Extended Government Session
At the extended Government Session chaired by the Head of State Kassym-Jomart Tokayev, Chair of the National Bank Erbolat Dossaev reported on the results of the National Bank's work in 2021, as well as the state of the banking sector. In the context of the unprecedented crisis caused by the coronavirus pandemic, the National Bank, together with the Government and the Agency for Regulation and Development of the Financial Market, took timely measures to ensure macroeconomic stability - https://primeminister.kz/ reports.
The main efforts of the National Bank in 2020 were aimed at achieving the following goals: Monetary policy was aimed at keeping inflation growth within the established level of 8-8.5%. At the end of 2020, inflation was 7.5%.
The National Bank ensured stability in the foreign exchange market. In order to protect tenge assets, a set of measures was taken to prevent speculation and support the supply of foreign currency. The National Bank assisted the development of the financial market and the construction of the yield curve. Together with the Government, excess liquidity in the money market is aimed at financing the budget deficit. At the same time, the share of market participants in government security issues increased from 3.8% to 32.7%.
To implement the anti-crisis initiatives to support economic activity, the National Bank financed measures for 2.3 trillion tenge, which is more than 50% of the total anti-crisis package. In 2020, despite the increased market volatility, a high return on assets managed by the National Bank was ensured. The National Fund's profitability was 7.6%, the profitability of pension assets — 10.9%, which is 3.4% higher than inflation. In the context of a pandemic and growing demand for electronic services, the National Bank actively developed digitalization and financial technologies. Along with the introduction of new services that increased the share of digital services, the National Bank adopted a number of strategic documents aimed at the development of fintech and the national payment system.
“The pandemic has affected the economies of all countries, triggering the deepest recession since the Second World War. According to the IMF forecasts, by the end of 2020, the global economy will contract by 4.4%. Among the key developing countries, economic growth was recorded only in China, where GDP grew by 2.3% — the lowest value in the last 45 years. In 2021, the global economy is expected to recover to 5.2%, but risks of a slower recovery remain due to the unstable epidemiological situation, as well as the speed and efficiency of the vaccination process,” said the chair of the National Bank.
In Kazakhstan, GDP contraction in 2020 amounted to 2.6%, which is significantly lower than the global decline due to the unprecedented anti-crisis measures taken. After a record drop in Q2 2020, business activity is recovering to pre-crisis levels. According to the forecast of the National Bank, from the 2nd quarter of 2021, the economy of Kazakhstan will enter a positive trajectory. At the end of 2021, with an oil price of $45 per barrel, growth is expected at the level of 3.7-4.0%. In 2021, the National Bank sets a task to return inflation from the current level of 7.5% to the target corridor of 4-6%. In the medium term, this will help achieve the inflation target of 3-4%.
“For this, the National Bank has developed a Monetary Policy Strategy until 2030, which provides for systemic measures to improve the efficiency of monetary and macroeconomic policies of our state. In 2020, the foreign exchange market of Kazakhstan experienced a serious shock. The global pandemic and the ensuing shock in the commodity markets led to the depreciation of the tenge in March 2020 by 17% to 448.5 tenge,” Erbolat Dossaev said.
Against this background, the National Bank, together with the Government, adopted a set of measures to ensure stability in the domestic foreign exchange market. Thanks to the above measures, the tenge exchange rate won back part of the losses, having strengthened by 6.1% by the end of 2020. As a result, over the entire year, the tenge depreciated by only 10% against the background of significant weakening of emerging market currencies. In 2021, further measures will be taken to strengthen the floating rate regime and adhere to market principles when converting the assets of the National Fund and conducting operations to smooth out market volatility. The chronic balance of payments deficit that has been observed since 2015 has worsened against the backdrop of a worsening external environment. As a result, by the end of 2020, a deficit of $ (-) 5.7 billion is expected, with a further deepening to $ (-) 6.5 billion in 2021 due to the recovery of imports and payments of foreign investors' income. In 2020, the assets of the National Fund decreased by $3.1 billion to $58.74 billion due to a record volume of transfers in the amount of 4.8 trillion tenge and a decrease in revenues by more than 2 times compared to 2019.
"Despite the high market volatility, the investment income of the National Fund is positive and amounted to $4.15 billion. The main task of the National Bank in managing the assets of the National Fund in 2021 will be to further increase yields by increasing the share of bonds of developing countries, corporate bonds and stocks," Dossaev said.
The gold and foreign exchange reserves of the National Bank in 2020 increased by $6.7 billion and reached $35.7 billion. The gold portfolio increased by $4.7 billion and at the end of 2020 amounted to 388 tons. Assets in freely convertible currency as part of gold and foreign exchange reserves increased to $12.1 billion, having increased by $2 billion over the year. In general, international reserves of Kazakhstan, including assets of the National Fund, amounted to $94.4 billion, having increased by 3.6 billion in 2020. Pensions assets for 2020 increased to 12.9 trillion tenge, for which a yield of 10.9% is provided. The amount of accrued investment income for 2020 amounted to 1.3 trillion tenge, which is 563 billion tenge or 80.4% more compared to 2019. At the same time, investment income exceeded the amount of pension contributions, which amounted to 1.1 trillion tenge.
At the initiative of the National Bank, in the amendments to the legislation from 2021, the maximum size of the National Bank's commission has been significantly reduced from 7.5% to 2.0% or 3.8 times, and the maximum commission of the Unified National Pensions Fund has been reduced to 0.12% per year, or 2.5 times. Deposits in the banking system in 2020 increased by 16.1% to 22.1 trillion tenge. Deposits in national currency increased by 28.0% or 3,034.8 billion tenge, in foreign currency — by 0.4%,” the chair of the National Bank said.
Prompt decisions on the base rate at the beginning of the pandemic made it possible to limit the threat of a drop in demand for tenge assets and prevent excessive weakening of the exchange rate. After jumping to 46.7% in March, dollarization has dropped to 37.3%, the lowest level since 2013. Loans to the economy in 2020 increased by 5.5% to 14.6 trillion tenge as a result of the growth of long-term loans. As monetary conditions soften and due to programs to support the economy, the cost of credit resources to the real sector of the economy decreases to 11.4%, compared to 12.1% in December 2019. Loans to enterprises decreased by 1.5% over the year, while loans to small businesses grew by 19.3% or 406.4 billion tenge. Loans to the population increased by 13.0% mainly due to an increase in the portfolio of mortgage loans by 34.3% or 606 billion tenge. In 2021, the main efforts will be aimed at creating the necessary conditions for the development of market principles of lending to the economy, taking into account the gradual withdrawal of the National Bank from state programs to support the economy from 2023. As part of the initiatives, the National Bank is implementing the following anti-crisis programs. The financing of the Economy of Simple Things Program has been expanded by 400 billion tenge to 1 trillion tenge.
As of December 31, 2020, STB received 1,373 applications for 1 trillion tenge, second-tier banks issued 778 loans for 516 billion tenge. The program of concessional lending to business entities, on your instructions, has been expanded to 800 billion tenge by allocating an additional 200 billion tenge and extended until the end of 2021.
In 2020, banks financed 1,393 business entities in the amount of 528 billion tenge. Within the framework of the Employment Roadmap-2020, the National Bank financed 700 billion tenge out of the 1 trillion tenge envisaged by the program. In 2020, amid the coronavirus and an increase in demand for online services, there was a significant increase in non-cash payments by 2.5 times up to 35.3 trillion tenge. In order to implement your order, the Program for the Development of the National Payment System until 2025 has been adopted, within the framework of which work will be carried out in 2021 to build an instant payment system and an interbank payment card system. The implementation of these measures will reduce the costs of accepting non-cash payments by 2 times, speed up payments within the country and expand the use of non-cash payments. In 2020, in order to build the foundation of the digital financial market, the Concept for the development of financial technologies and innovations for 2020-2025 was adopted. A new platform was introduced, with the help of which a complete transition to an electronic format for receiving reports from financial market entities through a web portal using online services was carried out. In 2020, the National Bank, as part of an international working group that includes 28 central banks, began work to study the possibility of introducing its own digital currency. In 2021, the National Bank will continue to work on the development of digital infrastructure, the introduction of an asset and risk management system, and regulatory sandboxes.
“In 2021, the National Bank, within the framework of joint work with the Government, will strengthen the coordination of monetary and fiscal policies in order to ensure price and financial stability, as well as create favorable conditions for economic recovery. Joint coordinated actions will enhance the potential of monetary policy influence on the country's economic development, ensuring a consistently low level of inflation, and being a guarantee of investment inflows and improving the welfare of the population,” concluded the Chair of the National Bank Erbolat Dossaev.