Clare Nuttall in Almaty -
On July 1, new minimum capital requirements for Kazakh banks will enter force. Banks based in Almaty - where the vast majority are located - will be required to have equity capital of at least KZT5bn ($33.2m), while those headquartered outside the financial capital will need KZT3bn.
The new rules were introduced by Kazakhstan's financial regulator, the AFN, as part of a series of measures intended to strengthen the sector. The AFN has in particular sought to increase financial prudence, and prevent the current financial crisis from being repeated.
When they come into effect, the new requirements are likely to cause the closure of some of the smallest banks in the system. As of May 1, 14 banks had capital of less than KZT5bn, according to AFN data. They include Kazincombank, Express Bank, Senim Bank and KZI Bank, in addition to several local arms of international banking houses, though the latter are likely to receive addition capital from their parent companies. "This is not an issue for the larger banks, only those ranked below 25th in terms of capital," says Milena Ivanova-Venturini, director of equity research and finance of Central Asia for Renaissance Capital. "Those that don't have sufficient capital may try to attract more deposits, or merge among themselves. In reality, a number of these banks will go out of business."
One of Kazakhstan's smaller banks was taken over soon after the new measures were announced last year. In October, a 90% stake in International Bank of Almaty was acquired by Jiri Smejc, a large shareholder in the Netherlands-based investment firm PPF Group that owns Home Credit bank. The bank has subsequently rebranded as Home Credit. As of August 2008, IBA's capital was just KZT1.5bn (€9.2m), which means it will need to be bigger to survive the new regime. The deal sparked expectations of a wave of M&A activity among the smaller players as the deadline approached, yet so far this hasn't happened.
However, assuming the AFN doesn't decide to relax the rules, the consequences for the sector as a whole won't be severe. "In the context of the Kazakh banking system as a whole, this will not have a major impact," reckons Ivanova-Venturini. "The top-10 banks in Kazakhstan have 92% of total assets. Those ranked under 25th have a market share of just 0.1%."
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