On Banks and Banking Activity in the Republic of Kazakhstan (стр. 1 )

On Banks and Banking Activity

in the Republic of Kazakhstan

Law of the Republic of Kazakhstan dated 31st of August 1995 No 2444

Registers of the Supreme Council of the Republic of Kazakhstan, 1995, N 15-16, art. 106; Registers of the Parliament of the Republic of Kazakhstan, 1996, N 2, art. 184

CONTENT

  Reference. The title has been reworded, the preamble is excluded, throughout the text, the word "Decree" is replaced by the word "Law" – by the RK Law dated 2nd of March 2001 N 162 (see. Art. 2).
 Throughout the text, the word "(interest)" is excluded – by the RK Law dated 8th of July 2005 N 69.

Section I. Grounds and Terms of Establishment and Operation of Banks

Chapter 1. General Provisions

Article 1. A Bank, Its Status and Location

  1. A bank shall mean a legal entity which is a commercial organisation and authorized to carry out banking activities in compliance with this Law.
  2. The official status of a bank shall be defined by the state registration of legal entity as a bank in the bodies of justice (registration authorities) (hereinafter - “bodies of justice”) and by licence for bank operations issued by the authorized agency for regulation and supervision of financial market and financial organizations (hereinafter - “authorized agency”).
  3. No legal entity which has not the official status of a bank, shall be referred to as a bank nor does it describe itself as the entity engaged in banking activities.
  4. The place, where the bank’s management board is located (its postal address), shall be recognised as the location of a bank.
  Reference. Item 2 is stated in the wording of the RK Law dated 11th of July 1997 N 154 . Inserted amendments – by the RK Laws dated 16th of July 1999 N 436 ; dated 2nd of March 2001 N 162 (see. art. 2); Law of the Republic of Kazakhstan dated 10th of July 2003 N 483 (effective since 1st of January 2004).

Article 2. Basic Definitions Used in this Law

The following basic definitions are used in this Law:
  1) control means ability of one legal entity to determine decisions of another legal entity, arising in case of one of the following conditions :
  direct or indirect ownership of more than fifty percent of interests in the charter capital of legal entities by a single entity, independently or jointly with one ore several entities, or the placed shares (less preference shares or repurchased shares) of another entity, or ability to vote more than fifty percent of shares of another entity;
  ability of a legal entity to elect at least half members of the Board of Directors or the Management Board of another legal entity;
  inclusion of financial statements of one legal entity, except for financial statements of a special financial company, established in accordance with the legislation of the Republic of Kazakhstan on securitization, in the financial statements of another legal entity in accordance with the auditor’s report;
  ability of a legal entity to determine decisions of another legal entity by virtue of an agreement (confirming documents) or in any other cases, established by a normative legal act of an authorized body;
  2) indirect ownership (voting) of bank shares means the ability to determine decisions of a bank, the bank’s large participant, a bank holding company or entities which jointly constitute the bank’s large participant, a bank holding company, through ownership of shares (or shares in the charter capital) in the legal entities;
  3) bank conglomerate means a group of legal entities comprising a parent organization and its subsidiaries and institutions in which the parent organization and/or its subsidiaries have large equity participation, and which meets one of the following requirements:
 a bank is a parent organization or one of the subsidiaries is a bank;
 a bank is not a parent organization, however, the group activities are primarily focused on the banking sector, i. e., total assets of banks and group institutions engaged in certain types of banking operations related to total assets of the group take 40 percent or more;
 a bank is not a parent company, but the group includes one bank and other financial organization.
 If a group of legal entities containing a bank has in the capacity of a parent company a national management holding, the following shall be recognized as a bank conglomerate:
  a bank;
  a bank holding, which is the bank’s parent company;
  subsidiaries of a bank and those of a bank holding which is the bank’s parent company;
  organizations, where a bank, the bank’s subsidiaries, a bank holding being the bank’s parent organization have a large interest in the capital.
 If a group of legal entities comprises a non-resident parent company in terms of the Republic of Kazakhstan, then as a bank conglomerate are recognized a resident subsidiary bank in terms of the Republic of Kazakhstan and its subsidiary organizations as well as organizations in which the subsidiary bank and its subsidiary organizations have large participation in equity;
  4) bank holding means a legal entity (except for when the owner is a state or national management holding) which is permitted to own, in accordance with written authorization of the authorized body, directly or indirectly, twenty five percent or more of the bank’s placed shares (less preference shares and shares repurchased by the bank) or which has the ability:
 to vote, directly or indirectly, twenty-five percent or more of the bank voting shares;
 to determine decisions of the bank by virtue of an agreement or otherwise, or to exercise control;
  5) regulatory own capital (hereinafter - “own capital”) of a bank means an amount of equity less the bank’s investments;
  6) large participant in a bank means a natural person or a legal entity (except for when the owner is a state or national management holding and except as provided in this Law) which owns, in accordance with the written authorization by the authorized body, directly or indirectly ten or more percent of the bank’s placed shares (except for preference shares and shares repurchased by the bank), or which has the ability to:
 vote directly or indirectly ten or more percent of voting shares of the bank;
 influence the decision-making process of the bank by virtue of a formal contract or otherwise in accordance with the procedure determined by the normative legal act of the authorized body;
  7) parent organization means a legal entity which has control over another legal entity;
  8) deposit means the funds transferred by one entity (depositor) to another entity being a bank, including the National Bank of the Republic of Kazakhstan (hereinafter - “National Bank”) and the National Mail Operator, in the terms of repayment of such funds in nominal value (except for the investment deposit in an Islamic bank) irrespective of whether the funds should be returned at first request or after a certain period, in full or in instalments, with a mark-up specified previously or without such mark-up, directly to the depositor or transferred to third parties pursuant to the depositor’s instructions;
  9) subsidiary means a legal entity with respect to which another legal entity exercises control;
  10) indirect shareholding in charter capital or possession (voting) of shares of a legal entity means the ability to determine decisions of a legal entity, large participant in the legal entity or entities, which jointly are large participant in the legal entity, by means of possession (voting) of shares (shareholding in charter capital) of other legal entities;
  11) large participant in a legal entity means a natural person or a legal entity (except for when the owner is a state or a national management holding), which owns directly or indirectly ten or more percent of shares in charter capital or voting shares of a legal entity;
  12) large participation in equity means owning, directly or indirectly, independently or jointly with one or more persons, twenty percent or more of voting shares (shares in the charter capital) or the ability to vote twenty percent or more shares;
  13) fair business reputation means the availability of facts confirming professionalism, integrity, absence of any current or outstanding convictions for crimes.
Reference. Article 2 is stated in the wording of the RK Law dated 20.11.2008 N 88-IV (enactment procedure see art. 2); with amendments, inserted by the RK Laws dated 12.02.2009 N 133-IV (enactment procedure see art. 2); dated 13.02.2009 N 135-IV (enactment procedure see art. 3).

   Article 2-1. Bank Affiliates

  1. Bank affiliates are the persons defined in Article 64 of the Law of the Republic of Kazakhstan on Joint-Stock Companies, as well as participants in a bank conglomerate.
  Availability of a feature of a large bank shareholder by a national management holding shall not be the ground for determination of bank affiliates in accordance with Article 64 of the Law of the Republic of Kazakhstan on Joint-Stock Companies.
  2. Bank affiliates shall not include a national management holding or a legal entity, where hundred percent of voting shares (participation interest) belong to the national management holding under the list, approved by the Government of the Republic of Kazakhstan, as well as executive officers of the national management holding and the above mentioned legal entities.
  Availability of the national management holding in the structure of shareholders of such banks shall not be the ground for recognition of the bank affiliates.
  Reference. Article 2-1 is stated in the wording of the RK Law dated 13.02.2009 N 135-IV (enactment procedure see art. 3).

Article 3. Banking System of the Republic of Kazakhstan

  1. The Republic of Kazakhstan has a two-tier banking system.
  2. The National Bank is a central bank of the state and represents the upper (first) tier of the banking system.
 The tasks, principles of activity, legal status and authorities of the National Bank shall be determined by the Law of the Republic of Kazakhstan On the National Bank of the Republic of Kazakhstan.
  The National Bank shall fulfill regulation and supervision over the certain issues of banking operation within its competence and promote the creation of general conditions for operation of banks and entities, which conduct certain types of bank operations.
 Regulatory and supervisory functions of the National Bank in relation to banks and organizations, fulfilling separate types of banking operations, are aimed at support of the stability of monetary system of the Republic of Kazakhstan, protection of interests of a bank’s creditors, their depositors and clients.
  3. All other banks represent the lower (second) tier of the banking system except for the Development Bank of Kazakhstan, having special legal status, determined by the legislative act of the Republic of Kazakhstan.
  4. (excluded - N 162 dated 2.03.01)
  5. Bank with foreign participation means a bank of the second tier, more than one third of the placed shares of which are in possession, ownership and/or management of:
  а) non-residents of the Republic of Kazakhstan;
  b) legal entities being residents of the Republic of Kazakhstan, more than one third of the placed shares or participation shares in charter capital of which are in possession, ownership and/or management of non-residents of the Republic of Kazakhstan or similar to them legal entities being residents of the Republic of Kazakhstan;
  c) residents of the Republic of Kazakhstan, being the managers of funds (authorized persons) of non-residents of the Republic of Kazakhstan or legal entities, specified in subparagraph b) of this paragraph.
  5-1. Islamic bank means a bank of the second tier, carrying out banking activity, established by Chapter 4-1 of this Law, on the basis of a license issued by the authorized body.
  An Islamic bank is not a participant in the system of obligatory guaranteeing of deposits, and deposits in an Islamic bank shall not be guaranteed by the system of obligatory guaranteeing of deposits.
  Particular features of establishment and activity of an Islamic bank are established by Chapter 4-1 of this Law.
  6. The intergovernmental bank is a bank, established and acting on the basis of the international contract (agreement), whose founders are the Government of the Republic of Kazakhstan (or an authorized state body) and the Government (governments) of state (states), signed this contract (agreement).
  Reference. Article 3 with amendments, inserted by the RK Laws dated 11.07.1997 N 154; dated 02.03.2001 N 162 (see art. 2); dated 25.04.2001 N 179; dated 10.07.2003 N 483 (effective since 01.01.2004); dated 08.07.2005 N 72 (enactment procedure see art. 2); dated 12.02.2009 N 133-IV (enactment procedure see art. 2).

Article 4. Legal Regulation of Banking Activity

 Banking activity shall be regulated by the Constitution and legislation of the Republic of Kazakhstan, international treaties (agreements), concluded by Republic of Kazakhstan and normative legal acts of the authorized body and the National Bank, issued on the basis of and for the execution of legislation acts and decrees of the President of the Republic of Kazakhstan on the issues related to their competence.
  Reference. Article 4 was amended by the RK Laws dated 11th of July 1997 N 154; dated 10th of July 2003 N 483 (effective since 1st of January 2004).

Article 5. Organization Fulfilling Separate Types of Banking Operations

 Organization, fulfilling separate types of banking operations is a legal entity, being not a bank, which on the basis of a license of the authorized body and (or) the National Bank shall be entitled to execute separate types of banking operations, established by this Law.
  Reference. Article 5 was amended – by the RK Law dated 11th of July 1997; dated 10th of July 2003 N 483 (effective since 1st of January 2004); dated 23rd of December 2005 N 107 (enactment procedure see art.2 of the Law N 107).

Article 6. Prohibition of Non-Authorized Activity

  1. Neither person, not having a respective license of the authorized body and (or) the National Bank, shall have a right:
  а) to fulfill banking operations as a main or additional activity;
  b) (excluded by the RK Law dated 5th of May 2006 N 139 (enactment procedure see art.2 of the RK Law N 139);
  c) to use in its name, documents, announcements and advertisements the word “bank” or derivative from this word (expression), creating impression that it executes banking operations. This prohibition does not apply to the National Bank, branches and representative offices of the banks, the international financial organizations.
  2. Banking operations, fulfilled without a license of the authorized body and (or) the National Bank, are invalid, except for the activity (operations) carried out by the state body, credit unions, the National Mail Operator, as well as the Development Bank of Kazakhstan within the authorities, specified by the legislative acts of the Republic of Kazakhstan.
  Reference. Article 6 was amended – by the RK Laws dated 11th of July 1997 N 154; dated 2nd of March 2001N 162 (see art. 2); dated 10th of July 2003 N 483 (effective since 1st of January 2004); dated 8th of July 2005 N 69; dated 23rd of December 2005 N 107 (enactment procedure see art.2 of the Law N 107); dated 5th of May 2006 N 139 (enactment procedure see art.2 of the Law N 139); dated 19th of February 2007 N  230 (enactment procedure see art.2).

Article 7. Separation of Responsibilities of Banks and State. Independence of Banks

  1. Banks shall not be responsible for liabilities of the state and the state shall not be responsible for the banks’ liabilities, except for the cases, specified in paragraph 2 of this article, and cases, when the banks or state undertake such responsibility.
  2. The state guarantees safety of deposits, accepted by the intergovernmental banks being residents of the Republic of Kazakhstan, and shall be responsible for their liability pro rata the share of the Government of the Republic of Kazakhstan (or authorized state body) in the charter capital of such banks.
  3. Any form of interference of the state bodies and their officials in the activity of banks is prohibited, except as directly established by the legislation of the Republic of Kazakhstan.
 For the purposes of protection of interests of the bank’s creditors and ensuring the stability of banking system in the Republic, the authorized body shall be entitled upon coordination with the Government of the Republic of Kazakhstan in accordance with the requirements of existing banking legislation to take decisions on compulsory limitation of rights and responsibilities of the banks’ shareholders, having negative amount of capital, through imposition of the established legislative sanctions.
  Reference. Paragraph 3 was added with part 2 – by the RK Law dated 7th of December 1996 N 50 . Inserted amendments – by the RK Laws dated 11th of July 1997 N 154; dated 2nd of March 2001N 162 (see art. 2); dated 10th of July 2003 N 483 (effective since 1st of January 2004).

Article 8. Activity Prohibited and Limited for Banks

  1. It is prohibited for banks to fulfill operations and transactions, such as entrepreneurship activity, not related to banking activity or not stipulated by paragraph 6 of the present Article, paragraph 12 of Article 30 of this Law, as well as purchase of participation shares in the charter capital or shares of the legal entities, except for the cases established by this Law and securities transactions in the cases, set out in paragraph 5 of the present Article.
  2. Prohibition, established by paragraph 1 of this Article does not apply to the following cases of purchasing shares or participation shares in the charter capital by the bank in:
  1) financial organizations and organizations, purchasing doubtful and irredeemable claims of tier-two banks for management of such claims and (or) its subsequent realization, restructurization and (or) securitization;
  2) legal entities, which are not financial organizations listed in the stock exchange, carrying out activity in the Republic of Kazakhstan, under the categories of the stock exchange list, established by the regulatory legal act of the authorized body;
  3) credit bureaus, pawn-shops, special financial companies founded in accordance with the legislation of the Republic of Kazakhstan on securitization, special organizations being non-residents of the Republic of Kazakhstan founded for the purposes of placing securities, leasing organizations, as well as the organizations, whose sole activity is owning and operating real estate used for proving the operational activity of a bank, the legal entities performing automation of the banks’ activities;
  4) legal entities, when taken-in-pledge shares or participation shares in their charter capital become banks’ property in accordance with the civil legislation of the Republic of Kazakhstan;
  5) legal entities, listed in Article 10 of this Law;
  6) stock investment funds being residents of the Republic of Kazakhstan;
  7) legal entities being non-residents of the Republic of Kazakhstan having status of a bank, insurance organization, pension fund, professional participant of the securities market;
  8) any other legal entities – at carrying out banking activities by an Islamic bank, set out in Chapter 4-1 of this Law.
 The number of shares in legal entities, as mentioned in subparagraphs 2) and 6) herein, belonging to a bank, shall not exceed ten percent of total number of placed shares of one legal entity.
  3. Acquisition by bank of participation shares in the charter capital or shares of the legal entities as mentioned in subparagraphs 1) – 3), 6) and 7) of paragraph 2 herein shall not exceed the following amount per one legal entity:
  1) fifteen percent of the bank’s own capital for organizations, mentioned in subparagraphs 1), 3) and 7);
  2) ten percent of the bank’s own capital for legal entities mentioned in subparagraphs 2) and 6).
 When banks purchase shares or participation shares in the charter capital of the legal entities, in cases when taken-in-pledge shares or market shares in those entities’ charter capital become the banks’ property in accordance with the civil legislation of the Republic of Kazakhstan, the bank’s participation in such legal entities shall not exceed twenty five per cent of the bank’s own capital, at the same time those shares or participation shares in the charter capital shall be sold maximum in one year.
 Total participation of a bank in the charter capital or shares of the legal entities shall not exceed:
 sixty percent of the bank’s own capital for legal entities, which are not financial institutions;
 forty percent of the bank’s own capital for insurance organizations.
 The banks are obliged to notify the authorized body within ten days from the date when they determine the increase or decrease in levels of fifteen, thirty or forty percent on the following:
 percentage of shares compared to total number of placed shares (with deduction of preference shares and shares purchased by the entity) of a legal entity whose stockholder is a bank;
 bank’s shareholding in charter capital of a legal entity.
  4. Limitations established by paragraph 2 of this Article apply to the activities conducted by the banks’ subsidiaries and organizations, in which a bank and its subsidiary organizations have large participation in equity capital.
  5. Prohibition established by paragraph 1 of this Article does not apply to transactions involving:
 bonds of international financial organizations, whose list is established by the authorized body;
 bonds, which were assigned a minimally required rating by one of the rating agencies, established by the authorized body;
  bonds of a special financial company, established in accordance with the legislation of the Republic of Kazakhstan on securitization, issued for conclusion of securitization transaction between the bank and the special financial company;
  own bonds of the bank and bonds, issued by the subsidiaries of such bank, whose obligations are guaranteed by the bank. Procedure of conclusion of transactions on such bonds shall be established by the regulatory legal act of the authorized body.
  6. Apart from the activities and acquisition of shares in the charter capitals of the legal entities as indicated in paragraphs 1 and 2 of this Article, the banks shall be allowed to deal with the following types of activities:
  1) sale of special software, used for automation of activity of the banks and organizations, fulfilling separate types of banking operations;
  2) sale of special literature on the issues of banking activity on any form of information carriers;
  3) sale of own property;
  3-1) issue, sale and distribution of payment cards and cheque-books;
  3-2) carrying out interbank clearing (collecting, reconciling, sorting out and confirming payments as well as offsetting and netting positions of the clearing participants, i. e. banks and organizations engaged in separate types of banking operations);
  4) sale of assets pledged by the borrowers, in accordance with the procedure established by this Law and other laws of the Republic of Kazakhstan;
  5) rendering of consulting services on the issues, connected with financial activity;
  6) representation of the interests of third persons on the issues, connected with banking activity, holders of bonds of the special financial company established in accordance with the securitization legislation of the Republic of Kazakhstan, holders of infrastructure bonds, as well as mortgage and other secured bonds;
  7) organization of trainings on raising the level of specialists in sphere of banking and financial activity;
  8) conclusion of insurance contracts on behalf of the insurance organizations – residents of the Republic of Kazakhstan, as well as conclusion of pensions contracts on behalf of the accumulative pension funds.
  Reference. Article 8 is stated in the wording of the RK Law dated 23.12.2005 N 107 (enactment procedure see art. 2 of the Law N 107); dated 20.02.2006 N 127 (enactment procedure see art. 2); with amendments, inserted by the RK Laws dated 12.01.2007 N 222 (effective upon expiry of 6 months since the date of official publication); dated 19.02.2007 N 230 (enactment procedure see art. 2); dated 23.10.2008 N 72-IV (enactment procedure see art. 2); dated 20.11.2008 N 88-IV (enactment procedure see art. 2); dated 12.02.2009 N 133-IV (enactment procedure see art. 2).