Pg.

Table of content Page

Introduction…………………………………………………………………………………2

1. Overview the country economy, the key futures, trends and challenges…………...3
1.1 The features, trends and challenges in the bank sector of Kazakhstan………… -

2. Business environment, risk analysis and prospects of the banking sector of

Kazakhstan………………………………………………………………………….6
2.1 Business environment of the banking sector in Kazakhstan…………………8
2.1.1 System of banking regulation………………………………………….9

2.2 Analysis of political, economic and social risks…………………………….11

2.2.1 Political risks………………………………………………………….. -
2.2.2 Economical risks………………………………………………………12
2.2.3 Social risks…………………………………………………………….14
2.3 Prospects for the development of the banking sector in Kazakhstan………..15

1. Strong recommendations to the key strategic investments………………………..17

References …………………………………………………………………………………19
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Introduction

To write this work were used personal knowledge and experience in one of the institutions in
the financial sector of the Republic of Kazakhstan, as well as construction and realtor
companies.

At the dawn of the last century in developing their statehood and economic development of
countries the all over the world banks played an enormous role and are playing until today.
The financial system emerged long before the appearance of banks. It was characterized as an
exchange of goods, which contributed to the development of the world trade. Trade become
major driving force of development of countries. Nowadays, the financial system of countries
- are banks, namely the Central Banks (state financial regulators) and private banks. What is a
bank in a simple notion - it is a financial institution, which accumulates and transforms the
money in to the financial instruments, and it providing financial services to market
participants, as well as state financial regulator, the only question is how well governments
use it.

The reason for selecting this theme lies in the potential of the banking system as the life
important regulator of any state of the world, in particular Kazakhstan as a leader of the
recent bank system in the post-Soviet space. And also it is possible to show the beginning of
development not the raw materials sector of Kazakhstan's economy is from directly the
growth of banks and the banking system. In this paper we will review the financial position
of the Republic of Kazakhstan, and as well as the main line of the work, we take the
development of banking sector, its development and role in the economic statehood. Also, the
impact of economic crisis, positive and negative sides, we will review economic, political and
social risks. But in the overcoming risks need show the prospects of the banking sector in
Kazakhstan as a potential investment, as any economy has a given level of risk.
 Pg.3

1. Overview of the country economy, the key features, trends and

challenges.
In 1991 with the collapse of the Soviet Union, Kazakhstan gained independence. A huge
country with a population of 16 million, the richest reserves of resources, first place in the
reserves of zinc, tungsten and barite, second place - silver, lead and chrome, third place -
copper and fluorite, and the fourth largest reserves - molybdenum, the sixth largest reserves
of gold, as well as huge deposits of oil, gas, coal, manganese, nickel, phosphorus, tin,
chrome, iron. It is the World's Largest Oil and gas producer in the world. In 2009 won first
place in the world of uranium mining and agro-building (in 2009 collected 20 million tons of
grain) and ranks among the 6 largest exporters of grain. Since independence, Kazakhstan has
stable economic growth, legal reforms. Over the past decade Kazakhstan economy grew at 6
times, from 22 billion of dollars until 135 billion of dollars GDP and since 2000 grew by
9,2%, but in 2009 the growth was 1%. The volume of direct foreign investments reached
more than 90 mil dol. Only in 2009 attracted more than 15 billion dollars investment.

In 2001 with opening the Caspian Pipeline Consortium (Kazakhstan - Europe) and in 2009
pipeline between Kazakhstan and China significantly increased the export potential of the
Republic of Kazakhstan. The country has begun to strengthen and diversify the productive
capacity, thereby reducing the dependence of the oil sector. Also in 2008, was provided
financial support for banking sector of $ 7 billion. In 2009 GDP growth by sector was as
follows: 5,8% agriculture, 39,4% industry and 54.7% service. The able-bodied population of
8 360 thousand people, unemployment is around 7%, the state budget 2009: revenues - $
33.47 billion dollars, expenditure - $ 36.23 billion dollars. Public debt is - 9.1% of GDP,
around 9 billion dollars. Reserves in the National Fund of the Republic of Kazakhstan formed
from oil revenue and for January 1, 2010 compose 30 billion dollars.

1.1 The features, trends and challenges in the bank sector of Kazakhstan
To date, the banking system of Kazakhstan consists of a bank first level - National Bank (the
state regulator of the financial system of Kazakhstan) and second level banks - 34 non-state
banks, including 14 with foreign capital participation. Main the component of the banking
sector in the country is the "big three" - Kazkommertsbank, BTA Bank and Halyk Bank of
Kazakhstan. In December 2009 they accounted for 58% of total banking assets of the
republic. The competition between them can allow overcome the market monopolization
(Figure 1). But among the banks present a tacit division. Kazkommertsbank - prefers
corporate services, and BTA Bank and Halyk Bank of Kazakhstan - the retail segment and
lending to small and medium businesses.
 Pg.4

Figure 1 The dynamics of assets and equity of Kazakhstan banks, in percentages and millions USD (the
exchange rate at 25.01.10 is 1 KZT =148 USD), in 01.01.2009

In 01.12.2009

Source: The Agency of Kazakhstan on Regulation and Supervision of Financial Market and Financial
Organizations.
Strategic direction of the "Big Three" banks affects the development strategy of the banking
sector. By 2007, a good reputation and stability of the banks allowed the leaders to ensure the
inflow of long-term foreign capital for economic development. The second group is medium-
sized banks serving the financial and industrial groups. Their share in late 2009 in the
aggregate capital made up 39%. For example Eurasian Industrial Association - Eurasian
Bank, Tsesna Corporation - Tsesnabank, Astana Holding - Astana Finance, etc., third group -
these are small banks and credit organizations. There are two state banks - the Development
Bank of Kazakhstan (the area of investment as a priority - is agriculture, industry, etc.) and
Zhilstroybank (aimed at the implementation of mortgage housing program). High level of
banking sector and the economy as a whole contributed to active investment projects of
Kazakh banks throughout the CIS. Banks was short of space on the territory of one country.
For example BTA Bank has subsidiary banks in Armenia, Belarus, Georgia, Russia and
Ukraine. All this time the most popular method of raising capital was syndicated loans and
Eurobond issues.

The pressure of the global financial crisis has significantly slowed the development of
national banks, but at the same time strengthened and showed weaknesses. That certainly can
be regarded as negative and positive. A total on anti-crisis measures in 2009 from the
National Fund has been allocated 14 billion dollars and the huge share was aimed at reviving
the financial sector. “Big Three” banks faced a liquidity problem. At the same time, the total
external debt of the banking sector was 46 billion dollars and state intervention helped to fell
it until 18 billion dollars, and also the government for temporary stabilization has been forced
to buy controlling stake BTA Bank, Temirbank and Alliance Bank. Note that the
nationalization was a necessary measure to preserve the national banking system, and
otherwise on the inertia of collapse these three banks would have pulled down the whole
system, and threw the national economy for a couple of decades into the past.

Despite the more or less stabilization in banking system of the Republic Kazakhstan there is
quite an interesting trend. Investors are not yet ready to invest money and sit on the fence. At
the same time the rating agencies lowered the ratings of banks and also remain the problem of
 Pg.5

huge external debts. Nevertheless, Standard & Poor's believes that the banking sector in
Kazakhstan will not be able to quickly recover from the crisis, but for the growth has all the
prerequisites. First is one of the perfect legislative frameworks governing the sector, the
second booming resource sector as the engine of the country's development. (Standard &
Poor’s, Mikhail N. 2009)

2 The risks analysis, problems and prospects of the banking sector in

Kazakhstan.

Faced with the objective limitations to attract resources in the domestic market, domestic
banks have to attract resources for their own development and for funding to external capital
markets. Macroeconomic environment, strong demand for loans in Kazakhstan favoured this.
In addition, the small domestic market limits the expansion of productive activities of banks.
As a result, domestic banks have come out not only to the markets of neighbouring and
nearby countries such as Kyrgyzstan, Tajikistan and Russia, but also in other countries of the
former USSR (Belarus, Ukraine, Georgia, Armenia), as well as in Turkey, China and
Mongolia (Marchenko G.A., 2009). To date, the growing economic, political and social risks
and structural deficiencies, adversely affected the economy and the banking sector of
Kazakhstan. Measures for the capitalization and reservation are showing the futility of
overcoming systemic crisis. According to Standard & Poor's the level of problem loans in
2009 had reached 30-35% and have all the prerequisites for the increase in their maximum of
to 50%. Despite this lengthy infusions of Finance in the bank sector by the state , Standard &
Poor's changed its rating on liabilities in foreign currency to BBB-/Stabilnyy/A-3. "Against
the background of deterioration of the banking system, as well as the lack of measures used
to recapitalize the banks, these negative factors have become apparent against the background
of the global financial crisis beginning in August 2007, as well as weaknesses in the system
of regulation and supervision" - said a credit analyst at Standard & Poor's Ekaterina
Trofimova.

Crisis as a consequence of structural anomalies of the rapid growth of banks in Kazakhstan,

the dependence of external capital high risk concentration, risk management deficiencies,
significant dollarization of loans and customer deposits and insufficient measures of
 Pg.6

supervisory response. At the same time, the rapid decline in activity of banks in Kazakhstan
was negative influenced on banks. In the fully can be possible of a further deterioration in
economic performance, liquidity and creditworthiness. Projected recovering of the banking
sector will be long and painful, to refinance debt and stabilizing the deposit base would be
limited to the current 2010 (2009, Trofimova E.). "Confidence in the public and investors in
the banking system of Kazakhstan, as well as to the quality of regulation and supervision in
recent months has decreased," - said Ms. Trofimova.

Following the nationalization of the problem of "BTA Bank" and the serious problems
arising from another systemically important Alliance Bank, regulators issued a statement on
continuing for several years and fraudulent manipulation of accounting data banks. In the
spring of 2009, both of them and another bank, one of the 20 largest credit institutions in
Kazakhstan - Astana Finance - is not fulfilled its commitments on foreign borrowing. It is
possible that in the coming months in Kazakhstan will increase the number of banks that have
committed a default or forced to restructure its debt obligations. Regarding the three troubled
banks, then they are currently working on a restructuring of its obligations. The share of these
three banks account for more than 40% of the assets of the Kazakhstan banking system.
These situations clearly demonstrate the shortcomings of a system of banking regulation and
supervision, which, despite the work done to improve it, failing to keep up with growth in the
banking sector and external borrowings, as well as the risks associated with increasing debt
load. According to the conclusions credit rating agencies Kazakhstan is among the states
willing to provide state support to system-private banks in the country in a stressful situation.
But on the previous example, as we sought that state aid may be limited. Many people,
including ordinary citizens share their opinion about what the state fears provoke messy
business is because of excessive support for the sector, as well as strategic priorities for the
conservation of state reserves provokes Kazakhstan government to limit support to banks.
Given the fact that the second half of 2008, the Government has supported the banks in the $
7 billion dollars assistance has been provided quite decent, but the cause of failure must be
sought in the system of doing business and transparency. Until recently, the clients' funds
(especially deposits of public organizations) differed little volatility, but, if their volume is
drastically reduced, the banks have any very serious problems with liquidity. Accordingly,
large payments on external borrowings and an underdeveloped system of public refinancing
of banks are limiting the ability to overcome problems associated with the possible outflow of
deposits. Definitely performance gains deteriorate due to increased allocations to reserves and
steady growth of problem loans, as well as increase the cost of raising funds and reducing the
 Pg.7

volume of business. And negative effect of these factors only partly offset by measures to
increase efficiency and reduce costs.

2.1 Business environment of the banking sector of Kazakhstan

Compared with banks neighbouring republics of Kazakhstan banks occupy a better position
to develop, but they are not yet sufficiently strong and are unable to provide sufficient
protection against external influences. In connection with the events in the market the last
couple of years, banks have begun seriously attention to the quality of service and loan
portfolios. Many banks in Kazakhstan have no opportunity for growth and many of them are
not recognizable. However, as the maturation of the banking sector, increase transparency,
diversification of the banking sector should be strengthened and sustained, and the crisis
points to the error and displays weaknesses. Most banks in Kazakhstan opaque ownership
structure, owners often connected with industry groups and are influential members of the
clans, and this constrains the development of the market. Also, there is misinformation and
failure to disclose data on private shareholders. It creates information risk and problems in
corporate governance. The names of the beneficial owners are often hidden behind bogus
individuals and companies. Regulators require need to disclose information about the owners,
but in the media and other sources of such data are seldom seen. In process studying the
Kazakh banks, we note the direction of business development for real banking business, and
not speculative investments, which is typical for Russian banks. At the dawn of the
establishment in Kazakhstan bank provides corporate customers a service only, but recently
noticed the emphasis on small and medium business, retail and investment services, leasing,
insurance and asset management. The share of retail loans to total loans issued by Kazakh
banks rose from 10% in 2002 to 35% in 2009.

Kazakhstan is still a poor country with GDP at $ 8500 per capita, but the continuation of
economic growth and overcoming the consequences of the crisis should provide impetus for
the development of retail banking services. Thanks to low rates of population growth and
wealth of natural resources, the level of psychic income in the country is increasing rapidly.
At the same time in some rural areas of basic banking services are made available postal
operator KazPost that with proper co banking license, but is not intended to take a position in
 Pg.8

the banking market, but only focus on certain types of services. In the short term KazPost not
be any competition with private banks. To date, the main objective of Kazakh banks is not a
large-scale expansion on the markets of neighbouring countries, but strengthening the internal
position and revision of foreign assets. These are the rules of the game time of crisis, and this
motivated to save money and minimize risks.

2.1.1 The system of banking regulation.

The system of banking regulation and supervision needs to be improved, but still comparing
it with the CIS countries is the most advanced. The form of regulation is “National Bank”
responsible for monetary policy and “Financial Supervisory Agency” overseeing the financial
institutions of the republic. State regulators are doing their best to restrain the growth of
banking assets in the maximum allowable size, as well as restrictions on foreign borrowings.
As we can see type seat layout external debt adversely affects the public and in particular the
recent bank status, increasing dependence. We note that the common gross external debt of
Kazakhstan in September 2009 was $ 111.3 billion and is ca 85% of GDP. In 2009, the
Government of the Republic had resorted to extreme measures and did restructure the debts
of major banks. This year's total bank debt had declined from $ 32.8 billion in 2009 to $ 18
billion in early 2010 and it is not considering a restructuring, which provides for the
cancellation of about $ 10 billion debt. Level of total bank indebtedness is 85 billion (Figure
2). In 2006, the Government has taken restrictions to attract foreign loans, and in 2009
entered into force on rigid rules governing foreign borrowing (Marchenko G., 2010).

Figure 2 level of total banks indebtedness 2006 - 2009 years, billion dollars.

Source: The Agency of Kazakhstan on Regulation and Supervision of Financial Market and Financial
Organizations.
From 1 January 2009 increased requirements of equity capital to 1.5 billion tenge (about
$100 million), and from 1 January 2010 - up to 2 billion tenge. Also, in relation with not
conscionable managing, tightened the responsibility of management and owners of banks.
From all the above we see that the Kazakh banking sector through favourable macro and
microeconomic environment is actively involved in bringing cheap and huge western money,
without having restrictions gradually increased the debt. In figure 3 we can see the dynamics
of the pay-off of the foreign debts by banks of Kazakhstan.
 Pg.9

Figure 3 Expenditures of large Kazakhstan banks on the pay-off of the foreign debts.

Source: Standard & Poor's 2008

On the one hand this has had economic growth, but on the other has created a tense situation
of scarce resources in the first wave of the crisis. Country until 2007, not to lack of resources,
and did not know how to fight it. As a simple and banal example of a private entrepreneur
who is operating in the real estate market. When buying an apartment for $ 100 000 loan and
having 20% of their own money ($ 80 000 receives a bank loan), sell it in 3-5 months for $
140 000 (there were times when real estate prices in the country grew by 10-15% per month).
Eventually returning to the bank $ 80 000, pays the commission and bank margins on average
$ 5 000, and has revenues of U.S. $ 35 000 plus $ 20 000 initial deposit. So, price speculation
in the property market would be advantageous to traders, the high cost of apartments (price of
1 square meter on average $ 2000) and increases in loans for the benefit of construction
companies and private banks. In turn at the source of all are the concerned government
officials and major industrial groups, construction companies and private banks are owned by
families or groups to approximate power. But as we know speculation and price increases
cannot be eternal. It is quite possible that in-country crises no influence of external factors,
but because of an overheated economy, global crisis only accelerated the process and thus
may be saved from the devastating effects. As stated above, than took off, the harder to fall!

2.2 Analysis of political, economic and social risks.

One of the problems of Kazakhstan's banking sector is a relatively young age. In a short time
of independence (19 years), comparing the banking systems in post-Soviet Kazakhstan is
located in front. But the immaturity and incompetence of the risk managers, as we see has the
dire effects. When attracting investment we can make following risks of the banking sector:
the political, economic and social. Some of the most important risks to the international
bankers are the political risks. With a great desire to invest in countries, financiers around the
world pay great importance to the country's political stability. For investors, including
bankers, the question is always an edge, because on the political risks of the entrepreneur
may not have direct influence, and their appearance does not depend on its performance. So,
political risk should be assigned to a group of external risks.
 Pg.10

2.2.1 Political risks

Very negative impact on Kazakhstan's economy affects the concentration of all political
forces in the one hand. And it creates systemic risk distribution the power between several
competing groups. At the same time in Kazakhstan in the banking sector are the following
political risks:

1. The country of highly centralized, but provides support to national banks. Highly
centralized and opaque political - administrative management, combined with weak
institutional and legal system make the formation of economic policy concerning
unpredictable. Apparently, the threat of destabilization of the internal political
situation in the country is less, which suggests a high probability of continuing the
economic reforms, as well as the commitment of the President and Government to the
development of the banking sector. An important component of the current political
and economic regime is to maintain the country's reputation and financial institutions
as a bona fide borrower. However, given the length of stay of Mr. Nazarbayev
presidency inevitably raises the question of whether to change the political course
after coming to power of his successor. Key political a force in Kazakhstan is only the
president and the last word is always followed him. Mr. Nazarbaev is located above
entire policy and criticism inside the state and almost no one will decide to raise
questions about his authorities. The real policy of the country is behind closed doors,
and emerging risk of uncertainty.
2. Possible redistribution of spheres of influence in the banking sector, that is a
temporary nationalization without adequate compensation, but it is minimal because
the business and private property protected by law. Except for misconduct which is
undermine national interests.
3. Flexibility of the legislative base. Risks on the use normative - lawful reports and
laws in the interests of the interested persons. Law is always located on the side of
government and political groups. It is allowing the elasticity law, which can be
interpreted in different ways.
4. The risk of criminal prosecution of managers of companies. It is also associated with
lobbying interests of local political groups.
5. The question of the succession of the president. Possible risk to the change of head of
state. President of 70 years old and if the rumours are confirming by the fact that the
power may be transferred to his son-in-low Mr Kulibayev. It is possible
destabilization in-country as well as political and business elite of the country will be
 Pg.11

against. And it threatens property redistribution in the country, widespread

prosecutions of top managers.

2.2.2 Economic risks

Economic risks are also important elements of risk assessment. Directly in the banks is -
corruption, the concentration of business and finance, the level of diversification, ownership,
business style, the fullness of the banking market, competition. For a more detailed
presentation will consider some basic economic risks:

1. For Kazakhstan's economy is still characterizing a narrow diversification and high

dependence on the extraction and export of raw materials, causing vulnerability to
adverse changes in external conditions. The major industries are oil, gas and metals
and mining, which directly and indirectly provide almost half of the country's GDP,
twelve of financial-industrial groups controlling about 80% of Kazakhstan's economy.
2. Unpredictability in the protection of property rights. For example in 2009, the state
nationalized the BTA Bank and Alliyans Bank. The reason was simple - the banks
failed to meet its financial obligations, in the course of action was to reveal the theft
of one billion dollar from BTA Bank and grand larceny in Alliance Bank. The answer
suggests itself for itself - as the legitimate actions and does not harm the national
interests, the government would intervene scarcely. But, nevertheless, this article falls
into the category of risk.
3. Concentrated ownership structure. The financial sector is divided between interest
groups and clans.
4. High levels of corruption. Corruption is one of the satellites of the Kazakhstan
business. This tumour business swallowed whole country from the minor officials
until ministers. Despite the active fight against corruption in the last 2-3 years, until
the results are weak.
5. Lack of interaction between authorities of different levels, leading to the bureaucracy.
Many different agencies and departments often perform overlapping functions,
complicating the registration process, and a complex governmental structure requires
time and money. This hinders the solution of issues and respectively, the business is
not ready and cannot wait for each document for weeks or even months. But mostly,
by paying a bribe issues are resolved in a day, which simplifies the procedure. To
combat corruption, the government decided to legalize the accelerated decision-
making processes to break the chain of corruption.
 Pg.12

6. Clan-genealogical style of doing business is headed by the president. On one side of

the set of relatives (daughter, Dinara Kulibaeva and husband Timur Kulibayev major
shareholders of Halyk Banka, and are among the richest people in the world), the
second group are not close relatives (Adilbek Dzhaksybekov - Tsesnabank and Tsesna
Corporation); Alexander Mashkevich, Patojo Shodiev and Alidzhan Ibragimov -
Eurasian Bank and the Eurasian Industrial Association, etc. All of this suggests that
the financial and industrial sector is concentrated in the hands of those close to
governance (Figure 4). December 25, 2010 Kazakh President Nursultan Nazarbayev
said that need separation of banks from industrial groups, because here there is a
hidden manipulation of markets and banks looking back at the decision of
corporations.

Figure 4 Structure of business by large industrial groups in Kazakhstan.

And also to economic risks include market size and availability of professionals.
Kazakhstan's market is very tiny, 16 million of population, but not all the potential more
exhausted and there are prospects for growth, almost 50% of the population do not have bank
accounts, and practically do not work with the banks. Professional the component population
is sufficient and almost 99.9% of the population are educated.

2.2.3 Social risks

Social risk is a separate group of risks directly affecting the livelihoods of ordinary citizens
and reflects the entire component of the economy. These include the quality of life,
availability of educational institutions, criminal, talent management, confidence in banks, the
culture of life. Let us dwell in more detail on each of them:

1. Quality of life - we all know that a citizen of a developed state keeps wiring the funds
in the bank and is actively working with the bank. In Kazakhstan, the quality of life
on the order of magnitude higher than the neighbours, but not enough for the rapid
development of banks. Economy fuelled the commodity sector and easy vulnerable,
that is why banking sector in the absence of a strong private client is unstable.

2. Availability of educational institutions. Bank need qualified staff, but In Kazakhstan,

most bankers do not have sufficient qualifications as required by world standards.

3. Crime or organized criminal groups engaged in fraud and pursuing the goal of illegal
financial gain. In the last year have been thefts in Alliance Bank and BTA Bank in
the amount from 115 million to 1 billion dollars.
 Pg.13

4. Talent management - consist of the level of education. As shown by the current crisis
in the country directors of the banks does not have the talent of risk analysis. Until
2007 the risks in banks approached carelessly.

5. Confidence in banks rather blown in connection with the collapse of the Soviet
Union, people stopped trusting to the state and the financiers, it was the cause of
instability in the early 90 of the last century. The Government, in its turn tries to do
everything to restore public confidence, for it had taken several measures increase the
deposit guarantee from $ 5800 to $ 41600 in 2008. Plus to everything else that
momentum distrust fuelled the crisis, now the Government uses all efforts to
repairing the trust.

6. Culture of life - historically Kazakh people, namely the Kazakhs is now 67% of
Kazakhstan's population has never made savings. Yes, this is debatable, but we rely
on personal examples. Kazakhs all free money is always spent on travelling and
expensive purchases (arguing that "the life is one, so let's spend all"). Savings
lifestyle only recently started to take root in the mentality of Kazakhs. With the rapid
development of the banking sector, people began to save money on deposits. And in
the short term with the help of government incentives this trend will increase its
strength despite the crisis and other factors.

2.3 Prospects for the development of the banking sector in Kazakhstan.

"Despite all the difficulties awaiting the Kazakhstan banking system in the near term, we
continue to believe long-term economic prospects for Kazakhstan's favourable view of the
dynamic development of the commodity sector, a relatively high balance the state budget and
the trend of improving the welfare of the population - said Ms. Trofimova. - However, the
expected positive dynamics of macroeconomic indicators can bring Kazakh banks stable real
benefits only if a significant strengthening of domestic markets and resources balanced
growth of banks in the light of its potential, improving the banking business models,
regulatory frameworks, risk management and lending procedures.

In the long term development of the banking sector, forecast is a kind of cleansing of the
market, and filtering of the financial segment of the poor quality of services, and also non-
competitive services offered by banks. If at the dawn of the formation of the Kazakh financial
market long money were scarce and banks are using the levers of power and connections in
the government originally monopolized the market of Finance. Thus a long-term loans added
 Pg.14

expensive margin, withal assuring the quality of the portfolio did not receive due attention,
that is bring to 35% uncollectable loans. Crisis added adjusted this trend. In the short term it
may decrease the number of banks, credit conditions improved and the financial sphere will
move at a stable and orderly growth. For it have the financial and regulatory perspective. But
of corrective measures ultimately must contribute to a healthier financial sector, development
of more sustainable business strategies, development of domestic sources of funding and a
more conservative financial profiles of banks ", - underlined Ekaterina Trofimova.

But in the whole system has positive features, such as new legislation forced banks to tackle
long-standing issue of capital increase and created additional incentives for the development
of the internal base of deposits. Theoretically, any borrowing in foreign currency exceeding a
certain limit, will require banks to increase capital by an amount equal to 15-50% of the
amount of borrowing. The sum of the required capital increase would depend on the size and
type of bank borrowings. In plain language, this airbag in the event of insolvency, for
example if you cannot then there should be no zeal to replenish the portfolio with new debts.

3. Strong recommendations to the key strategic investments.

Despite all the current risks and barriers to Kazakhstan is and will be in the next decade the
country a leader in the region to attract resources. This is reasonably rich resources, huge
Eurasian transport capacity, and the country is on the crossroads of civilizations - Russia,
China, Europe and the Arab world. Against the backdrop of global population growth the
country has vast expanses of undeveloped farmland one hand. On the other hand stimulation
of the Government, namely, creating a favourable climate in every region of the country are
promising free economic space, that is tax-free environment for business, there is
concessional financing. The Government of Kazakhstan has stated that investors in his six
 Pg.15

free economic zones will be exempted from land tax, corporate income tax, value-added
imports of goods and property tax.

In the present case is concerned with Kazakhstan as a potentially successful country for
funding in the near future. Despite the fact that the recovering of the economy may be in for
several years and previous growth rate may take 5-10 years, in the Central Asia another
optimum regions for funding in the near future will be absent.

In the current crisis situation can be defined the following strategic areas of investment in the
banking environment in Kazakhstan:

- First, the crisis is a good condition for acquisitions of assets at acceptable prices, and market
growth will bring additional revenues from increases in value, it is possible to buy cheap
bank's assets, distressed office buildings;

- In the second, market of Kazakhstan does not fully covered by the banking business, there
are many unoccupied segments of the market, most of the republic's population do not use the
banks as required by the notion of the Western lifestyle, this may be limited to only one
operation in month.

- Practically not developed online banking, shopping and online payment services developed,
but little used, provided that the population of Kazakhstan is easily adaptable to new
condition it is possible to take this segment.

- In conditions of shortages of hard cash available, the additional infusion of average interest
rates will demand to use, given that the lending market in Kazakhstan has grown before crisis
and after crisis, but is conservatively projected to resume growth after 2-3 years (Figure 5).
Figure 5 Total loans of commercial banks of Kazakhstan, in billions USD (the exchange rate at 25.01.10 is
1 KZT =148 USD)

Source: The Agency of Kazakhstan on Regulation and Supervision of Financial Market and Financial
Organizations, 01.12. 2009.
In view the results of our analysis in the banking sector of Kazakhstan with the long-term
point of view consider promising. Investors can and should take into account all the risks and
downsides, but it is necessary to compare the perspectives of Kazakhstan in the region. And
if even now there are some elements of corruption, it is a temporary nature of the formation
of any state, and can be regarded as a variant of capital accumulation. In general, there is the
next trend - rapid economic growth, increased levels of public corruption and all is facing a
crisis, developing elements of corruption destroying all economic and market values, lack of
healthy competition, provoking an even greater drop in the economy. But 2008 and 2009
were years of active struggle against corruption in the state, and this is probably the first steps
 Pg.16

of anti-corruption dependence. The results are already there, and in 2010 the government
declared a year of stabilization of the economy, and therefore the government will create
conditions for a successful business.

References
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2010, < http://www.kazatomprom.kz/en/pages/Kazatomprom_today>

2. Kazakhstan Today (30th December 2009), Kazakhstan harvested 20.8 million tons of
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3. Official site of the President of the Republic of Kazakhstan (n.d.), General

information about the Republic of Kazakhstan, viewed in 22nd of January 2010,
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7. Prostobankir.com (23th January 2009), The banking system of Kazakhstan, viewed on

24th January 2010,
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8. “Liter” newspaper (20th January 2010), Bank distribution – 2009, viewed on 25th
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option=com_content&task=view&id=1109&Itemid>
 Pg.17

9. Uzbekistan Daily (10th December 2009), Structural problems hinder the restoration of
the Kazakh banking sector, viewed on 26th of January 2010, in translation from the
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10. www.zakon.kz (September 25, 2009), Report of the President of the National Bank
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12. G. Marchenko (13th of January 2010),Regional Financial Centre of Almaty, The

foreign debt of the banking sector of Kazakhstan Considerably was Reduced, viewed
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nc2662&version=ru>

13. TMC news (8 February, 2007), Kazakhstan risk: Political stability risk, viewed on 2nd
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14. Silk Road Intelligencer (17 July, 2009), AmCham voices concerns over corruption
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corruption-and-investment-climate-in-kazakhstan/>

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tax-incentives_100304007.html>