Tab 1

At a recent expanded session of the Government, the Head of State once again raised the issue of the banking sector's excess profits: the sector earned almost KZT 3 trillion. It is worth noting that banks put the high cost of funding at the top of their explanations for the low pace of lending to the economy.

It is easy enough to calculate what funding actually costs banks today, since all the information is publicly available. For context: the banking sector's total liabilities stand at around KZT 60 trillion, while interest paid for the use of funds came to KZT 5.26 trillion, or 8.77%. Of course, these liabilities include foreign-currency ones, which cost banks roughly 1% (while the risk-free placement rate is about 3.5%).

Dollarization is about 23%, so it is simple to work out that the rate on tenge liabilities costs the sector roughly 11.09% (1% × 0.23 + X × 0.77 = 8.77%, hence X = (8.77% − 1% × 0.23) / 0.77 = 11.09%).

This is the real cost of the tenge funding that second-tier banks attract on the liabilities side, whereas the risk-free placement rate is 17%. I have written about this at length and shown that the sector's excess profitability stems entirely from distortions in how banks raise funding. Current accounts are held at zero percent because interest on them is prohibited. The same applies to foreign-currency deposits and balances, where a ceiling of 1% is in place.

In classical small economies, banks are generally not among the industries that create value added on their own. The banking sector is, to a greater extent, a redistribution sector. Put simply, bank profits are formed from part of the profits of businesses and the incomes of individuals, generated through lending, investment in securities and the use of settlement infrastructure.

Of course, this is a simplified model, and reality is more complex. But the key principle stands: banks cannot exist without the real sector of the economy.

Against this background, the situation is clearly indicative of serious imbalances in the financial system. The banking sector has been earning excess profits for four years running, while real household incomes are falling and the real sector is lent to mainly through the state.

Formally, profit growth in 2025 was 6.6%. But if we adjust for the abolition of CIT exemptions on government securities and add the one-off loss from the early repayment of state support, banks' profit growth in 2025 turns out to be well above inflation.

By my estimates, taking into account the higher CIT (+ ~5%) and the one-off loss from repaying state support (+ ~5%), the real growth rate of the banking sector's profit comes to around 16%. This confirms that the financial sector continues to grow and develop actively.

At the same time, concentration in the sector keeps increasing. The top six second-tier banks now account for:

73.5% of all sector assets (75.3% including Home Credit Bank, hereinafter HCB);

82.4% of all net profit (84% including Home Credit Bank).

Compared with 2024, the share of assets rose by 0.6 pp (2.4 pp including HCB), and the share of profit by 3.8 pp (5.4 pp including HCB).

And this is despite the fact that two of the top six banks made early repayments of state support. Once Forte Bank fully absorbs Home Credit Bank, concentration will rise even further, as I have said many times.

I have previously written in detail about the role of current accounts and shown that regulatory arbitrage generates about 30–40% of the banking sector's total profit. Formal steps have been taken in this direction: a 1% rate on current accounts was introduced. However, the systemic problem of excess profits has been shifted onto higher minimum reserve requirements (MRR), which do not fundamentally solve it.

The biggest winners from this arrangement are the shareholders of large banks, who continue to earn hundreds of billions of tenge on arbitrage while the base rate is high. And the high rate will persist for at least the whole of this year and part of next.

Public banks disclose regulatory reporting on form 700-N, which reflects the balance sheet structure in detail and makes it fairly easy to calculate how much banks earn. In Kazakhstan, three banks are formally public, and on the basis of their reports I calculated how much these three banks earned from arbitrage. (Kaspi Bank is not on the list of public banks, because the public company is Kaspi.kz, which is not a bank as such.)

Using their reporting, I analyzed:

current account balances (at 0% owing to the regulatory ban);

foreign-currency balances on current accounts;

foreign-currency deposits of individuals (rate capped at 1%).

For the calculations I used:

a rate of 15% per annum on current accounts (the equivalent of demand deposits);

a rate of 3.5% per annum on foreign currency.

The total profit attributable to these three banks is KZT 1.4 trillion, almost 50% of the entire sector's profit. The total arbitrage profit of these three banks, from current account balances and foreign-currency liabilities where interest rate arbitrage exists, is KZT 538 billion, or 38% of their total profit.

Thus, without regulatory interest rate arbitrage, the return on equity of large banks falls back to economically normal levels.

Since September, the NBK has introduced higher MRR with the aim of withdrawing part of the second-tier banks' excess profits. The main blow fell on foreign-currency liabilities, with reserves to be formed in tenge (10% and 15%).

At a base rate of 18%, this means foreign-currency liabilities become more expensive, at 1.8–2.7%. Room for arbitrage remains, but:

returns for individuals stay at 1%;

for legal entities, foreign-currency placement rates fall by about 2 pp.

This decision has several consequences.

First, banks will encourage clients to place funds on international markets through their own brokers, where brokerage returns will exceed the risk-free placement rate. This will intensify the capital outflow already visible in portfolio investment.

Second, MRR apply to the whole sector, whereas the main beneficiaries of arbitrage are the large banks. This will further reinforce concentration and reduce competition in the banking sector.

All of the above is my subjective opinion. The calculations are estimates based on open sources and require deeper analysis. Regulators certainly have more complete and detailed information on each bank.

With this, I conclude my series of publications on regulatory arbitrage. Going forward, I plan to focus on economic growth and the structure of GDP.

Tab 2

In classical small economies, banks are not among the industries that create value added on their own. Banks are rather a redistribution industry. In other words, and put very simply, bank profit is part of the profit of businesses or individuals that they earned as a result of lending (or purchasing securities), as well as through the use of settlement infrastructure. Naturally, this is a very simplified picture and reality is more complex, but banks themselves cannot exist without business. Yet when the banking sector has been earning excess profits for four years now, while real household incomes are falling and the real sector is lent to only with the help of the state, this clearly shows that we have enormous imbalances in the financial sector.

The National Bank recently reported on the banking sector's excess profits. If we adjust profit for the fact that the Government removed the tax exemptions on government securities and add the one-off loss from the early repayment of state support, growth in banks' profits in 2025 once again shows exorbitant figures. In 2025, banks' profit grew by 6.6%, but if we add the higher CIT resulting from the Government's abolition of CIT exemptions on government securities and the loss from the one-off repayment of state support, then by my estimates the growth rate comes to around 16% (an additional 5% from CIT and 5% from the loss on repaying state support). This shows that the financial sector is growing and developing actively. Meanwhile, looking at the top six banks, their share in the sector's overall structure has risen again, in both assets and profit, even though two of the top six banks repaid state support. The top six second-tier banks account for 73.5% of all assets (75.3% if HCB is added to Forte) and 82.4% of all net profit (84% with HCB), which is higher than in 2024 by 0.6% in assets (2.4% with HCB) and by 3.8% in net profit (5.4% with HCB). I have said many times that concentration in the sector is increasing. After Forte fully absorbs Home Credit Bank, concentration will grow even more.

I have already written a great deal about current accounts and shown how arbitrage generates roughly 30–40% of the banking sector's total profit. Very formal steps were taken in this direction, in the form of 1% on current accounts, but the problem of banks' excess profits itself was set to be addressed through higher MRR, which do not solve the problem to any great extent. The shareholders of large banks are, of course, the happiest with this outcome, as they will go on earning hundreds of billions of tenge on arbitrage for as long as the base rate is high. And it will remain high for this entire year and part of the next.

Public banks submit the regulatory report 700-N to the exchange, which shows the bank's balance sheet in great detail. Three banks in Kazakhstan are formally public and publish their reporting on the exchange: Halyk, Forte and BCC.

I took the data for these three banks and extracted the current account balances, which banks take from clients at zero percent thanks to the ban. I also took the dollar balances on current accounts and the dollar balances on individuals' deposits (in these categories banks also have arbitrage, owing to the ban on interest on current accounts and the 1% cap on the dollar deposit rate). I then applied a rate of around 15% per annum to current accounts and 3.5% per annum to dollars, which roughly corresponds to rates on demand deposits.

The bank most dependent on this arbitrage is BCC: by my calculations, of its KZT 240 billion net profit, KZT 165 billion comes from arbitrage. If arbitrage is stripped out of profit, BCC's real earnings are around KZT 75 billion. The loss from repaying state support can be estimated at around KZT 18 billion, which brings BCC's real earnings to around KZT 93 billion, corresponding to an ROE of 13% (current ROE: 33.5%).

Looking at Forte Bank, by my calculations arbitrage accounts for KZT 74 billion of its KZT 182 billion profit. Without arbitrage, Forte's real earnings are around KZT 108 billion, corresponding to an ROE of 16% (current: 27%).

Looking at Halyk Bank, arbitrage makes up KZT 299 billion of its KZT 977 billion profit. If interest rate arbitrage is removed from Halyk's profit, net profit would be KZT 677 billion, or an ROE of 20.5% (current: 29.6%).

If regulatory arbitrage is removed from large banks, ROE returns to a normal rate of return.

Meanwhile, since September the NBK has implemented higher MRR, which were introduced to withdraw part of the second-tier banks' excess profits. Looking at the norms introduced, the main increase in MRR was made on foreign-currency liabilities, with reserves formed in tenge. For current accounts the new MRR are 15%, and for deposits, 10%. At a base rate of 18%, this means that for banks dollar liabilities become more expensive, at 1.8–2.7%. Room for arbitrage remains, but returns for individual clients stay at 1%, while for legal entities holding funds in foreign currency, placement rates will fall by about 2%. This decision has several consequences.

First, banks will encourage clients to place funds on international markets through their own brokers, since earnings from brokerage will most likely be higher than income from risk-free placement. This will lead to a greater outflow of capital from the country, which we are already seeing in portfolio investment as a result of the caps on dollar deposit rates.

Second, MRR were introduced for the whole sector, while the main beneficiaries of arbitrage and excess profits are the large banks, which will further stimulate growing concentration and reduce competition in the second-tier bank market.

Naturally, all of this is my subjective opinion, and my calculations are estimates based on open sources and require more detailed analysis. Regulators have a more detailed and complete picture of each bank. With this, I conclude my series of publications on regulatory arbitrage and want to focus in more detail going forward on economic growth and the structure of GDP.