Towards broader-based transparency

Bolat Zhamishev was formerly the governor of Kazakhstan’s central bank. Now his task is to continue developing banking supervision as chairman of the agency for financial supervision. With bank asset growth doubling every two years and some banks doubling their assets last year, are you worried that growth is too fast?

I agree that some banks’ asset growth is rapid but we have to bear in mind that the starting point was quite low. Two years ago, the percentage share of assets in GDP was only 20%. So the rapid asset growth is not something that we have concerns about.

However, it has affected the quality of loan portfolios and assets. As of January 1 2003, 71% of the loan portfolio was classified standard, whereas this year this indicator has gone 10% down (61%).

Does that worry you?

It is a problem that needs to be addressed. But because the tax code sets tax rates in accordance with the asset classification that we use for supervision, banks have a tendency to classify their loans based on tax rather than risk management considerations. We would like to separate the two different issues, so this indicator becomes fiscally neutral, so that it is as reliable as other bank reliability indicators. It is not fully reliable now; banks are interested in reducing taxes by declaring a poorer quality of loan portfolio.

But apart from this classification problem, isn’t the actual quality of portfolios going down?

Yes, because local banks have become more active in giving out consumer loans, which can be considered a positive trend, since the share and scope of consumer loans remain on a quite small scale. On the other hand, this increases risks banks are exposed to because consumer loans have always been riskier everywhere.

So what are you doing about it?

Our goals are to strengthen risk management and consolidate supervision. These are the two areas in which there is still much to be done.

As some of these banks more than double their portfolios in one year, is there enough quality management manpower available to keep up with the demand?

I’m not worried. I believe that bank management has significantly improved.

One thing is striking in Kazakhstan: on the one hand you have a banking and financial sector that the IMF and other international organizations praise for its transparency, and on the other a government in which corruption is widely believed to be extensive. There is even a culture of kickbacks in the private sector. How did this come to be?

I believe that it is beneficial for the banks to be transparent. They need to be reliable to their clientele.

They need to build trust. Trust brings income. I am not an altruist who thinks that slogans or supervision can eliminate such a problem as corruption.

I think when the remainder of the economy finds it beneficial to be transparent and honest, the situation will change.

How can this be achieved?

It takes time and requires efforts to be made by the government.

For example, for the private sector to become more transparent, international accounting standards should be introduced and enforced. In order to make internal relations within, for example, joint stock companies clearer, corporative governance should be enhanced. [That means]  the appropriate legislative framework needs to be improved.

In order to achieve this, the state has to lead by example or at least give rise to this trend and ensure it goes upward.