Forte Bank Buys Home Credit
Translated from Russian with the help of AI. Original: Russian version
Forte Bank is buying Home Credit. Regulatory arbitrage is making large banks richer while smaller ones are absorbed, and concentration in the banking sector keeps growing.
I read the news today that Forte Bank is buying Home Credit. It will be interesting to see what synergies Forte gets from the deal, since the two banks are entirely different, both in positioning and in corporate culture. But I want to write about something else: why the environment in Kazakhstan has left small banks in a much worse position than large ones.
I have written about this many times. If you compare the profitability of the largest banks with that of smaller ones, it is obvious that the returns of large second-tier banks are significantly higher. This is explained by the notorious regulatory arbitrage, which I have also written about before. A large share of the profits of the big second-tier banks comes from the fact that the main holders of current account balances, public-sector organizations and individuals, keep their money in large banks. These funds cost the banks practically nothing, and are then placed at market rates of 16.5%. Small second-tier banks have no such opportunity, because public-sector organizations and the population keep their money in the large banks. As a result, the income that public-sector organizations and individuals could have earned goes to Kazakhstan's largest banks.
The consequence is that the largest banks become larger still, while the small ones are forced to fight for survival and are constantly under threat of takeover, which is exactly what we are seeing now. This is easy to verify statistically. In the first 5 months of 2025, the TOP-6 second-tier banks accounted for 73.6% of the assets of the entire banking sector and 84.8% of its total profit. It is therefore unsurprising that the banking sector is becoming more concentrated. The average return on assets (ROA) of the TOP-6 is 1.66%, while for the remaining banks it is only 0.83%. That is half as much, and it is cause for serious concern. In the long term this is a negative signal: high concentration reduces competition, limits the availability of funding and holds back the development of the sector.
Outside the TOP-6, the banks that can genuinely be called lending banks are Eurasian Bank (about which there have been many rumors of a sale), RBK Bank, Freedom Bank, Altyn Bank and Nurbank. It is hard to describe the other second-tier banks as actively lending to the economy. Freedom Bank is still growing to some extent and has a clearly defined strategy, but the asset dynamics of the others do not suggest that they are developing. If, for example, one adjusts assets for the growth that comes from the base rate and compares them with assets a year ago, it becomes clear that most small banks are in fact shrinking.
Take Eurasian Bank. As of 1 May 2025 its assets stood at KZT 2.9 trillion. Adjusted for the natural growth attributable to the base rate, that comes to about KZT 2.42 trillion. In May 2024 its assets were KZT 2.6 trillion. In real terms, that is a contraction in assets.
The most interesting point is that there are no plans to eliminate the root causes of the excess returns of the large second-tier banks. For example, the ban on paying interest on current accounts is not being lifted, and the limits on rates for foreign-currency deposits are not being reviewed. Instead, the authorities want to address the problem by raising the minimum reserve requirements (MRR). Formally, this will reduce the sector's profitability somewhat, but since the requirements will be the same for everyone, the blow will be far more painful for small and mid-sized banks, which do not have the high returns of the large ones. In the end, the large banks will again come out ahead, and concentration will increase. I believe the ARDFM should look at this issue and assess the growing concentration of the sector.
As for why yet another foreign bank is leaving the Kazakhstani market, the reasons are most likely commercial. Home Credit is a monoline bank specializing in consumer lending. The regulator is right to restrict this segment through rate caps and other requirements, which makes consumer lending less attractive. Overall household indebtedness is rising, and so are sectoral risks, and second-tier banks are now at peak profitability. Given the increase in MRR, the caps on maximum rates and tighter regulation (including through the capital buffer and risk weighting), Home Credit's profitability will decline in the future. This is therefore a good moment to exit at the peak by selling to a larger player.