises will continue until the state’s share of the economy is about 18% and that, by 2025, the share of SMEs in the economy should be increased to about 35%. The President acknowledged the need to continue diversification of Kazakhstan’s economy, calling the country’s reliance on its natural resources “outdated.”
State Payment of Consumer Loan Debts
Also on 26 June, President Tokayev issued a significant decree affecting certain parts of the banking sector, although it is aimed primarily at providing social support to socially vulnerable citizens. Under this decree (the “Consumer Loan Debt Decree” or “Decree”),2 the Government will pay off certain debts of citizens owed to banks and microfinance organizations under unsecured consumer loans. The Consumer Loan Debt Decree was not mentioned in the President's Bloomberg News interview.
It is estimated that the consumer loan debt relief under the Decree will benefit nearly 455,000 citizens. According to the Minister of Finance, the cost to the Government will be around KZT 105 billion (approximately USD 276.3 million), with KZT 88 billion coming from state funds and the balance being raised by the issuance of bonds of the Problem Loan Fund.3 The source of the KZT 88 billion of state funds has not yet been announced.
The key measures in the Consumer Loan Debt Decree are summarized below.
1. Settlement of Consumer Loans
The Kazakhstani Government will make a one-time settlement of unsecured consumer loans provided by local banks and microfinance organizations which meet the following criteria:
- the loan is to large families (i.e., families with four or more children) or people who receive social support from the state (e.g., families with injured children, orphaned children, some categories of injured persons, etc.); and
- the total amount of the loan outstanding as of 1 June 2019 (both principal and interest) does not exceed KZT 3,000,000 (approximately USD 7,900)
If a loan meets the above criteria, the Government will settle the unpaid balance of the loan (principal and interest) as of 1 June 2019, up to KZT 300,000 (approximately USD 790) per borrower.
While not clear from the Decree, it is expected that the settlement will be made by cash payments from the Government to local banks and microfinance organizations based on official data about debtors maintained by the National Bank, state authorities and credit bureaus. It is not known when the settlements will be made.
Based on the estimate of the Government stated in the official press release accompanying the Decree, the above settlement will pay the entire amount of principal and debt owed by about 250,000 persons, or around 55% of all covered borrowers. Based on those figures, roughly an additional 205,000 persons will have their consumer loan debts partially settled (in the amount of KZT 300,000).
2. Write-Off of Penalties
The Consumer Loan Debt Decree also instructs the Government and the National Bank to take measures to cause local banks and microfinance organizations to writeoff all fines and penalties accrued as of 1 July 2019 on unsecured consumer loans. This write-off applies to all borrowers who are Kazakhstani citizens.
3. Further Measures to Regulate Consumer Loans
Finally, the Decree orders the National Bank to take additional measures to increase the responsibility of financial organizations going forward, including the following:
- a ban on accruing penalties, commissions or other charges for unsecured consumer loans which are overdue more than 90 days;
- a ban on lending to people whose income is less than the minimum monthly living wage (KZT 29,698 (approximately USD 78));
- additional regulatory measures with respect to unsecured consumer loans (not yet announced).