National Bank of Kazakhstan defends pension assets' investment into second tier banks
The National Bank of Kazakhstan has explained why it was investing pension assets of the Single Pension Fund (SPF) into securities of second tier banks, a practice that Ak Zhol faction of the Kazakh Parliament called “charity to the banks at the expense of ordinary citizens”, Tengrinews reports.
In particular, the MPs were puzzled by the fact that several Kazakhstani banks received SPF assets exceeding the size of their own capital.
As of September 1, 2014 Eurasian Bank received deposits equaling 78 billion tenge in pension savings, which exceeded the bank’s own capital of 61 billion tenge by 22 percent. ATF Bank received 101 billion tenge against its own capital of 72 billion tenge, that is 29 percent more than what it could return on-demand. Kaspi Bank with own capital of 98 billion tenge got 169 billion tenge worth of pension savings, that is 42 percent more of its own capital. The group of Alliance and Temir banks that had negative own capital of 54 billion, raised 39 billion from the SPF.
And what's even more surprising, Kazakhstan's pension savings were also invested into Russian Sberbank in the amount of 152 billion tenge against its own capital in Kazakhstan of 130 billion tenge.
To this, the National Bank that manages the assets of Single Pension Fund said that purchasing securities of Kazakhstan second tier banks had always been one of the main financial instruments for investing pension assets.
"We continue investing pension money into these instruments. The difference is that now this money can be invested not any of the banks but only in those that have a large enough own capital, i.e. in those that are financially stable," the National Bank of Kazakhstan said.
According to the regulator, the top ten banks out of a total of 38 commercial bank in Kazakhstan take up 80 percent of the banking sector. They have capitals above the average figure and can participate in the deposit auctions. Assets are given to those financial institutions that offer the highest interest rates on the deposits. The weighted average rate on new deposits was set at 9.03 percent, the regulater said.
As of June 2014 the top 10 banks of Kazakhstan by assets are: Kazkommertsbank, Halyk Bank, BTA Bank, Bank CenterCredit, Sberbank (subsidiary), Tsesnabank, ATFbank, Kaspi Bank, Eurasian Bank and Alliance Bank.
The National Bank also noted that Kazakhstani banks could also receive the pension money for a term of 10 year at 8, 9 or 10 percent interest rate depending on their business models. "The limit per one bank cannot exceed 10 percent of all the pension assets. Tihis is a way to provide long-term funding for the domestic second tier banks. By sustaining the banking sector the National Bank of Kazakhstan supports the economic growth of Kazakhstan," the central bank commented.
To further support its point, the central bank reminded that all the investment decisions regarding the money of the Single Pension Fund were based on the decisions of the Council managing the pension fund's assets, the composite of which was approved by a presidential decree.
"At the meeting dedicated to improvement of the pension system on January 23, 2013 Nursultan Nazarbayev (President of Kazakhstan) instructed to channel a part of the citizens’ pension savings into lending to the real economy through the banks to support industrialization and the development of business. In April, the President instructed to develop an Investment Strategy for the SPF assets, including through the placement of long-term deposits in banks," the National Bank of Kazakhstan stressed.
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 of private pension funds that existed in Kazakhstan before the reform into the newly created single fund was completed nearly a year later.
After that the National Bank of Kazakhstan had to reevaluate the pension assets, so it hired an independent appraiser – KPMG – to do it. After the portfolio reevaluation 97.9 billion tenge ($540 million) was debited, and the size of the pension assets in the Single Pension Fund now equals to 4.3 trillion tenge ($23.75 billion).
It is expected that the yield of the pension assets by the end of this year will be at 6.5 percent, while for the next year it should be somewhere between 7-7.5 percent.
Reporting by Azhar Ashirova, writing by Dinara Urazova, editing by Tatyana Kuzmina