From December 16, 2020, foreign banks are allowed to do business in Kazakhstan by opening a local branch. Previously, the only option for foreign banks wishing to operate in Kazakhstan was to set up a subsidiary.
Specific requirements for opening foreign bank branches and the rules for their operation, including notably the minimum capital and disclosure requirements, also became effective on the same day.
To open a branch in Kazakhstan, the total assets of a foreign bank should be at least US$20 billion.
The process of opening a branch in Kazakhstan can be summarized as follows:
- A foreign bank applies to the the Agency for Regulation and Development of the Financial Market (the Agency) for consent for establishing a branch in Kazakhstan;
- Within two months of obtaining the Agency’s consent, a foreign bank registers the branch with the “Government for Citizens” State Corporation; and
- Within three months of the branch registration, a foreign bank applies to the Agency for a relevant banking license.
The Agency issues a banking license to a branch of a foreign bank only if such bank holds a corresponding license to carry out similar banking activities in the country of its residence.
While the branch of the foreign bank operates in Kazakhstan, it will have to comply with, among others, the relevant local capital requirements and other requirements related to risk management, internal controls system and corporate governance. In particular, at least two employees occupying managerial positions within the branch must be Kazakhstan residents.
The rules governing branches are brand new for Kazakhstan, but they are clearly aimed at liberalizing the banking market, and it will be interesting to see if such loosening of the rules will have a bearing on foreign banks’ investment appetite, which has been on the decline in recent years. We will be monitoring how the newly introduced branch regime evolves in practice and will keep you posted on any significant developments.