Insolvent banks will be rescued by state only in extreme cases - Kazakhstan's Financial RegulatorShareholders of financial institutions will rescue banks on the verge of bankruptcy in Kazakhstan according to the draft of a new law on banks and banking activities, the press service of the Agency for Regulation and Development of the Financial Market of the Republic of Kazakhstan (ARDFM) reported.According to the ARDFM, the new draft law establishes a three-level crisis management architecture aimed at increasing the resilience of the banking sector and ensuring financial stability."The main burden of bank recovery falls on the shareholders, which creates a fair and more sustainable model. For these principles to work in practice, the law improves the early response system. This means that the regulator gets more tools to work with the bank at the stage of initial difficulties. If indicators begin to deteriorate, supervision is enhanced, and the bank is obliged to take measures to correct the situation," said First Deputy Chairman of the ARDFM Timur Abilkasimov at a roundtable with market participants.He informed that each bank is required to have a recovery plan agreed with the regulator, which clearly states what measures shareholders and management will take to strengthen financial stability.In his report, Deputy Head of the ARDFM Dauren Salimbayev presented the resolution tools. In particular, for systemically important banks, a requirement is established to build a safety margin - the Total Loss Absorbing Capacity (TLAC) mechanism. This means that the bank must have a sufficient volume of capital and debt instruments, prepared in advance for possible write-off or conversion into capital in case of serious losses."Thus, losses are primarily covered by shareholders and investors without the use of budget funds," the agency explained.Direct state participation in resolution will only be possible in the most extreme cases - if the use of all market tools has proven insufficient, and the bank poses a systemic risk to the country's financial stability, the financial regulator emphasized."Moreover, even in such cases, state aid is only permitted if strict conditions are met. Transparency of decisions, minimal interference in market mechanisms, and mandatory compliance with the No Creditor Worse Of (NCWO) principle - must be ensured. This means that no creditor should incur greater losses in the resolution process than they would have in a regular bankruptcy procedure," the statement stressed.This excludes the possibility of arbitrary redistribution of losses and guarantees the protection of the rights of bona fide creditors."The new system completely excludes automatic or politically motivated provision of state aid. The resolution approach has become predictable, economically justified, and fair. This fundamental change is aimed at eliminating moral hazard, increasing the responsibility of bank owners, and protecting the interests of depositors and taxpayers," Salimbayev said.The agency explained that when developing these mechanisms, the experience of the European Union, the United Kingdom, South Korea, and Canada was taken into account.Currently, banks' operations are regulated by the law "On Banks and Banking Activity in the Republic of Kazakhstan," adopted back in 1995. The new law, which is planned to be adopted at the beginning of 2026, is designed to increase the transparency and resilience of the banking system.The draft law "On Banks and Banking Activity" takes into account six key areas. In particular, the new law will introduce differentiated banking licenses, establish rules for protecting consumer interests in the financial sector, implement a new mechanism for resolving problematic banks, and improve banking regulation. "Islamic windows" will also be provided for traditional banks, and changes will be adopted to develop new technologies and financial innovations. (ICE ALMATY)

Fonte notizia: INTERFAX