Government • 24 January, 2020

Strengthening tenge: Erbolat Dossaev on the state of financial sector in 2019

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At the extended Government session with the participation of the Head of State, the Chairman of the National Bank Erbolat Dossaev reported on measures taken in 2019 to ensure price stability, as well as to develop the financial system and regulate financial organizations, primeminister.kz.

Dossaev reported that, according to the results of 2019, inflation amounted to 5.4%, which corresponds to the target corridor of 4-6%.

The largest contribution to inflation was made by food products, which rose by 9.6% mainly due to bakery products and cereals (16.1%), as well as meat and meat products (13.2%). The rise in prices for non-food products and paid services was moderate.

The basic rate, as the main instrument of monetary policy, remained mainly at 9.25% with a corridor of +/- 1 pp against the background of the influence of inflationary factors associated with the expansion of consumer and investment demand.

“In 2019, increased attention from the society was given to the current monetary policy and the national currency rate. At the same time, over the past year, it was in a fairly narrow range with a width of 4.5% in the range of 373-390 tenge per US dollar compared with a 21% corridor in 2018,” Dossaev said.

In 2019, the tenge strengthened by 0.4% to 382.6 tenge per US dollar at the end of the year, while in 2018 it weakened by 15.6%.

Despite the instability of the situation on foreign markets and the decrease in the average annual oil price from $71.7 per barrel in 2018 to $64.2 per barrel in 2019, last year's gross international reserves increased by 2.3% and amounted to $91 billion, in including foreign exchange reserves — $29 billion, assets of the National Fund — $61.9 billion.

Deposits in national currency increased by 13.1%, in foreign currency decreased by 8.7%. Dollarization of deposits decreased to 43.1% in December 2019 compared to 48.4% in December 2018.

“Among the lending trends of last year, I note the outstripping growth of the portfolio of long-term loans by 6.5% or 718 billion tenge. In general, loans in the economy at the end of 2019 amounted to 13.9 trillion tenge, an increase of 5.9% over the year. Their affordability continues to increase — the rate on tenge loans for business decreased to 12% on average for 2019,” Dossaev informed.

It was noted that the main growth in the loan portfolio last year was associated with the expansion of consumer lending, which increased by 26.9%. Due to the fact that such growth can lead to the implementation of systemic risk, in 2019 a set of regulatory measures was adopted with respect to unsecured consumer loans. Thus, capital requirements for second-tier banks have been increased, bans on penalties and commissions for late payments for loans over 90 days, a ban on loans to citizens with incomes below the subsistence level have been introduced. All these measures will make the development of the credit market more balanced.

In addition, the National Bank, together with the leading international consultant Oliver Wyman and the Big 4 audit companies, in 2019 for the first time conducted an independent assessment of the quality of the assets of second-tier banks at the system level. The assessment was carried out in accordance with the methodology of the European Central Bank and affected the 14 largest institutions, which account for 87% of assets and 90% of the loan portfolio.

At the end of December 2019, the first stage of the assessment was completed, and the results were obtained at a consolidated level. Currently, work is underway with second-tier banks as part of the second stage, which involves the preparation of individual corrective action plans.

After the reorganization, in the framework of ensuring financial stability in 2020, the main efforts will be focused on the implementation of such tasks as conducting an effective monetary and foreign exchange policy, creating conditions for creating a modern payment infrastructure, and a number of other tasks.

As the chairman of the National Bank emphasized, by the end of the first quarter of this year, the development of the draft Monetary Policy Strategy until 2030 will be completed.

The National Bank also sets the goal for 2020 to reduce inflation to a level closer to the lower border of the target corridor of 4-6%.

In the field of monetary policy, the National Bank will maintain a free-floating exchange rate regime. In 2020, the National Bank on a regular basis will publish the volumes of allotted transfers and conducted conversions of assets from the National Fund in the foreign exchange market.

Work will be intensified on the implementation of the Economy of Simple Things and 7-20-25 programs initiated by Elbasy. As Dossaev noted, the National Bank, for its part, will continue to provide the necessary support.

In addition, Dossaev emphasized that the continuation will receive active cooperation with the Ministry of Finance on the qualitative development of the government securities market, increasing its liquidity, and the inclusion of Kazakhstan government securities in international indices of developing countries, which will increase the demand for them from external investors. The National Bank will ensure the issuance of short-term notes for up to one year, and the Ministry of Finance — the offer of medium and long-term bonds. This will allow you to create an objective yield curve, which serves as a benchmark for interest rates.

To improve the conditions for attracting investment capital, the National Bank, together with the Agency for Financial Regulation, is intensifying work on the development of the derivatives market.

As part of the mandate to ensure financial stability, the National Bank will continue monitoring and identifying systemic risks, improving the methodology for assessing the risks of the banking sector and stress testing. If vulnerabilities are identified, appropriate measures to eliminate them will be collegially developed within the framework of the Financial Stability Board.

An important task remains the further reduction in the size of the shadow economy. The results of recent years show a significant increase in cashless payments. In 2019 alone, the volume of non-cash payments by the population increased by more than 2 times. More than 4 million non-cash transactions amounting to 37 billion tenge are made daily by the population. However, the corresponding fiscal effect for the budget from such growth has not yet been observed.

“The work carried out by us together with the Government and market participants will ensure the transition to the next and qualitatively new stage of development of the non-cash (retail) payment market. Systemic measures will be implemented to modernize the existing and create a high-tech, generally accessible payment infrastructure, taking into account the prospective needs of market participants,” said the chairman of the National Bank.

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