Banking and Finance
Restructuring of the state-controlled banking and financial
systems that Kazakstan inherited in 1991 has been a long, slow
process. As in the Soviet era, the national bank continues to
dominate the financial system, including currency management.
Other commercial institutions have been established, but they
play small roles in the country's financial life.
Kazakstan's banking industry was created on the basis of a subsequently
modified law enacted in April 1993. That law created a central
institution, the National Bank of Kazakstan (NBK), which has regulatory
authority over a system of state, private, joint-stock, and joint
banks. Licensed banks are authorized to perform all of the traditional
The introduction of a modern banking system has not progressed
smoothly. Scandals have involved swindles by bank employees, questionable
loans, and the maintenance of heavy portfolios of nonproductive
loans. Several bank failure scares also have occurred. Major modifications
of banking regulations have been introduced several times. In
June 1994, Kazakstan instituted a fifteen-month program of financial
and economic reform, tightening banking and credit laws, liberalizing
price policies, and ending the granting of credits to state-owned
institutions. Another short-term reform was introduced in March
1995, in part to tighten regulation of capital requirements and
to increase the professionalism of the existing bank's operations.
To that end, a system of partnership with foreign banks was introduced,
pairing domestic banks with experienced foreign partners. Guidance
for this bank reform is being provided by the IMF, as well as
by international auditing firms such as Ernst and Young and Price
In 1994 the national bank system included a State Export and
Import Bank and a State Bank for Development, both of which functioned
under full government control rather than as market institutions.
Four large, state-owned banks controlled 80 percent of financial
assets. Of the 200 small commercial banks in operation in 1994,
the majority were attached to enterprises. About thirty private
banks were licensed to deal in foreign exchange.
The aim of the 1995 reform was to create a republic-wide banking
system, including ten to fifteen large banks with total capital
of at least US$10 million, headquartered in Almaty and with branches
throughout Kazakstan; foreign branch banks, most of which would
have single representative offices in Almaty; several dozen smaller
banks, both in Almaty and in the provinces, with capital in the
range of US$2-US$3 million; and savings banks, some with specialized
purposes such as the Agricultural and Industrial Bank (Agroprombank).
In 1995 the NBK planned to release 80 percent of the credit
funds it granted to an auction market, departing from the previous
policy of rationing credit by directing it to designated enterprises.
No stock exchange or capital markets existed as of 1995, although
a law on securities and stock exchange had been adopted in 1991.
State revenue is derived primarily from various taxes, the introduction
of which has been somewhat problematic. A fundamental revision
of the national tax code in 1995 reduced the number of taxes from
forty-five to eleven and the volume of prospective revenue by
17 percent. Five national corporate taxes remained after the reform,
which reduced the corporate tax rate to 30 percent. Prior to that
revision, the largest contributions to state income were business-profit
taxes (15 percent); a uniform, 20 percent value-added tax (see
Glossary), a personal income tax (ranging from 12 to 40 percent
and accounting for 16 percent of tax income); and special-purpose
revenue funds (17 percent). However, the system has suffered from
chronic undercollection. The primary long-term goal of the 1995
tax reform was to encourage fuller compliance with tax laws. The
1996 budget called for reducing the deficit to 3.3 percent of
Data as of March 1996