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Kazakh law may be amended to allow the government to act as bank shareholder, even sole shareholder – FSA

Almaty, April 8, 2008

Kazakhstan’s law “On Banks and Banking Operations” may be amended to include a new clause which will allow the government to act as (sole) shareholder of a bank, said Elena Bakhmutova, the chairman of the Financial Supervision Agency (FSA).

“It is proposed that Article 17 of the law “On Banks and Banking Operations in the Republic of Kazakhstan” be amended to include a clause which will allow the government to act as (sole) shareholder of a bank in order to ensure financial stability,” she told in an interview to the Interfax-Kazakhstan agency.

She said that these changes will be introduced as part of the draft law “On Amendments to Some Laws of the Republic of Kazakhstan Relating to Payments and Money Transfers, Accounting and Financial Reporting in Financial Organizations and Activities by the National Bank of the Republic of Kazakhstan” in order to implement the memorandum on financial stability in an efficient manner.

Thus, according to the draft law, in certain cases the government can make a decision to purchase through the government itself or a national managing company authorized by the government to manage the state property the bank’s “declared” shares in the amount of 10% of all the bank’s shares and higher, Bakhmutova said.

“If there are no declared (unplaced or bought out) shares of the bank or their number is not enough to improve the financial situation in the bank, the government makes a decision to increase the number of “declared” shares,” she said.

Bakhmutova also reminded that in accordance with Article 16.8 of the law “On Banks and Banking Operations in the Republic of Kazakhstan” if the value of the bank’s capital becomes negative the authorized body can get approval from the government and make a decision to purchase the shares from the shareholders by enforcement. Besides, the authorized body has the right to immediately

sell these shares to a new investor at the purchase price provided that the investor will fulfill all assumed obligations, increase the bank’s capital and ensure that it works efficiently.

“The bank’s shares will be purchased by the authorized body by enforcement at a price that will be calculated based on the value of the bank’s assets minus the liabilities as of the date when the authorized body made the decision to purchase the shares of (shareholders’ stakes in) the banks by enforcement to be later sold to a new investor. The authorized body will sell the shares immediately at the purchase price. The rights and obligations of all the bank’s shareholders arising from the shares purchased by enforcement will be transferred to the new investor,” she added.

In general, Bakhmutova summed up, the government is already rendering financial aid to the banks in accordance with the existing Kazakh legislation, the action plan aimed to ensure steady social and economic development of the country, the memorandum on financial stability between the National Bank, FSA and the government, the three-party agreement on cooperation and coordination in case of a loan offered by the National Bank between FSA, the National Bank and the second tier bank that wants to borrow monies from the National Bank.

“Thus, should the bank have temporary liquidity problems the government has enough financial instruments to be able to help,” she said.

“If no investors are found the government may temporarily act as owner which is a worldwide practice, especially in situations when a bank crisis needs to be overcome,” Bakhmutova summed up.

Source: Interfax Kazakhstan


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