The acquisition of a Bank in Kazakhstan is an attractive investment prospect due to Kazakhstan's developing economy coupled with the great potential of the financial market. In view of the fact that many Kazakhstani banks have many clients and significant experience in the market, together with substantial assets, the acquisition of a bank in Kazakhstan, with a rational development plan, can become a worthy addition to a buyer's asset portfolio.
When purchasing a Kazakhstani bank it is necessary to remember that there is a range of certain restrictions provided by Kazakhstani legislation in relation to the bank's shareholders, the bank's participation in other companies, banking confidentiality etc.
1. Disclosure Of Information About Borrowers.
One of the examples of such a restriction is that the principle of consolidated supervision adopted by many European and US banks under the Basel Committee's recommendations contradicts local Kazakhstani rules about banking confidentiality.
In other words, consolidated supervision requires all the subsidiaries or affiliated bodies of a parent company to furnish information about all their loans, which are subject to banking confidentiality.
Kazakhstani law defines confidential banking information as information concerning the existence, owners and numbers of accounts of depositors, clients and correspondents of the bank, concerning balances and movements of monetary resources in those accounts and accounts of the bank itself, concerning the bank's transactions (except for the General Terms for Conducting Banking Transactions), as well as information concerning the existence, owners, nature and value of clients' assets which are kept in safety deposit boxes, cases or on the premises of the bank.
The general rule of Kazakhstani law is that Kazakhstani banks shall guarantee confidentiality in respect of the transactions and deposits of their depositors, clients and correspondents, as well as confidentiality concerning assets which are located in the safe boxes, cases or on the premises of the banks.
Thus, we can see that the principle of consolidated financial supervision covers banking confidentiality issues. As a consequence, it leads to limited access for potential investors to information considered as confidential banking information under Kazakhstani law.
2. Disclosure Requirements (Governmental Approvals)
In Kazakhstan, there are two types of the most important approvals – the Financial Market Supervision Authority (the "FMSA") approval and the anti-trust approval - which need to be sought before a bank acquisition in Kazakhstan. Among the eligibility criteria applicable to an applicant, the major problem with obtaining such approvals is a disclosure requirement with respect to obtaining FMSA approval which makes the bank purchasing process time consuming and expensive.
Thus, in order to obtain FMSA approval, the law requires that by-laws, articles of association or charters of all subsidiaries and parent companies of an applicant with 10% or more shareholding be provided to the FMSA. These rules impose on applicants an obligation to provide a true copy of all such documents officially translated into Russian or Kazakh. The FMSA approval requirement is triggered by an acquisition of 10% or more of the shares in a Kazakh bank.
While the law provides for an exception from the FMSA approval requirement for foreign banks being subject to consolidated supervision in their jurisdiction, it does not necessarily mean that an applicant may totally avoid this problem. For, example, many Kazakh banks have significant ownership in other financial institutions in Kazakhstan. Thus, FMSA approval is also required for indirect acquisition of 10% or more of shares in pension funds and insurance companies.
3. Minority Shareholders.
When acquiring 30% or more of the voting shares of a company (not on a fully diluted basis), an acquirer shall extend a mandatory tender offer to all holders of any class of equity share capital whether voting or non-voting, although there is no requirement for extension of the same rule with respect to convertible securities of a company. This is a rule protecting minority shareholders.
But launching mandatory tender offers faces the problem of the lack of regulations and standards of conduct. Among such unregulated issues are issues such as the exchange of securities, and consideration to be offered.
4. Work Permits For Foreign Employees
In addition to the regulatory requirements for a bank purchase in Kazakhstan there are special requirements concerning the attraction of foreign employees to Kazakhstan. It is compulsory for the Kazakhstani employer to obtain a work permit for attracting foreign employees from the labour authority.
Moreover, the Kazakhstani government provides quotes for the maximum number of foreign employees that may be attracted annually.
However, Kazakhstan is going to enter into the World Trade Organisation. And this participation inevitably will have an influence on the issue of foreign workers' employment in Kazakhstan and could possibly lead to cancellation of the requirement to get prior consent from the local authorities.
To conclude, it is necessary to point out that a bank acquisition is an attractive investment option, but at the same time is strictly regulated in Kazakhstan due to the importance of the banking system for the country.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
