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  • Prospects for Further Concentration in Kazakhstan’s Banking Sector

    09.10.2017 | Comments | Economy | 113 Daniyar Nurbayev

    In July 2017, Halyk Savings Bank of Kazakhstan (Halyk Bank) officially announced that the bank acquired 96.81% of ordinary shares of Kazkommertsbank (KKB) for two tenge from Kenes Rakishev and the Sovereign Wealth Fund “Samruk-Kazyna”, which owned 86.09% and 10.72% stakes of KKB, respectively (Halykbank, 2017). This acquisition significantly reshaped the country’s banking sector. As a result of the deal, Halyk Bank (including its subsidiary banks) accounts for more than 35% of the total banking sector’s assets and 29% of the sector’s loans resulting in the high concentration of the capital and banking sector assets in the country.

    It is widely believed that a high level of concentration in the banking sector can negatively affect the economic development of a country. In recent studies, scholars have become concerned over the issue of correlation between the competition in a banking system and interest margin (Almarzoqi, Naceur and Akshay 2015; Nassar, Martinez, and Pineda, 2014; Marinkovića and Radović, 2012 Maudos and de Guevara, 2004). The results show that a high degree of competition in the sector decreases banks’ interest margin, thereby contributing to the economic development. Moreover, increased competition can both stimulate investment in innovation and boost productive efficiency of banks. More efficient and innovative products would decrease transaction costs and become more convenient for clients. In addition, healthy competition between banks leads to more stability in the banking system. In a competitive market, banks become more efficient and change their risk-taking behavior by starting to improve their underwriting services, which in its turn decreases the share of non-performing loans (NPLs). Moreover, under competition the banking system decreases its systemic risks. The study by Anginer, Demirguc-Kunt, and Zhu (2014) shows a robust negative relationship between bank competition and systemic risk. The study concluded that greater competition encourages banks to take more diversified risks, making the banking system less fragile to shocks. Furthermore, the high concentration in the banking sector creates the “too big to fail” problem. It is a case when some banks become too large and their bankruptcy would lead to serious distress in a national economy. Therefore, the merger of Halyk Bank and KKB, which are the largest banks of Kazakhstan ranking the first and second, respectively, can cause economic problems.

    In fact, this is not the first time that Kazakhstan’s banking sector experiences concentration. In 2015, KKB itself completed its acquisition of the troubled BTA Bank, which was the third largest bank in the country at that time, while by the end of 2014 a new bank appeared after the merger of Forte Bank, Alliance Bank and Temir Bank. Moreover, in 2015-2016 several foreign banks decided to leave Kazakhstan’s banking sector. As a result, HSBC Kazakhstan was acquired by Halyk Bank, while Bankpozitiv Kazakhstan was acquired by Eurasian Bank.

    Among the main reasons for these mergers was the difficult economic situation in the country resulting from the 2008 global financial crisis, which caused the problem of NPLs. Moreover, the National Bank of Kazakhstan (NBK) considered concentration in the banking sector as a solution to the difficulties that arose. For example, in 2014, NBK ex-chairman Kairat Kelimbetov noted that the number of banks in Kazakhstan should be reduced by half by 2020 (Tengrinews, 2014). Indeed, by implementing a new prudential norm the country’s monetary authority have paved the way for further concentration in the banking sector. This prudential norm states that as of 2019 the minimum capital requirement will be 100 billion tenge ($294 million[1]), while in 2010 it was only 10 billion tenge ($68.03 million[2]). Under these conditions, banks that will not meet the new capital levels will lose their licenses unless they are able to raise their capital or merge with other banks. Thus, as a result of the NBK measures, the level of concentration in the banking sector of Kazakhstan has started to increase.

    In order to measure concentration, we use the Herfindahl-Hirschman Index (HH), the formula of which can be observed in Equation 1.

    HH = s1^2 + s2^2 + s3^2 + ... + sn^2 (where sn is the market share of the nth firm) (1)

    •    An HH below 1000 indicates a highly competitive industry.

    •    An HH below 1500 indicates an unconcentrated industry.

    •    An HH between 1500 and 2500 indicates moderate concentration.

    •    An HH above 2500 indicates high concentration.

    Table 1. HH index 2013-2017








    HH index







    Note: The index was calculated using consolidated assets of Halyk Bank in 2015-2017 (including assets of KKB and Altyn Bank).

    Source: The NBK

    Table 2. HH index 2008-2012







    HH index






    Note: The index was calculated using consolidated assets of BTA Bank in 2015-2017 (including assets of Temir Bank).

    Source: The NBK

    As shown in Table 1, as of the end of July 2017 the banking sector had a moderate level of concentration, while in the beginning of the year the banking sector was unconcentrated. The table also shows that from the beginning of 2013 to the end of 2014 the sector was highly competitive, with the index below 1000. On the other hand, as shown in Table 2, the banking sector reached its highest concentration level in 2007-2008, which was one of the reasons of the crisis in Kazakhstan’s banking sector in 2009 along with negative external fluctuations. The high concentration of the sector during 2007-2008 also led to the “too big to fail” problem. An eloquent example is the BTA Bank case that forced the government to spend about $1.4 billion from the National Oil Fund to rescue the bank in 2009 (Kapparov, 2015). However, Table 2 also shows that after the 2009 banking crisis, concentration in the sector experienced a downward trend. The key reason for this decline was the fact that the country’s major banks seriously hit by the financial crisis started to lose their market shares.

    In conclusion, the HH index shows that the banking sector of Kazakhstan is becoming highly concentrated, which might have a negative effect on the country’s economy in the long run. Moreover, the fact that after acquiring KKB assets, Halyk Bank controls more than one-third of the sector could cause another “too big to fail” problem meaning that the bank owners will count on the continued support and assistance by the government. This will lead to the situation when the bank will be more likely to take risks, which might bring the sector to another crisis. Therefore, despite the NBK’s belief that the high concentration in the banking sector could guarantee financial stability, there is a danger that further consolidation will not only prevent overcoming the current situation but also exacerbate the existing problems.


    Almarzoqi, R. M., Naceur, S.B., & Kotak, A. (2015). What Matters for Financial Development and Stability? IMF Working Paper.

    Anginer, D., Demirguc-Kunt, A. & Zhu, M. (2014). How does Bank Competition Affect Systemic Stability? Journal of Financial Intermediation, 23, 1-26.

    Halykbank (2017). AO «Narodnyy Bank Kazakhstana» zavershilo priobreteniye 96.81% prostykh aktsiy AO «Kazkommertsbank». Retrieved from Accessed on: 26.09.2017

    Kapparov, K. (2015) Tselevye transfery iz Natsionalnogo Fonda Kazakhstana: kratkosrochnye ustupki vo vred dolgosrochnomu razvitiuy? Retrieved from Accessed on: 24.09.2017

    Marinkovic, S., Radovic, O. & Golubovic, N. (2012) Exploring bank-specific profitability determinants: A single country study, Actual Problems of Economics, 12, 284-298.

    Maudos, J., & Fernandez de Guevara, J. (2004). Factors explaining the interest margin in the banking sectors of the European Union. Journal of Banking and Finance 28, 2259-2281.

    Nassar, K.B., Martinez E. & Pineda A. (2014). Determinants of Banks’ Net Interest Margins in Honduras, IMF Working Paper.

    Tengrinews (2014). Kolichestvo bankov v Kazakhstane sokratitsya v 2 raza cherez 5 let. Retrieved from Accessed on: 25.09.2017

    [1] Average exchange rate for September 2017 340 tenge per dollar

    [2] Average exchange rate for 2010 147 tenge per dollar FONTS should be consistent.

    Note: The views expressed in this blog are the author's own and do not necessarily reflect the Institute's editorial policy.

    Tags: Kazakhstan, Economy, Banking Sector


  • Junior Research Fellow

    Daniyar Nurbayev

    Daniyar Nurbayev is a research fellow at the Eurasian Research Institute. Daniyar completed his bachelor’s degree in Finance in the Kazakh-British Technical University in 2013. In addition, he holds Masters degree in Finance from the Kazakh-British Technical University (2015).