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Country Commercial Guides
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CHAPTER VIII. TRADE AND PROJECT FINANCING
A. Brief Description of Kazakhstan's Banking System
The banking system of Kazakhstan is a system in transition due to consolidation within the industry and movement towards adoption of international banking standards as the National Bank of Kazakhstan (NBK) continues to strengthen its supervision of the financial sector.
The NBK is charged with overall supervision of all banks in the country. It has introduced regulations to implement international banking standards in such areas as accounting, liquidity management, capital requirements, the recognition of problem loans in a timely manner, limitations on insider transactions and limits on aggregate credit exposures to any one borrower. The NBK has also introduced more vigorous requirements for the establishment and licensing of banks. In 1996 the NBK introduced its own chart of accounts, which was prepared with the assistance of USAID and conforms to international standards.
The NBK performs standard central bank functions and acts as lender of last resort.
The number of banks as of November 1999 was 58, down from 71 at year-end 1998. The decrease in the number of banks was due to the NBK policy of increasing capital requirements, the merging of institutions and the re-licensing of some smaller institutions as credit unions or credit partnerships. The number of banks will continue to drop as the NBK implements policies to raise capital requirements for institutions engaged in banking activities.
The ten largest banks control approximately three-quarters of total banking assets. There are four large domestic banks: Kazkommertsbank, Halyk Bank, Turan-Alem Bank and Bank CenterCredit, which share between them over approximately 60% of total banking assets. Halyk bank (80% state owned) is scheduled to be privatized over the next few years. There were 23 banks with foreign participation (i.e., minimum 33% owned by non-residents;) ABN-AMRO is the largest foreign bank in Kazakhstan. Citibank, Societe Generale and Hong Kong Shanghai Bank established subsidiaries in Almaty in 1998.
Total banking sector assets reached KZT 291.5 billion as of September 1999, while total capital levels of the consolidated banking sector have improved to KZT 15.3 billion as of September 1999, up 33% from KZT 47 billion at the end of 1998 and KZT 29 billion in 1997. Approximately 75% of banks met the capital requirements set by the NBK for 1999. The National Bank of Kazakhstan had set a capital requirement of approximately KZT one billion per bank to be reached by year-end 2000. Currently eleven institutions meet this requirement. Kazkommertsbank, Halyk Bank, Turan-Alem Bank and Temir Bank were assigned credit ratings by international agencies.
The government now recommends that second-tier banks set aside 10% of their loan portfolios for small business lending.
Nine banks now have licenses issued by the NSC to carry out custodian services at the securities markets. Of these nine four are also licensed to carry out custodian services to APF (pension accumulation funds)
Banking remains heavily concentrated in Almaty. As of late 1999, there has not been a noticeable shift of the banking community to Astana, and the NBK has no plans to move to the new capital.
Bank deposits increased by 8% in 1998, but still remain at a low level of overall GDP compared to international norms. This is due to a combination of mistrust of the banking system and historically low yields on deposits. Overall bank lending increased by 21% during 1998, with loans to wholesale and retail trade and the fuel, chemical, oil, food and metal industries predominating. Loans to individuals, while increasing, continue to represent only a small portion of overall bank lending, necessitating borrowing from friends, pawnshops, or barter to obtain funds or capital goods.
Local citizens are wary of the reliability of Kazakhstani banks and fear local tax authorities. They generally keep their savings at home "under the mattress." Kazakhstani banks offer loans at high interest rates, which often frustrate small, budding entrepreneurs. The volume of lending is low, with Kazakhstani banks concentrating on currency speculation and short-term trade finance.
Under existing legislation, foreign banks are not allowed to have branches in Kazakhstan, but may establish subsidiaries, joint ventures and representative offices. Foreign investors are treated equally with Kazakhstani nationals, but their overall share of Kazakhstan's banking system capital must not exceed 25 per cent (excluding portfolio investments), unless the National Bank permits this limitation to be exceeded. (This limitation is currently being reviewed and may be raised to 50%.) If a bank is not a subsidiary of another bank, no person may own more than 25% of its shares without special permission from the National Bank.
Foreign banks have been active in Kazakhstan since 1993. Chinese and Russian banks have established 100% subsidiaries, and several Dutch and Turkish banks have established joint ventures. In June 1998 Citibank received its license to operate a subsidiary in Kazakhstan (it had maintained a representative office for several years prior to this). Two Kazakhstani-American banking joint ventures, Texaka Bank and Lariba Bank, offer small, community-based loans. Texaka Bank provides personal banking services. American investment in both banks is relatively small, approximately $500,000 each. The Dutch bank ABN AMRO serves corporate clients' cash management needs.
Many larger banks offer personal banking services, and money transfers from the West can be completed in as little as twenty-four hours through the SWIFT network.
B. Foreign Exchange Controls Affecting Trade
The National Bank of Kazakhstan allows the national currency, the tenge, to float. It is fully convertible with the U.S. dollar. In July 1996, Kazakhstan joined Article 8 of the International Monetary Fund Charter, which calls for full convertibility of the tenge and the removal of all controls on current account transactions.
Kazakhstani banks require that legal entities wishing to withdraw funds from hard currency accounts in local banks present an invoice for goods or services to be purchased to prove the currency is being purchased to fund a service for which the entity has the appropriate license, if necessary. Foreigners have complained that this requirement is burdensome, as businesses cannot predict future expenses in any given month.
According to Article 3(2) of the Law on Currency Regulation the National Bank of the Republic of Kazakhstan has the right to establish restrictions on the currency of payment of export operations of residents and the regime of mandatory sale of export receipts. According to a National Bank's order issued in April 1999, procedures for the obligatory sale of export earnings are now in force. This means that all organizations, including companies of all kinds, are obliged to sell 50% of their foreign currency earnings for local currency.
C. General Financing Availability and Terms of Payment
The levels of capitalization of the Kazakhstani banks do not permit them to finance major projects.
The official National Bank of Kazakhstan refinancing rate as of November 1999 was 18%, below its previous low of 18% in October 1997. Tenge-based loans from Kazakhstani banks carry an interest rate at times 20% higher than the refinancing rate. These high rates are set partly because the rates lag behind falling inflation and partly because the banks are trying to compensate for losses due to bad loans of the past.
In the early 1990's, the Government of Kazakhstan liberally issued sovereign government guarantees for loans from foreign creditors. In 1994-95, as government debt accumulated, Kazakhstan recalled as many as thirty guarantees. This move tarnished Kazakhstan's reputation in the international banking community. Since then the government has been very reluctant to back loans with sovereign guarantees. In 1997 it provided no more than $50 million in sovereign guarantees. International creditors will continue to approach Kazakhstan with caution and carefully monitor payments on outstanding loans.
The safest method of receiving payment for a U.S. export is through an irrevocable letter of credit (L/C) from a major Western bank. In general, importers must deposit enough funds to cover the payment before applying for a letter of credit. Local companies may apply at any one of several local commercial banks to obtain a L/C, which in most cases, according to Kazakhstani banking legislation, must be confirmed by a reputable Western bank. U.S. companies are strongly advised to re-confirm payment arrangements with the importer prior to shipping goods.
However, Kazakhstani commercial banks are relatively inexperienced with regard to using letters of credit and Kazakhstani firms frequently are unable to pay the bank for products and services obtained through letters of credit.
In December 1996, Kazakhstan placed its first sovereign Eurobond issue, which was valued at $200 million and was heavily oversubscribed. The government issued a second Eurobond in September 1997 worth $350 million. Plans to issue a third Eurobond for approximately $400 million in the fall of 1998 were postponed by the Russian financial crisis. Kazakhstan became the first country in the region back into the bond markets after the Russian financial crisis when it floated a $200 million Eurobond in September 1999. However, it paid a substantial interest rate premium in order to ensure placement.
D. Types of Export Financing and Insurance Available to U.S. Exporters
1. Export-Import Bank of the United States (Exim): Exim is an independent U.S. government agency that provides support for U.S. exports through export credit insurance, loan guarantees, and loans. It also assists U.S. exporters shipping on short and medium-term credits by insuring against nonpayment. This type of insurance coverage is usually limited to irrevocable letters of
credit issued by the Kazakhstani Exim Bank. Other transactions are examined on a case-by-case basis. U.S. Exim has provided short- and medium-term financing to several projects in Kazakhstan, particularly in the agricultural sector. For further information on U.S. Exim programs, please contact: U.S. Exim Bank, 811 Vermont Avenue NW, Washington, DC 20571; Tel: (202) 565-3946, Fax: (202) 565-3390.
In 1996, the Kazakhstani government decided to strictly limit sovereign guarantees to no more than $50 million per year. Hence, sovereign guarantees for U.S. Exim financing are, practically speaking, unavailable.
2. Overseas Private Investment Corporation (OPIC): OPIC is an independent U.S. government agency that provides project financing, political risk insurance, and a variety of investor services in approximately 140 developing countries and emerging economies around the world. OPIC encourages U.S. private investment in sound business projects overseas, thereby improving U.S. global competitiveness, creating American jobs, and increasing U.S. exports. OPIC focuses its efforts mainly on the following areas: 1) financing of investments through direct loans and loan guarantees; 2) insuring investments against a broad range of political risks; and 3) providing investor services such as trade missions and outreach. To be eligible for OPIC financing, an overseas venture must either be wholly owned by a U.S. company or a joint venture between a local partner and an American company. The U.S. investor should contribute at least 25% of the required equity investment. For more information, contact: Overseas Private Investment Corporation, 1100 New York Avenue NW, Washington, DC 20527; Tel: (202)336-8651; Fax: (202)408-5145.
E. Types of Project Financing Available
1. Export-Import Bank of the United States--see above.
2. Overseas Private Investment Corporation -- see above.
3. Central Asian-American Enterprise Fund (CAAEF): The CAAEF has offices in all five Central Asian republics, and makes loans to small enterprises for private sector development. The U.S. government-sponsored $150 million fund makes equity investments, approves loans, and offers technical assistance to new private companies and entrepreneurs in the Central Asian republics. Emphasis is placed on small- and medium-sized enterprises. The CAAEF also offers assistance to Kazakhstani entrepreneurs for business plan development. The CAAEF's mandate is similar to U.S. government-supported funds operating in Poland, Russia, Ukraine and the western Newly Independent States (NIS), and the Czech Republic. For more information, contact: Jan Owens, Acting CEO, Central Asian-American Enterprise Fund, 531 Seyfullina St., Almaty, Kazakhstan 480083; Tel: 7 (3272) 587-912; Fax: 7 (3272) 587-913.
4. U.S. Trade and Development Agency (TDA): The Trade and Development Agency, an independent U.S. government agency, provides funding for U.S. firms to carry out feasibility studies related to major projects in developing countries in emerging markets. TDA funding is in the form of non-reimbursable grants for studies to determine the technical, economic, and financial feasibility of major projects, and to provide detailed data for making decisions on how to proceed with project implementation. Historically, TDA has provided funding for public-sector undertakings, planned and implemented by government ministries and agencies. Increasingly, countries, including some NIS countries, have begun to promote private sector involvement in major infrastructure and industrial projects.
The appropriate Kazakhstani sponsoring organization (government or private sector) must make an official request for TDA assistance directly to TDA in writing. If a U.S. firm is already working with a Kazakhstani entity, the American partner should submit a separate proposal to TDA, following an outline available from TDA. For more information about TDA activities, please contact: Dan Stein, Deputy Director, U.S. Trade and Development Agency, SA-16, Room 309, Washington, DC 20523-1602; Tel: (703) 875-4357; Fax: (703) 875-4009.
5. The World Bank: The World Bank is a source of long-term financing for projects in Kazakhstan. The World Bank finances not only traditional infrastructure projects such as road and bridge building, oil and gas development projects, and power facilities but also finances health and social sector projects. The World Bank has provided structural adjustment loans to Kazakhstan to assist the country in resolving some of its financial problems through market-oriented policy and institutional reforms. As of end-1999, Kazakhstan had signed agreements with the World Bank for approximately $1.82 billion in technical assistance and financing in such areas as urban transport, oil and gas field development, pension reform, agricultural privatization and social protection. In addition, the World Bank has many projects under preparation for financing in the areas of treasury modernization, highway infrastructure, power transmission modernization, environmental protection and private enterprise support. Total undisbursed financing from existing projects and financing for future projects is more than $ 1 billion. For more information on World Bank activities in Kazakhstan, please contact: Kadir Tanju Yurukoglu, Resident Representative, World Bank, 41 Kazybek Bi, Building A, 4th floor Almaty, Kazakhstan 480100, Tel: 7-(3272)608-580; Fax: 7-(3272)608-581. In Washington, please contact: Charlie Kesterbaum, U.S. Liaison Officer, World Bank, 1776 G St. NW, Washington, DC 20433; Tel: (202)458-0120; Fax: (202)477-2967.
6. International Finance Corporation (IFC): The IFC, the private sector arm of the World Bank, provides loans for small-scale projects (not exceeding $10 million) in developing countries and emerging markets. The IFC is focusing its efforts in Kazakhstan on private sector development, and is actively analyzing small and medium-scale undertakings in the medical, agricultural (including food processing), and consumer goods sectors. For more information, please contact: Gorton Demond, F Building, Room 3P228, 2121 Pennsylvania Ave., N.W., Washington, DC 20433; Tel: (202)473-5639; Fax: (202)974-4397.
7. European Bank for Reconstruction and Development (EBRD): The EBRD provides loans for large projects, as well as technical assistance, in the areas of oil and gas development, mining, agriculture, and infrastructure development. As of June 30, 1999, the EBRD had signed eight investments in Kazakhstan worth approximately $480 million. The EBRD financed the recently completed reconstruction of the Aktau Port facility in western Kazakhstan. In addition, the EBRD has developed a 100 million ECU program to develop small and medium-sized enterprises (SME). The funds from this program will be channeled through selected participating banks in Kazakhstan. The SME program helps local entrepreneurs draft business plans to develop bankable projects, and issues loans to small and medium-sized enterprises for up to five million dollars. A new investment will finance the modernization of Kazakhstan's railroad system. For further information on EBRD programs in Kazakhstan, please contact: Dean Peterson, U.S. Liaison Office, EBRD, One Exchange Square, London, EC2A, 2EH, United Kingdom; Tel: 44 (171)338-6609; Fax: 44 (171)338-6680. The EBRD resident representative is: Michael
Davey, European Bank For Reconstruction and Development 10-A Abay St., corner of Furmanov, 8th floor, Almaty, Kazakhstan 480013, Tel: 7 (3272) 632-247, 631-576; Fax: 7 (327)-581-1424.
8. Defense Enterprise Fund (DEF): With U.S. government funding, the DEF was created as a not-for-profit capital fund in March 1994 to assist the Newly Independent States of Russia, Kazakhstan, Ukraine, and Belarus to privatize defense industries and to convert military technologies and capabilities into civilian enterprises. The DEF makes both equity investments and loans, and may make grants to qualified joint venture projects, with a preference for joint business initiatives involving U.S. firms or a U.S. subsidiary of a foreign-owned firm. The DEF invests only in initiatives involving privatized enterprises or in enterprises that have committed, in writing, to privatization. For more information on the DEF's activities in Kazakhstan, please contact: Dennis Montz, Vice President and Investment Manager, Defense Enterprise Fund, 20 Custom House St., Suite 1040, Boston, MA 02110; Tel: (617) 261-1929; Fax: (617) 261-1935.
9. The Asian Development Bank (ADB): The Asian Development Bank, headquartered in Manila, is an international financial development institution owned by 56 member countries of which the United States and Japan are the largest shareholders. As of the beginning of 1999, the ADB had signed agreements to lend Kazakhstan $415 million. The transport and communications sector received the largest share of lending, followed by energy, agriculture and natural resources, and social infrastructure. Loan agreements for an additional $115 million for agriculture and roads were signed in 1999. The Bank's medium-term strategy focuses on poverty reduction, improving the status of women, population planning and environmental protection. Going into the next century, the Bank has also assumed the role of a catalyst for development. In implementing this policy, the Bank leverages its own financial resources through co-financing and other modalities to attract additional private capital in funding the development needs of its member countries.
A commercial liaison office, which reports directly to the Office of Multilateral Development Banks at the Commerce Department in Washington, assists U.S. suppliers and consultants in winning contracts on projects and activities funded by the Bank. The office includes a senior commercial officer and two commercial specialists. One of the specialists represents the United States-Asia Environmental Partnership (US-AEP) at the Bank. The liaison works closely with the U.S. Executive Director who represents the United States on the Bank's board of directors.
Since 1967, the U.S. has won $2.8 billion in overall procurement. For the period 1995-1996, the United States ranked number one in overall procurement among donor countries, receiving a total of $533.3 million in contract awards. The U.S. has consistently ranked first in consulting services awards, capturing about 20% of total awards every year.
In Kazakhstan, the Bank is involved in a road rehabilitation project on a portion of the Almaty - Astana highway and is considering lending funds to support Kazakhstan's pension reform efforts.
Interested parties should contact: Peter Choynowski, Resident Representative, Asian Development Bank, 126\128 Panfilov St., corner of Zhambul St., Almaty, Kazakhstan 480091, Tel: 7 (3272) 639-329; Fax: 7 (3272) 631-912, E-mail: karm@asdc.kz In the U.S.: Cantwell Walsh, U.S. Commercial Liaison to the Asian Development Bank; Fax: (632) 890-9713, e-mail:cwalsh@doc.gov.
G. List of Banks with Correspondent U.S. Banking Arrangements
Some of the largest banks in Kazakhstan have correspondent arrangements with U.S. banks. The following banks have these arrangements:
Kazkommertsbank 49 Bayseitovoy St. Almaty, Kazakhstan 480013 Tel: 7-(3272)638-553; FAX: 7-(3272)638-571 Narodnyy Bank 101 Rozybakiev St. Almaty, Kazakhstan 480046 Tel: 7-(3272)462-881; FAX: 7-(3272)460-264 Bank Tsenter Credit 156 Bogenbay Batyr Almaty, Kazakhstan 480012 Tel: 7-(3272)507-813; FAX: 7-(3272)630-929 Lariba Bank 81A Rozybakiev St. Almaty, Kazakhstan 480046 Tel: 7-(3272)491-432; FAX: 7-(3272)496-421 Texaka Bank 24 Zenkov St., 3rd Floor Almaty, Kazakhstan 480100 Tel: 7-(3272)308-614, 302-500; FAX: 7-(3272)506-309 ABN AMRO Bank 45 Khadzhi Mukana St. Almaty, Kazakhstan 480099 Tel: 7-(3272)507-301; FAX: 7-(3272)507-503 Hong Kong Shanghai Bank 43 Dostyk Avenue Almaty, Kazakhstan, 480100 Tel 7 -(3272) 581333; FAX 7- (3272) 501501 Societe Generale 41 Kazybek bi St 1st floor Almaty, Kazakhstan, 480100 Tel 7 -(3272) 608200; FAX 7- (3272) 608222
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.
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