Under the state of emergency in the country caused by the coronavirus pandemic, the most important issues for stabilizing the economy were support measures for SMBs and the population. The government is implementing a series of specialized measures to reduce the impact of Covid-19 on the country’s economy. Second-tier banks and microfinance organizations have already begun to consider Kazakhstani applications for deferred loans.
The global economy is plunging into a crisis caused by the coronavirus pandemic. The virus has actively spread to almost all countries of the world, first paralyzing part of the production in China, and then reaching the countries of Europe, Asia, and the USA.
Amid measures to prevent the spread of Covid-19, industrial production began to decline in some countries, which reduced oil demand. The situation in the oil market was aggravated by the price conflict between Saudi Arabia and Russia, which during the meeting of the OPEC + member countries could not agree on the volume of hydrocarbon production reduction. Quotations of futures per barrel of Brent crude rushed to the mark of $30.
For the Kazakhstani economy, which has a raw material orientation, a drop in the cost of oil can lead to a 3-fold reduction in payments by oil companies to the state budget. This is a significant indicator since the oil and gas sector provide more than 40% of all budget revenues. At the same time, 18 of the 30 largest taxpayers are companies engaged in the extraction of oil and gas. In 2019, they provided more than 4.3 trillion tenge of payments.
Other factors influencing the coronavirus were the state of emergency introduced in Kazakhstan on March 16 and quarantine in several cities and regions. The adopted restrictions immediately affected small and medium businesses – many companies suspended their activities, employees were reduced or sent on leave without maintenance.
SMB and before the outbreak of the virus experienced developmental difficulties. Even though the number of operating entities is increasing annually, and as of March 1, 2020 exceeded 1.3 million, only 265.8 thousand legal entities of small and medium enterprises account for 87% of products. And over 60% of the profits of the entire industry are generated by a fifth of SMBs. That is, in fact, 80% of the subjects are financially insolvent.
Obviously, due to limited activities during the state of emergency in the country, the entire SMB and 3.3 million workers involved in the sector, or 36% of the economically active population, will be hit. President of the country Kassym-Jomart Tokayev promptly reacted to the situation in the economy. On his behalf, the Government of the Republic adopted a series of stabilizing measures. Firstly, temporary exemption of SMBs from the payment of all taxes and late fees was introduced, tax audits were suspended. Secondly, preferential lending was extended for a period of 1 year at a rate of no more than 8% per annum. To implement this measure, 600 billion tenge were allocated. Given the increase in funding for the Economics of Simple Things program, domestic business support will amount to 1 trillion tenge. At the same time, it is planned that 700 billion tenge will be directed to processing and production in the agricultural sector, and 300 billion tenge – to the manufacturing industry and services.
Moreover, in order to mitigate the impact of the state of emergency, the President addressed the banking sector at a meeting of State Commission for Ensuring State of Emergency on March 23. Kassym-Jomart Tokayev focused on the necessary credit holidays in the country.
Second-tier banks and microfinance organizations responded quite quickly to the President’s appeal and declared their readiness to proceed with the consideration of Kazakhstan people applications for deferred loans. At the same time, Kaspi Bank was the first to offer deferral of payments for their customers on March 18. Then the bank started to prepare the infrastructure for online applications.
To carry out the deferred payment procedure, the Agency for Regulation and Development of the Financial Market approved a special mechanism agreed upon with the Association of Financiers for suspending payments of principal and payments on loans to individuals and entrepreneurs for three months. You can familiarize yourself here.
The STBs were prepared for such a situation and were able to quickly deploy the infrastructure necessary for submitting applications and start the process of considering deferrals online. Thanks to this, applications began to be accepted and as of April 2, their number exceeded 282 thousand, of which about 200 thousand came from Kaspi Bank borrowers, and the remaining 82 thousand came from other banks and organizations providing microloans and online loans. According to the latest data, namely from April 8, the number of applications from Kaspi Bank borrowers alone exceeded 773.6 thousand, of which 96% were approved by the bank. And this is 10% of the total number of borrowers of all second-tier banks (total 7.46 million borrowers).
Considering that about 1.3 million citizens of Kazakhstan have applied for benefits in case of reduction or loss of income, the number of applications for deferment will continue to grow rapidly. And this in turn increases the burden on the banking sector. Nevertheless, at a consolidated level, banks have a significant reserve of equity and liquidity to ensure continuous operations and provide a full range of banking services.
Recall that according to the results of an independent assessment of the quality of assets, the excess of capital adequacy k1 relative to the regulatory minimum is 70%, considering adjustments. And this means that there are no risks for bank depositors.
As we can see, the current crisis has shown that Kazakhstan has an effective airbag in the form of the banking sector, which has recently significantly improved its financial position. For example, their total assets over the past five years have grown by 51%, and equity – by 62%. In terms of assets, TOP-5 banks are formed by the Halyk Bank, Sberbank, Kaspi Bank, ForteBank and Bank CenterCredit.
Now it is the second-tier banks that have a stabilizing effect on the national economy due to credit holidays for SMBs, where 36% of the total employed population and 29% of Kazakhstan GDP are concentrated, as well as for individuals. For residents, the delay became a social support measure, as it allowed to reduce the burden on the budget of Kazakhstan people, which in the conditions of the crisis period is a significant help.