Kazakh Banks Face Double Bind on Deposit Rule as Tenge Falls

  • New rule sets capital hit for deposits over 5.5 times equity
  • Kaspi Bank may already have exceeded the ceiling, data show

Kazakhstan’s Kaspi Bank, which counts Goldman Sachs Group Inc. among its shareholders, may be too popular with savers for its own good.

With 600 billion tenge ($1.6 billion) of deposits from individuals and 108 billion tenge of equity as of Dec. 1, according to central bank data, the Almaty-based lender may already be pushing the limits of a new rule that foresees a capital hit for banks whose deposits exceed 5.5 times equity. Some other banks, such as Centercredit Bank, are approaching that level.

And the banks’ situation grows more precarious every time the tenge falls, driving up the value -- reported in tenge -- of deposits denominated in dollars, euros and other major currencies. In Kazakhstan, 78 percent of deposits are held in foreign currencies, according to central bank data for November. That means banks could wind up exceeding the level even if they accept no new deposits.

Regulators in oil-rich central Asian country, where lenders have restructured about $20 billion of debt since the financial crisis, are trying to prevent some banks from becoming too big to fail. Their task is complicated by the plight of the tenge, which has fallen nearly 50 percent against the dollar since the central bank shifted to a floating exchange rate in August 2015, as tumbling crude prices and devaluations by neighboring Russia and China boosted the cost of defending the currency. 

Regulatory Capital

To shore up the value of their savings, many depositors switched their money into major currencies before the central bank’s move. Under the new deposit rule, that puts Kaspi Bank and others in a pickle.

The rule introduced by the Kazakh central bank on Jan. 1 redefines regulatory capital. A lender must now subtract balance-sheet equity, multiplied by 5.5, from total retail deposits. If the result is a positive number, it must in turn be subtracted from the bank’s combined Tier 1 and Tier 2 capital to arrive at the new regulatory capital number.

On Dec. 1, Kaspi Bank had 193 billion tenge of regulatory capital, according to central bank data. That’s well above the 10 billion tenge minimum for banks, but the lender may need to seek alternative sources of funding to avoid a run-in with the regulators.

‘Current Cap’

The new rule could have further implications if the central bank abandons its recommended interest rates for banks’ retail deposits -- 10 percent for tenge-denominated accounts. The International Monetary Fund called for the removal of the “current cap on the commercial banks’ deposit rates on individual accounts.”

That would leave Kaspi Bank and others with a difficult choice: raise rates to compete with the biggest banks for deposits, further exceeding the deposit-to-equity limit, or risk losing depositors.

A spokesperson for Kaspi Bank said the goal of all rules in this “difficult time for the country and the economy” was to bolster the stability of the financial system. Kaspi Bank has “one of the highest ratings of capital adequacy,” the spokesperson said, without addressing the possible impact of the new rule on the bank.

Centercredit Bank Managing Director Jinhwan Yang said the lender is following all central bank rules, and will “continue to take all necessary steps to fulfill the demands of the regulator.” Centercredit shareholders “are considering ways to increase base capital,” he said.

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