Kazakh deputies outraged at risky investments of Single Pension Fund

Ak Zhol faction voiced its concern over the safety of pension savings amid the risky practices of the Single Pension Fund (SPF), Tengrinews reports.

Last year Kazakhstan implemented a large-sclare reform of its pension system than nationalized the realm of management of pension money and eliminated competition from the market. In June 2013, Kazakhstan revising its Pension Law creating the Singe Pension Fund fully owned by the government and managed by the National Bank of Kazakhstan. Transfer of the pension savings from a dozen private pension funds that existed in Kazakhstan before the reform into the newly created single fund was completed nearly a year later.

At the plenary session of the Majilis, the lower chamber of the Kazakh Parliament, on October 22, Deputy Peruashev spoke about SPF investing into second tier banks as he addressed the Prime Minister of Kazakhstan Karim Massimov and the Governor of the National Bank Kairat Kelimbetov. "Depositing SPF money in banks and purchasing securities of second-tier banks is one of the main instruments used by the Fund to invest the pension saving of the citizens," he said.

"Logically, such money transfers should be made taking into account the ability of the bank to return the borrowed funds, i.e. taking into consideration the size of the banks' own capital. But in many cases, the amount of pension assets invested by the SPF significantly exceeds the bank's own capital, and thus becomes exposed to the direct risk of default. This risk is all the more relevant given the volatility and instability of the financial markets," he said.

MP Peruashev cited the data as of September 1 obtained from open sources to support his claims:

Eurasian Bank received deposits equaling 78 billion tenge, which exceeded the bank’s own capital of 61 billion tenge by 22 percent.

ATF Bank received 101 billion tenge of public money against its own capital of 72 billion tenge, that is 29 percent more than what it could return on-demand.

Kaspi Bank with its own capital of 98 billion tenge attracted 169 billion tenge worth of pension savings, that is 42 percent more of its own capital.

The group of Alliance and Temir banks that has negative own capital of 54 billion, raised 39 billion from the SPF.

The Kazakh deputy added that these banks had other liabilities and depositors, who would claim their part of the capital under unfavorable circumstances.

“These investments can be called a pure charity donations to the banks at the expense of ordinary citizens. At the same time, the cost of loans and services offered by these banks to the population are far from being similarly generous," the MP said.

"References to future profitability and investment forecasts (as grounds for pension money investments) are also irrelevant under the circumstances, because among the list above there are banks that are leaders in consumer lending. This type of lending, as everyones knows, is unsecured lending (that involves no collateral). And the borrowers’ solvency is often questionable. Its only advantage is the rapid growth it provides (for the bank), but it also gives rise to high risks. The disturbing developments in this sector are dangerous enough to pose a threat to the stability of the entire lending system of the banks," he said.

The Kazakh MP wondered just how rational it was to invest pension savings into such questionable ventures. He added that funds from the SPF were also invested into Russian Sberbank in the amount exceeding this bank’s assets in Kazakhstan: with only 130 billion tenge of its own, the bank got 152 billion tenge from the pension savings fund. “And this is when the economic situation in the neighboring Russia is known to be difficult!" the said in an outrage. 

"In case of the risky investments into the Kazakh banks one could try to explain the doings but calling them a way to support the national financial system (of Kazakhstan), but supporting a foreign bank at the expense of our citizens, especially given such controversial circumstances, raises extremely uncomfortable questions," Peruashev said.

The deputy inquired just how these decisions were made and whether the pension savings of Kazakhstanis were protected from being used by the Russian bank to solve the current problems in the Russian economy instead of being used for the benefit of SPF depositors in Kazakhstan?

He reminded that a year ago when floating the idea of creating a single pension fund instead of a choice of pension funds that Kazakhstanis could keep they savings with, the National Bank accused this array of private pension funds of being inefficient and lacking transparency in their investment activities. Then why the same problems are haunting the state pension fund now, he inquired. 

Closing his statement, Peruashev asked for a report on the measures taken by the National Bank and the SPF to guarantee the safety of the pension savings of Kazakhstani citizens and to ensure transparency of the fund’s operations.

Reporting by Altynai Zhumzhumina, writing by Dinara Urazova, editing by Tatyana Kuzmina