"There's a stock exchange, but virtually no capital market": Why $13 billion Was Withdrawn from Kazakhstan

Over the past two years, approximately $13 billion has been transferred out of Kazakhstan in the form of portfolio investments to foreign jurisdictions. This is a huge amount of money that was supposed to benefit the country’s economy but is actually benefiting other countries’ economies, writes Galim Khusainov, an independent director of the MFCA Administration and former head of CenterCredit Bank, on his Facebook page. Oninvest is publishing the post in its entirety.

The main reason is that Kazakhstan imposes restrictions on interest rates for foreign currency deposits, and depositors, knowing that there is an arbitrage opportunity between the market rate and the 1% rate capped by the regulator, send their money to countries where they can invest it in financial instruments offering a fair rate of return. But there is another reason as well—the lack of alternative financial instruments in the Kazakhstani market, which is directly linked to the underdevelopment of the stock market. Therefore, it is very important not only to work on eliminating the arbitrage—which brings banks hundreds of billions of tenge in additional profits—but also to develop a stock market capable of offering alternative financial instruments.

It should be noted that Kazakhstan has established a fairly well-developed stock exchange infrastructure, consisting of KASE and AIX, but the infrastructure itself does not in any way guarantee a mature market. The figures illustrate this well: nearly 97% of exchange activity in Kazakhstan consists of the money market and government securities, while the primary equity market totaled approximately $73 million for the entire year of 2025. In other words, there is a stock exchange, but virtually no capital market. Market development depends not on infrastructure, but on the institutional environment, which ensures the existence of transparent rules and market participants. And there are certain problems in this regard.

First, there is a lack of institutional investors, which are supposed to provide the bulk of market liquidity. This primarily applies to pension funds and insurance companies. Following the pension reform, pension funds in Kazakhstan were consolidated into the Unified Accumulative Pension Fund (UAPF), which is severely limited in its ability to make investment decisions and is primarily focused on financing the budget deficit through government securities. Less than 1% of pension assets are currently managed by private companies. The insurance market is overregulated in terms of investments and is also not yet as developed as in developed countries. Due to legislative restrictions, private pension asset management companies have not, de facto, become an alternative to the UPPF; this is a separate topic for discussion.

Second, there are few companies in Kazakhstan that could serve as high-quality issuers of securities: there are either large companies, which find it easier to raise funds from abroad, or small ones that lack the financial stability and transparency required to issue securities. This is because there is no institutional incentive to develop and grow; therefore, companies prefer reorganizing into opaque holding companies—as a defense against competitors, the government, and partners, and as a means of tax optimization—rather than pursuing systematic growth. There is a great deal of work to be done here by the government.

Third, the current infrastructure landscape—consisting of two exchanges—is a significant constraint for all parties and requires clear reform, as market participants are forced to bear double costs in terms of time and money, and maintaining two exchanges and two regulatory frameworks always represents an additional expense for the government as well.

Fourth, and in my opinion the most significant factor, is the weakness of institutions, which prevents the stock market from developing in a market-oriented manner. This primarily concerns the protection of minority shareholders, rights in the event of bankruptcy, the independence of board members, disclosure of information, law enforcement, court rulings on corporate disputes, the absence of pressure from law enforcement agencies, and so on.

Therefore, it is very important to reform the stock market, but this reform must be comprehensive—one that affects not only the stock market itself but also related sectors, without which the stock market’s development will be limited.

When it comes to institutional investors, we need to continue reforming the transfer of pension funds to independent management companies, give them more freedom, and encourage asset holders to transfer funds to market-based management companies—which, in principle, the National Bank is already actively doing and confirmed at its latest press conference. Reform of the insurance market is also needed; the issue here is not only the quality of regulation governing how insurance companies manage their funds, but also the development of the insurance market itself, which currently relies more on mandatory insurance than on voluntary insurance. This is a systemic undertaking that requires significant effort on the part of both the government and the insurance market itself.

Regarding the motivation to enter the stock market—in this area, we need to encourage companies to become more transparent. While large companies are already represented in the stock market in one way or another through debt financing, medium-sized companies have enormous potential. In this regard, I would suggest subsidizing the costs associated with the initial public offering (IPO) of securities—whether stocks or bonds—rather than subsidizing interest rates: compensating for the costs of the initial audit, obtaining a credit rating, and engaging brokers and market makers. Many companies reason simply: if the offering isn’t guaranteed, why spend money preparing to go public? At the same time, a rate subsidy is absorbed into the interest margin and ends when the program does, whereas a paid audit and an obtained credit rating remain with the company and make it transparent permanently.

As for large companies—I believe we need to encourage banks to become more publicly traded. Currently, there are essentially only four banks in Kazakhstan that are publicly traded in one way or another, and if another 3–4 banks were to be listed on the capital market, this would significantly increase the market’s depth. Also, banks are currently funded mainly by deposits, which essentially have the characteristics of checking accounts, and this is not only a matter of banking practices but also a matter of how our liquidity regulations are structured.

There is a direct discrepancy here with Basel (Basel Standards—international guidelines for banking regulation— Oninvest), and it does not work in our favor. Under Kazakhstan’s LCR calculation methodology, all retail deposits within the guarantee limit are considered stable with a 5% outflow rate, regardless of whether a depositor can withdraw the money tomorrow without incurring losses or not. Under Basel, however, the existence of a guarantee alone is not sufficient: a deposit is considered stable only if conditions are in place that discourage early withdrawal—such as loss of interest or advance notice—or if there is a long-standing transactional relationship with the bank, in which case a withdrawal is highly unlikely.

As a result, in Kazakhstan, about half of retail deposits are classified as stable, whereas only about 12%—namely, time deposits and savings accounts—meet the Basel definition. In the EU and a number of other countries, they go even further and recognize an increased risk of outflows for deposits managed remotely via the Internet; we have no such criterion at all. At the same time, when it comes to wholesale funding, we are, on the contrary, stricter than Basel: for large corporate deposits, the outflow ratio in Kazakhstan is 60% versus the recommended 40%. In other words, the problem lies specifically in the retail sector.

What this means in practice. The regulation underestimates the actual short-term nature of the deposit base and, more importantly, distorts funding pricing: the bank does not perceive a price difference between demand deposits and true term funding, and thus has no incentive to pay for the term. This results in a distorted spread between savings, time, and demand deposits. This is precisely why the regulatory standard needs to include an explicit definition of term, similar to the one already used in the maximum rate mechanism of the KFGD (Kazakhstan Deposit Insurance Fund — Oninvest), and reinstate interest accrual on checking accounts so that funding for banks becomes market-driven; only then will it make economic sense for banks to shift toward truly stable funding sources—bonds and long-term deposits. This is precisely how the banking sector is directly linked to the stock market.

The infrastructure landscape currently consists of KASE and AIX, which essentially duplicate each other—a situation that, for a small market, is more of a limiting factor than a driver of growth. Today, the market must maintain not only two infrastructure systems but, in effect, two regulatory environments as well, and market participants bear double costs in terms of both time and money. The goal of merging the two exchanges was set forth in the president’s address, but in reality, this has not happened.

My view on this is simple: the goal should be a unified exchange and regulatory environment, built on international standards and understandable to foreign investors. As for exactly how to achieve this—whether through the merger of trading platforms, the division of functions among them, or the harmonization of regulations across the two jurisdictions—that is a matter for the government to examine in depth, in collaboration with the market. What’s more important here is to determine the direction.

The most significant reforms, of course, must address the institutional environment, since it is this environment that has the greatest impact on the development of the stock market and on attracting both domestic and foreign investors. First and foremost, major changes are needed regarding the protection of minority investors and their representation on boards of directors. The role of boards of directors and that of independent directors must be strengthened. We need to increase the accountability of auditors, independent appraisers, and all those whose conclusions determine corporate transparency.

An important part of any investment environment is the bankruptcy and rehabilitation process, which also requires review and alignment with international standards, since it is through this mechanism that investors recover their investments from failing companies. The investment environment is defined not by successful projects, but rather by failed projects and the extent to which the rights of creditors and minority shareholders are protected in such cases. This, incidentally, also applies to the issue of corporate lending by banks.

Particular attention must be paid to the enforcement and application of existing laws. After all, a law can be written—and even well written—but the question is how well it is enforced. The Supreme Court and the Prosecutor General’s Office play a crucial role in this regard. There needs to be more transparency regarding corporate matters in the country, and perhaps such cases should be made more public.

Privatization of state-owned companies also plays a major role. On the one hand, the government wants to retain control over strategic companies, but on the other hand, this limits the development of these companies and prevents them from becoming truly independent of government influence. In this regard, the Samruk-Kazyna National Welfare Fund should likely undergo further transformation into an independent institution that manages stakes in national companies. Currently, “Samruk-Kazyna” remains a tool in the government’s hands for implementing various policies, whether it be the construction of schools or infrastructure.

Overall, stock market reform is not a one-day effort, but rather a major systemic undertaking involving a large number of government agencies, associations, theNational Chamber of Entrepreneurs “Atameken” (Oninvest), the MFC , and interested private individuals. But we need to start this work now: as long as there are no alternative instruments within the country, our money will continue to flow to places where such instruments are available.

This article was AI-translated and verified by a human editor