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Kazakhstan: Law passed to support banks

In late October, the upper house of parliament in Kazakhstan passed the latest amendments to a law designed to bolster confidence in the central Asian republic’s banking sector, which has been buffeted by the global credit crunch. This, in turn, has choked off the supply of cheap foreign currency debt that had fuelled the rapid expansion of Kazakh banks’ networks and lending portfolios in recent years.

The law on financial stability, which is expected to receive final sign-off by president Nursultan Nazarbayev in the near future, lays the ground for the Kazakh authorities to effectively nationalize banks by buying their equity in the event of serious financial difficulties. Under the amendments, the minimum stake the government can buy is 10% and it must sell any shares it acquires within one year from the day on which it buys them. It will, though, have the right to extend this period.

Commenting on the passage of the new regulations, Milena Ivanova, banking analyst at Renaissance Capital in Almaty, says that they are broadly in line with the measures taken by the UK and US governments to support banks. "In our view, the spirit of the law is therefore clearly in the direction of market stabilization, and not permanent nationalization."

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