Kazakhstan Tightens Rules on Bank Loans to Related Parties

Kazakhstan has tightened requirements for banks, which will now have to scrutinize transactions involving related parties more closely and count them together, making it harder to issue loans through affiliated structures, Orda.kz reports.

The Agency for Regulation and Development of the Financial Market has revised the rules for monitoring persons connected to banks, combining them into a single document with clear assessment criteria.

Banks will now be required to take into account links between borrowers. If several companies or individuals are connected to one another, they will be treated as a single borrower, and the total volume of transactions will be assessed together. This applies to related parties, including bank executives, major shareholders, affiliated companies and relatives.

This will make it harder to use a common practice in Kazakhstan in which large sums could be distributed among several formally separate companies that were in fact controlled by one group.

The regulator has also expanded the criteria for determining connections. Not only direct ownership will be taken into account, but also indirect ties through groups of companies, transaction collateral or family relationships. In addition, threshold values will be introduced: transactions exceeding 0.5–0.7% of a bank’s capital will fall under enhanced scrutiny as potentially related-party deals.

At the same time, the new requirements do not apply to ordinary clients. They are aimed mainly at monitoring internal and affiliated transactions, where the risk of conflict of interest is higher.

Original author: Alexander Zhdanov

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