Second-tier Banks Struggling to Fuel State Programs in Kazakhstan
Kazakhstan's central bank suggests that the available funds are lacking.
In a tough squeeze, second-tier banks in Kazakhstan are encountering funding shortfalls for state programs. This is causing small and medium-sized enterprise (SME) owners to lose confidence in state-backed initiatives, as per Total.kz.
The National Chamber of Entrepreneurs, Atameken, has disclosed that banks have doled out 3 billion tenge in subsidies and 1.8 billion tenge in guarantees in the first quarter of the year. However, each bank requires at least 1 billion tenge for new projects.
The chamber points out that the lack of financing forces business clients receiving preferential lending to fork over their credit without any interest subsidies.
In an interview, Deputy Director of Atameken, Beisen Zholdybekov, underscored another concern: poor credit history. He proposed allowing clients with a poor credit history in the first credit bureau to acquire preferential lending, for a three-year period, given they meet financing conditions.
Bank representatives adopt a positive stance, ready to evaluate projects from such clients, given the debt is settled, sufficient collateral is present, and their payment ability is established.
However, Zholdybekov conveys that entrepreneurs often waste months at the bank, only to be rejected. This leads to both financial and emotional losses, which in turn reduce SMEs' interest in state programs.
Atameken also entreated banks not to drag their heels when considering entrepreneurs' proposals. The bureaucratic procedure, coupled with document preparation according to banks' prerequisites, eats up anywhere from three to eight months.
Background
Although the article does not delve into the specific reasons why second-tier banks are grappling with insufficient funding, economic context and recent policy developments offer clues. The World Bank anticipates economic stagnation in Central Asia, including Kazakhstan, over the next two years. This uncertainty makes banks more hesitant, opting for safety over lending aggressively for long-term or large-scale state programs.
Banks worldwide and within the region are adopting a more measured approach regarding deploying capital, making them more selective and favoring low-risk opportunities and existing borrowers. These behaviors can restrict funding availability for state-driven initiatives.
Furthermore, Kazakhstan's recent legislation has ushered in minimum capital and liability standards (MREL), with the aim of strengthening the sector. While strengthening the sector is crucial, these measures may limit banks' ability to participate in state programs by increasing their capital reserve requirements.
Proposed Solutions
To mitigate this situation, Kazakhstan has struck a Framework Agreement with the International Bank for Reconstruction and Development (IBRD), part of the World Bank Group. This agreement aims to bolster institutional and expert capacity, which may facilitate better access to funding mechanisms or risk guarantees for state programs.
Atameken also advocates for the introduction of a bankruptcy fund and the enforcement of minimum capital and liability standards, with the goal of stabilizing the banking sector and enhancing banks' capacity to take part in state programs in the long term.
Collaboration with development banks may also play a significant role in channeling funds to state programs if second-tier banks remain under strain. Institutions such as the Development Bank of Kazakhstan have been actively managing their own funds, as seen with tender offers for outstanding notes.
- The lack of funding from second-tier banks in Kazakhstan has resulted in insufficient resources for state programs, causing small and medium-sized enterprise (SME) owners to lose confidence in state-backed initiatives.
- Deputy Director of Atameken, Beisen Zholdybekov, has proposed allowing clients with a poor credit history to qualify for preferential lending, given they meet financing conditions, as a means to address the funding shortage.
- Bank representatives are willing to consider projects from clients with poor credit history, provided the debt is settled, sufficient collateral is present, and their payment ability is established.
- Banks worldwide and in the region, including Kazakhstan, are adopting a more selective approach in deploying capital, which may restrict funding availability for state-driven initiatives.
