In the previous article
we described the evolution of the banking system, its risks, sources and consequences of mistrust towards banks. Overall, the non-transparency cost is $26.5 billion – this amount was injected into banks to keep them afloat. However, there is an opportunity to do everything possible in the future to avoid repeating mistakes of the past.
According to international experience, there are five main drivers of transparency in the banking system:
1. High level healthy competition in the market
2. Independent supervision by the central bank
3. Development of financial technology
4. Improvement of bank corporate management
5. Improvement of financial literacy of population.
Later, we will reveal all aspects in detail, however, another driver is needed under the conditions of Kazakhstan — prohibition of foreign currency loans. Otherwise, it will inevitably lead to the emergence of non-performing loans, their concealment, etc. The stability of banks is mainly affected by the quality (repayment) of loans granted. If the loan is granted in foreign currency, then even with the above five drivers foreign currency loan will become non-performing in the end. There are cases when exporters take foreign currency loans, although they often do not need loaning that much.
Before introducing the drivers, I would like to remind that Kazakhstan ranks 55th out of 141 countries according to the Global Competitiveness Index 2018-2019 . It ranks 104th as for the competitiveness index of the financial system and ranks 121st as for bank financial stability index. It is worth noting that the latter indicator is based on the survey results of business owners and senior management which demonstrates the low level of trust of business in domestic banks. Hong Kong, the US, Finland, Singapore and the UK remain global financial leaders. If we track the dynamics, the banking sector in Kazakhstan stagnates and without any decisive action is unlikely to change anything.