The amendments aim to strengthen the requirements for banks’ net equity and charter capital as well as the price manipulation restrictions.
The Kazakhstan banking regulator—the National Bank of the Republic of Kazakhstan (NBK)—has adopted important amendments to its rules on prudential limits, which aim to strengthen the requirements for banks’ net equity and charter capital as well as the restrictions related to price manipulation. Highlighted below are the key provisions of the amendments.
On 6 May, the NBK amended the prudential limits rules for all commercial (so-called “second tier”) banks, including Islamic banks. According to the amendments, the minimum charter capital amount for a newly founded bank, as well as the net equity amount for an existing bank performing main banking operations, would gradually increase as follows:
Starting 1 January 2016, the minimum amount of net equity capital for a bank that performs only limited banking operations would be KZT10 billion (approx. USD55 million).
At the beginning of 2014, nonperfoming loans (NPLs) were at a high level (about 31% across all commercial banks). An NPL is defined as a loan with more than 90 calendar days overdue debt (principal amount and/or interest), excluding reserves. The NBK intends to force a reduction of this level of credit risk to support banks’ competitiveness. The NBK has established a practice of making agreements with banks regarding specific measures to improve their loan portfolios. In addition, the NBK introduced new coefficient k11 (the maximum limit of NPLs in a bank’s loan portfolio), which takes effect on 1 January 2016. Coefficient k11 should not exceed 0.10 and would be calculated as a ratio of NPLs to a bank’s total loan portfolio.
Price Manipulation Restrictions
On 23 April, the NBK adopted new rules on the classification of transactions in organized or over-the-counter (OTC) markets that are aimed at manipulating the markets (the Manipulation Amendments). The Manipulation Amendments came into force on 15 July.
Manipulation on a securities market is defined as actions of securities market participants aimed at (i) establishing and/or supporting higher or lower prices for securities compared to fair market price, (ii) giving the appearance of trading with securities, and/or (iii) entering into transactions using insider information.
A list of transactions that are subject to monitoring and control for the purposes of manipulation includes, among other things, (i) sale and purchase transactions within five business days that did not result in a sufficient change (10% or more) in the securities volume held by the parties to the transaction and (ii) transactions entered on stock exchanges for pre-agreed prices that materially differ from prices at the securities market prior to the transaction.
A material difference in the price of stock exchange transactions should be evaluated as follows:
The Manipulation Amendments
The key provisions of the Manipulation Amendments are as follows:
Manipulative transactions may be challenged in court by any interested party. In addition, failure to comply with the restrictions related to manipulation may lead to administrative or, in some cases, criminal liability (e.g., fines or imprisonment). Criminal liability was added recently after the 10 June 2014 adoption of amendments to the Criminal Code.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors, Aset A. Shyngyssov (+7.727.250.7575; firstname.lastname@example.org) and Marat Mukhamediyev (+7 727 250 7575; email@example.com).