Kazakh President Nursultan Nazarbayev last week signed off on a law setting stricter controls over the outflow of capital from local banks. The law came into force on the same day.

Capital flight has been a long-standing concern, but the Kazakh authorities have failed to properly address the issue. However, last year’s revelations about the offshore ventures of Kazakh banking sector-affiliated oligarchs and speculation that such capital flight might be behind a large share of the bad loans faced by Kazakhstan's Kazkommertsbank (KKB) appear to have pushed the government into action.

Nazarbayev, in his January address this year, demanded greater controls be placed on financial institutions. In February, Kazakhstan approved a draft law on foreign currency transaction regulations aimed at “expanding the scope of cross-border foreign currency transactions”, tightening regulations on foreign currency operations involving capital outflow and “recognising offices of international organisations as residents”, among a number of other goals.

National Bank chairman Daniyar Akishev has described the new legislation as a way to grant the central bank greater control over currency flows. The law is meant to prevent a list of transactions seen as forms of improper capital withdrawal.

The regulatory powers over the system will be shared between the central bank and the Committee For State Revenue.

Akishev has noted the rules would have no bearing on regular citizens since “liberal principles of currency regulation will remain in force.”

The country’s banking sector – which has still not fully recovered from the 2008-09 financial crisis – has been hit by a rise in bad loans since the slump in world crude oil prices and the tenge free-float in 2015, which has depressed the entire Kazakh economy. Its largest banks have been bailed out, which included a merger deal between the banks KKB and Halyk.

S&P Global Ratings on June 26 raised its long-term issuer credit rating on KKB to 'BB' from 'B+' and with positive implications removed the rating from CreditWatch where the bank was placed in December 2017. The announcement was made after Halyk officially received approval to go ahead with finalising the merger. KKB, formerly the largest lender by assets, was bought out by Halyk last year.

Nevertheless, a number of small banks, including Qazaq Banki and Astana Bank, received no state support and have been continuously lambasted by Nazarbayev for their poor performance.