How Much Citizens Lose Because Interest on Current Accounts Is Banned
Translated from Russian with the help of AI. Original: Russian version
The ban on paying interest on current accounts costs Kazakhstani households about KZT 33 thousand a year per card on average, while banks collect roughly KZT 330 billion, or about 10% of the banking system's profit. The author argues that the main beneficiaries are the four or five largest banks and that this is a case of regulatory arbitrage.
Most of us never think about losing KZT 2–3 thousand a month, or KZT 24–36 thousand a year. For banks, however, it can add up to a very large sum. It is like the Soviet joke: "Send me a ruble, and I'll tell you how to become a millionaire."
Now, to the substance. I often talk with representatives of various public and private financial institutions about the ban on paying interest on current accounts, and almost everywhere I hear the same thing: "What's the problem with moving the money to a deposit and earning something on it?" I always answer with a question of my own: "How much do you keep on your card?" Naturally, nobody wants to say, so I press: "More than KZT 100 thousand?" Some say they keep more, others a little less. Then I ask: "So why don't you move the money to a deposit?" The answer is, of course, predictable: "That's the money I keep for expenses, and it's very inconvenient to keep transferring funds for every transaction."
In Kazakhstan, individuals hold about KZT 2.2 trillion in current account balances, and almost all current accounts are card accounts. There are about 10 million active card accounts, which works out to KZT 220 thousand in balances per card. Some people keep a couple of million, others a couple of thousand, but the average is KZT 220 thousand. On that sum a person forgoes about 15% a year in interest, that is, KZT 33 thousand a year, or KZT 2,750 a month, or KZT 92 a day. For the sake of KZT 92 a day, people will not keep shuffling money back and forth. Some have simply never done the calculation, some consider the amount small, some regard it as the price of convenience, and some lack the financial literacy to work it out.
Now let us calculate how much banks earn on KZT 2.2 trillion of liquidity that costs them nothing. The sum comes to roughly KZT 330 billion, or about 10% of the entire banking system's profit. There is a second point: everyone understands that 90% of all household funds are concentrated in the four or five largest banks, which makes it clear who benefits from the ban on paying interest on current accounts.
Anyone who thinks these sums are offset by cashback is greatly mistaken, because banks collectively do not pay out anything close to these amounts. Part of the cashback is covered by interchange fees, part by partners, and part by the marketing budgets of international payment systems.
Until 2019, many banks paid interest on card accounts. Many may no longer remember this, but it was customers who received the income, not the banks, because competition in this market immediately pushed terms in the customer's favor.
So we all understand that the higher the base rate, the more banks earn. Unfortunately, this arbitrage will persist for a long time. The root of the high profitability of the banking sector, especially of the top banks, where most household funds are concentrated, is precisely regulatory arbitrage, as I have written many times before.