A. Republic of Kazakhstan Law No. 2444 of August 31, 1995 (стр. 1 )

Republic of Kazakhstan Law No. 2444 of August 31, 1995

On Banks and Banking in the Republic of Kazakhstan

(As amended by Decree No. 2830 of the President of the Republic of Kazakhstan of January 27, 1996; and Republic of Kazakhstan Laws No. 37-1 of September 27, 1996; No. 50-1 of December 7, 1996; No. 83-1 of March 6, 1997; No. 154-1 of July 11, 1997; No. 200-1 of December 8, 1997; No. 236-1 of June 29, 1998; No. 282-1 of July 10, 1998; No. 436-1 of July 16, 1999; No. 42-II of March 29, 2000; No. 128-II of December 18, 2000; No. 162-II of March 2, 2001; No. 179-II of April 25, 2001; No. 346-II of August 9, 2002; No. 399-II of March 28, 2003; No. 411-II of May 8, 2003; No. 416-II of May 16, 2003; No. 427-II of June 3, 2003; No. 482-II of July 9, 2003; and No. 483-II of July 10, 2003)

Section I. Grounds and Conditions for the Establishment and Operation of Banks

Chapter 1. General Provisions

Article 1. A Bank, Its Status and Location

1. A bank shall be a juridical person that is a commercial organization authorized to engage in banking in accordance with this Law.

2. The official status of a bank shall be determined by state registration of the juridical person as a bank with judicial authorities (registering authorities) (referred to hereinafter as judicial authorities) and by possession of a banking license issued by the authorized agency responsible for the regulation and supervision of the financial market and financial institutions (referred to hereinafter as the authorized agency).

3. No juridical person that does not possess the official status of a bank may call itself a “bank” or represent itself as being in the business of banking.

4. The location (mailing address) of a bank’s board shall be the location of the bank.

Article 2. A Deposit

1. A deposit shall mean money transferred by one person (a depositor) to another person that is a bank, including the National Bank of the Republic of Kazakhstan (referred to hereinafter as the National Bank), on the condition that this amount is to be returned at its nominal value regardless of whether the amount is to be returned upon first demand or after some time period, in full or in installments, and with or without a premium stipulated in advance, and regardless of whether it is to be returned directly to the depositor or transferred on his instructions to third parties.

Article 3. The Banking System of the Republic of Kazakhstan

1. The Republic of Kazakhstan shall have a two-tiered banking system.

2. The National Bank shall be the central bank of the state, and it shall be the upper (first) tier of the banking system.

The objectives, principles of operation, legal status, and powers 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 be responsible for the regulation and supervision of certain banking issues within the scope of its authority and shall promote the establishment of general conditions for the functioning of banks and institutions performing certain types of banking operations.

The regulatory and supervisory functions of the National Bank with regard to banks and institutions performing certain types of banking operations shall be aimed at maintaining the stability of the monetary system of the Republic of Kazakhstan and protecting the interests of banks’ creditors, depositors, and customers.

3. All other banks shall comprise the lower (second) tier of the banking system, with the exception of the Kazakhstan Development Bank, which has a special legal status determined by a legislative act of the Republic of Kazakhstan.

4. Omitted.

5. A bank with foreign participation shall be a second-tier bank with over one-third of its stocks in the possession, under the ownership, and (or) under the control of:

a) nonresidents of the Republic of Kazakhstan;

b) resident juridical persons of the Republic of Kazakhstan with over 50 percent of their stocks (contributions of partners) in the possession, under the ownership, and (or) under the control of nonresidents of the Republic of Kazakhstan, or of resident juridical persons of the Republic of Kazakhstan similar to them;

c) residents of the Republic of Kazakhstan serving as the managers of funds (fiduciaries) of nonresidents of the Republic of Kazakhstan, or of juridical persons indicated in subitem b) of this item.

6. An interstate bank shall be a bank established and operating on the basis of an international treaty (agreement) and founded by the government of the Republic of Kazakhstan (or a government agency authorized by it) and the government (governments) of the state (states) that signed this treaty (agreement).

Article 4. Legal Regulation of Banking

Banking shall be regulated by the Constitution and by legislation of the Republic of Kazakhstan, by international treaties (agreements) concluded by the Republic of Kazakhstan, and by regulatory legal acts of the authorized agency and the National Bank published on the basis of and pursuant to legislative acts and decrees of the President of the Republic of Kazakhstan pertaining to issues within their scope of authority.

Article 5. An Institution Performing Certain Types of Banking Operations

An institution performing certain types of banking operations shall be a juridical person that is not a bank but which is authorized by a license issued by the authorized agency and (or) the National Bank to perform certain types of banking operations provided for under this Law.

Article 6. Prohibition of Unauthorized Activity

1. No person without the appropriate license issued by the authorized agency and (or) the National Bank shall have the right:

a) to carry out banking operations as a principal or ancillary activity;

b) to conduct banking audits as a principal or ancillary activity;

c) to use the word “bank” or a word (expression) derivative thereof in its name and on documents, announcements, and advertisements so as to create the impression that it carries out banking operations or conducts banking audits. This prohibition shall not extend to the National Bank, to bank branches and representative offices, and to international financial organizations.

2. Banking operations carried out without a license from the authorized agency and (or) National Bank shall be invalid.

Article 7. Delimitation of the Liability of Banks and the State. Independence

of Banks

1. Banks shall not be responsible for the obligations of the state, nor shall the state be responsible for their obligations, except in cases indicated in item 2 of this article, and also in cases in which banks or the state assume such liability.

2. The state shall guarantee the safety of deposits accepted by interstate resident banks of the Republic of Kazakhstan, and it shall be liable for their obligations in proportion to the stake held by the government of the Republic of Kazakhstan (or a government agency authorized by it) in the authorized capital of such banks.

3. Any form of interference in the operation of banks by government agencies and their officials shall be prohibited, except in cases explicitly provided for under the legislation of the Republic of Kazakhstan.

With a view to protecting the interests of banks’ creditors and providing for stability of the banking system of the Republic, the authorized agency shall have the right to make decisions, with the approval of the government of the Republic of Kazakhstan and in accordance with the requirements of current banking legislation, to impose mandatory restrictions on the rights and responsibilities of stockholders of banks with negative capital through the application of sanctions against them as established by the legislation.

Article 8. Prohibited and Restricted Activity of Banks

1. Banks shall be prohibited from carrying out operations and transactions as entrepreneurial activity which have no relationship to banking or are not provided for under item 4, Article 30 of this Law, and also from participating in the authorized capital of juridical persons, except in those cases established under items 2 and 3 of this article.

2. The prohibition established under item 1 of this article shall not apply to the following cases:

a) participation by banks in the authorized capital of banks, pension savings funds, pension asset management companies, investment funds, insurance organizations, leasing organizations, and also juridical persons with stocks listed in the highest category of a stock exchange operating on the territory of the Republic of Kazakhstan (in an amount equal to not more than 15 percent of the total number of issued stocks of a single issuer);

a-1) a bank’s participation in the authorized capital of a single juridical person must not exceed 10 percent of the bank’s equity capital, except in the case referred to in subitem d);

b) participation by banks in the authorized capital of juridical persons that are part of the infrastructure of the financial market and (or) are in the business of automating the activity of banks and institutions performing certain types of banking operations;

c) participation by banks in the authorized capital of organizations doing business professionally in the securities market;

d) participation by banks in the authorized capital of juridical persons in cases when stocks (shares) of these institutions accepted as collateral come under the ownership of banks pursuant to the conditions of a security agreement prior to the moment of their sale by banks (direct participation by a bank in the authorized capital of a juridical person through the transfer of ownership to the bank of stocks previously accepted as collateral must not exceed 25 percent of the bank’s equity capital, and the time frame for their sale must not exceed one year);

e) omitted;

f) the business of managing the property and affairs of insolvent debtors in bankruptcy proceedings;

f-1) transactions with bonds of juridical persons whose securities are listed in the highest category of a stock exchange operating on the territory of the Republic of Kazakhstan and with bonds of international financial organizations, a list of which is established by the authorized agency.

3. In addition to the activities and participation in authorized capital of juridical persons referred to in item 2 of this article, banks shall have the right to engage in the following activities:

a) sale of specialized software used to automate the activities of banks and institutions performing certain types of banking operations;

b) sale of special literature on banking issues using any form of information media;

c) sale of their own property;

d) sale of property pledged by borrowers according to the procedure established by this Law and other current legislation;

e) consulting services on financial matters;

f) representation of the interests of other persons on banking matters, as well as the interests of holders of mortgage and other secured bonds;

g) organization of professional development training for specialists in banking and financial activity;

h) sale of insurance policies (conclusion of insurance agreements) on behalf of resident insurance organizations of the Republic of Kazakhstan.

Article 9. Prohibition on Misleading Advertising

1. Banks shall be prohibited from advertising their business in a way that misrepresents the real nature of their business as of the day of an advertisement’s publication.

2. The authorized agency shall have the right to require a bank to make changes in a misleading advertisement, to discontinue the advertisement, or to publish a retraction of an advertisement.

If this requirement is not fulfilled within the time period set by the authorized agency, the National Bank shall have the right to publish a notice stating that information contained in the advertisement is untruthful, or to correct this information at the expense of the bank that published the advertisement.

3. Juridical persons not possessing a banking license issued by the authorized agency and (or) the National Bank shall be prohibited from advertising services that fall under the definition of banking operations.

Article 10. Bank Associations (Unions)

1. Banks shall have the right to form bank associations and unions in accordance with current legislation in order to coordinate their activities, to protect and represent shared interests, to carry out joint projects, and to achieve other shared objectives.

2. Bank associations (unions) shall be nonprofit organizations.

3. Bank associations (unions) may not be used to limit competition in the banking system, or to manipulate remuneration (interest) rates and the conditions of granting credits and providing other banking services.

Article 10-1. Consortiums and Other Associations of Banks

Banks shall have the right to establish consortiums on the basis of a joint operating agreement and to participate in the activities of other consortiums and associations for the purposes of implementing joint projects involving the extension of credits and the achievement of other objectives.

Article 11. Subsidiary Banks and Bank Branches, Representative Offices, and Cash

Settlement Departments (Savings Banks)

1. Banks shall have the right to open subsidiaries, branches, and representative offices both within the Republic of Kazakhstan and outside its borders.

The opening of branches of foreign banks in the Republic of Kazakhstan shall be prohibited.

The procedure for opening branches of banks with foreign participation in the Republic of Kazakhstan shall be established by the authorized agency.

2. A subsidiary bank shall be a second-tier bank with over 50 percent of its authorized capital belonging to the parent bank.

A subsidiary bank shall not have the right to establish another subsidiary bank.

Subsidiary banks shall be independent juridical persons, and they shall be established according to the procedure set forth in Articles 12–28 of this Law.

3. Bank branches, representative offices, and cash settlement departments (savings banks) shall be established and closed according to the procedure set forth in Article 29 of this Law.

4. Representative offices of nonresident banks of the Republic of Kazakhstan shall be opened on the territory of the Republic of Kazakhstan with the consent of the authorized agency.

Representative offices of a resident bank of the Republic of Kazakhstan shall be opened outside the Republic of Kazakhstan with the consent of the authorized agency.

Article 11-1. Subsidiaries of Banks

1. A subsidiary of a bank shall be a juridical person in which the bank directly or indirectly (through a stake in the authorized capital of other juridical persons) holds or has the opportunity to vote more than 50 percent of the voting stock (shares) or in accordance with an agreement concluded between them (or in some other manner) the bank is able to determine decisions made by the given juridical person.

2. For the purposes of exercising the authorities granted to it under Article 8 of this Law, a bank may establish or have a subsidiary only if its has a permit from the authorized agency.

The procedure for and specific aspects of issuing a permit shall be determined by regulatory legal acts of the authorized agency.

3. The following documents must be attached to an application for a permit:

1) the charter documents of the subsidiary and protocols regarding approval of the charter;

2) information about the managers of the subsidiary;

3) the organizational structure of the subsidiary;

4) information about the type or types of business of the subsidiary, accompanied by a business plan;

5) a report by an auditing firm regarding an audit of the juridical person and financial statements certified by the auditing firm;

6) other information or documents needed to make a decision regarding a permit provided for by regulatory legal acts of the authorized agency.

4. Grounds for denial of a permit shall include:

failure to present the documents needed to arrive at a decision;

failure by the managers of the subsidiary (or candidates recommended for appointment or election to management positions) to comply with the requirements of subitems a) and c) of item 3 of Article 20 of this Law;

failure by the bank, as a result of the proposed existence of subsidiaries, to comply with prudential requirements on a consolidated basis and other requirements and limits established by the authorized agency which are mandatory for banks;

a projected decline in the bank’s financial condition and (or) damage to the interests of the bank’s depositors as a consequence of the operation of the subsidiary or investments planned by the bank.

5. The authorized agency shall be required to issue a permit or deny a permit within three months following submission of the application.

In the event of a refusal to issue a permit, the authorized agency shall be required to notify the applicant in writing of the grounds for the refusal.

6. A subsidiary of a bank shall be required to notify the authorized agency of all amendments and additions to its charter documents.

7. In the event that a permit is not obtained from the authorized agency, a bank shall be required within three months to dispose of the stocks (shares) that it holds in the subsidiary by selling them to persons with no special relationship to the given bank, or to waive its right to determine decisions made by the subsidiary, and to present supporting documents to the authorized agency.

Chapter 2. Establishment of a Bank and Participation in its Authorized Capital

Article 12. Omitted.

Article 13. Permit from the Authorized Agency to Open a Bank

1. The procedure for issuing a permit to open a bank and the grounds for denial of a permit shall be specified by the banking legislation.

2. A permit to open a bank shall have legal force until the authorized agency adopts a decision to issue a banking license to the bank.

An permit to open a bank that has been issued may be revoked by the authorized agency.

3. A permit to open a bank shall be returned by the bank to the authorized agency upon issuance of a banking license or upon a court’s adoption of a decision to terminate the bank's operation, and also in the event that a permit is revoked on grounds provided for under item 2 of Article 49 of this Law.

4. A bank shall have the right to voluntarily return a permit to open a bank that has been issued to it, and to reregister following the procedure established by the legislation.

Article 14. A Bank’s Charter Documents

1. A bank shall be established following the procedure prescribed by the civil legislation of the Republic of Kazakhstan for juridical persons, taking into account particulars established by the banking legislation.

2. In addition to the information provided for by the current legislation, a founding agreement for establishment of a bank must include:

information on the founders, including the full name and location of each of them, and information about their state registration (in the case of juridical persons) or the name, citizenship, place of residence, and identity document information (in the case of natural persons);

information on the quantity, categories, and par value of stocks.

3. Besides the information provided for by the current legislation, a bank’s charter must include:

the bank’s full and abbreviated name;

information on the types and procedures for the use of the bank’s funds (reserve capital);

the decision-making procedure of the bank’s bodies.

Article 15. Organizational-Legal Form and Name of the Bank

1. Banks shall be established in the form of joint-stock companies.

1-1. A bank shall use the name recorded in its charter as its name.

The name of a bank must contain the word “bank” or a derivative thereof.

2. All banks other than the National Bank shall be prohibited from using the words “national” and “central” in their names, in full or abbreviated form and in any language.

3. All banks shall be prohibited from using the word “state” in their names, in full or abbreviated form and in any language.

4. Use of designations so identical or similar as to confuse them with the names of banks established earlier, including nonresident banks of the Republic of Kazakhstan, shall not be allowed, except in the case of subsidiary banks.

Subsidiary banks shall be required to use the name of parent banks in their name.

Article 16. A Bank’s Authorized and Equity Capital

1. The authorized capital of a bank shall be denominated and established in the national currency of the Republic of Kazakhstan, through the sale of stocks or through contributions from founders.

2. A bank’s founders and stockholders shall be required to pay for stocks they acquire solely with money.

3. A bank’s founders and stockholders that are juridical persons shall purchase stock in the bank up to the amount of equity capital calculated in accordance with the requirements of regulatory legal acts of the authorized agency, less assets placed in stocks and share participation in the authorized capital of other persons.

A bank’s founders and stockholders that are natural persons shall have the right to invest money in authorized capital and to pay for bank shares, taking into account the requirements established by the tax legislation pertaining to the filing of income and property statements.

4. The initial sale of a bank’s stocks shall be performed at their par value, which shall be the same for all founders (stockholders).

5. Fifty percent of the authorized capital of a newly established bank announced in its charter documents must be paid in by its stockholders by the moment of its registration, and all of it must be paid in within one calendar year from the day of its registration.

7. [sic] A bank’s equity capital (referred to hereinafter as capital) shall be the value of the bank’s assets less the amount of its liabilities, where the value of the assets is calculated by subtracting, from the initial value of the bank’s assets, the amount of required reserves (provisions) for loans made and other assets. The method for calculating capital, the value of a bank’s assets, and the amount of reserves (provisions) for loans made and other assets shall be determined by the authorized agency.

In the event that the amount of a bank’s liabilities exceeds the value of its assets, the bank’s capital shall be negative.

8. Should the capital of a bank be determined to be negative for three successive calendar months, the authorized agency shall have the right to make a decision, with the approval of the government of the Republic of Kazakhstan, calling for the compulsory purchase of its stockholders’ interest (stocks) in the bank’s authorized capital, and to sell it (them) without delay to a new investor at the acquisition price, on conditions guaranteeing an increase in the bank’s capital and its normal functioning, taking into account the obligations assumed by the investor.

The compulsory purchase of a bank’s stocks by the authorized agency shall be effected at a price determined on the basis of the amount of its actual capital as of the date of the decision calling for compulsory purchase of the bank’s stocks (the stockholders’ interest) for the purpose of their subsequent sale to a new investor. The authorized agency shall sell the purchased stocks of a bank without delay at the price of their acquisition. The rights and obligations of the holders of all of the bank stocks purchased on a compulsory basis shall pass to the new investor.

In the event of the arrival of the deadline for fulfillment of obligations under which claims may be made against the bank but which had not been made prior to the decision calling for compulsory purchase of the bank’s stocks, such claims shall be treated as having been settled, with the exception of claims for deposits of natural and juridical persons.

The procedure for the compulsory purchase of a bank’s stocks and their subsequent mandatory sale to investors shall be established by the authorized agency.

Article 17. Bank Founders and Stockholders

1. Resident and nonresident juridical and natural persons of the Republic of Kazakhstan may be founders and stockholders of a bank (taking into account the restrictions set forth in Article 18 of this Law).

2. The state may act as a founder and stockholder of a bank only in the person of the government, while local executive government bodies of oblasts and the cities of Astana and Almaty may also act as stockholders of the Kazakhstan Development Bank. State enterprises and organizations with over 50 percent of their authorized capital belonging to the state may not be founders and stockholders of a bank.

3. Omitted.

4. In the event that a bank has negative capital for three successive calendar months, in order to protect the interests of a bank’s creditors and to ensure the stability of the Republic’s banking system, the authorized agency shall have the right, with the approval of the government of the Republic of Kazakhstan, to carry out the compulsory purchase of the bank’s stocks (stockholders’ interest) on the condition of their mandatory subsequent sale without delay at the acquisition price to a new investor who will guarantee the needed improvement of the bank’s financial position.

5. Juridical persons that are registered in offshore zones or have affiliates registered in offshore zones, or natural persons who are partners (founders, stockholders) of juridical persons registered in offshore zones, a list of which shall be established by the authorized agency, may not be directly or indirectly founders or stockholders of resident banks of the Republic of Kazakhstan.

This restriction shall not extend to banks that have an individual credit rating no lower than A from one of the rating agencies, a list of which shall be established by the authorized agency.

6. Nonresident juridical persons of the Republic of Kazakhstan, including banks, may possess 10 percent or more of the stocks of a resident bank of the Republic of Kazakhstan on the condition that they have the minimum required rating from one of the main rating agencies, a list of which shall be established by the authorized agency.

7. Persons participating directly or indirectly in the authorized capital of a bank shall be required at the request of the authorized agency to present charter documents and other information needed to identify the bank’s principal partners and to determine their financial condition.

Article 17-1. Affiliates of Banks

1. A person shall be recognized as an affiliate of a bank if:

it is a principal partner of the bank;

the bank is a principal partner of the given person;

a principal partner of the given person is a principal partner of the bank.

2. No person, either independently or jointly with another person (other persons) may be a principal partner of a bank without the consent of the authorized agency. The procedure for granting consent to acquire the status of a principal partner shall be determined by regulatory legal acts of the authorized agency.

In order to obtain consent, a person who wishes to become a principal partner of a bank must submit a petition to the authorized agency regarding acquisition of the status of a principal partner of the bank, accompanied by the following documents and information:

a copy of the decision by the top administrative body of the applicant regarding acquisition of the status of a principal partner of the given bank;

information about the conditions and procedure for the acquisition of bank shares, including:

a description of the sources and amounts of money used for the acquisition, accompanied by copies of supporting documents;