The Lifting of the Ban on Interest on Current Accounts Turns Out to Be Cosmetic

In January 2026, the Head of State signed a new law on banks and banking activity in Kazakhstan, which also abolished the direct ban on paying interest on current accounts, something I and many other experts have written about repeatedly. Until now, the country had a built-in distortion: balances on the current accounts of businesses and individuals were a free resource for banks. Consider this: the National Bank pays banks 17% (the base rate minus 1%) while at the same time creating conditions under which banks receive roughly KZT 6 trillion a year in free money. That is a clear distortion in the banks' favor, worth about KZT 1 trillion a year.

The ban has been lifted, but in practice the law allows the regulator itself to set a maximum rate, and I am already hearing from several sources that the plan is to cap the rate on current accounts at 1%. That effectively makes the decision to abolish the ban cosmetic.

The illusion of the "term" deposit

The regulator's main argument against paying market interest on current accounts is the fear of cannibalizing the deposit base. The logic goes like this: if banks pay interest on current accounts, people will stop opening deposits, and banks will lose their "stable" funding.

Yet this argument does not survive contact with the realities of the Kazakhstani market. Today, legislation and practice are such that a standard deposit in Kazakhstan is, in its properties, almost indistinguishable from a current account. Most deposits allow money to be withdrawn at any time without losing accrued interest (non-term deposits).

In effect, the line between the two instruments has been erased. Whether it sits in a current account or in a so-called "term" deposit, the client's money is absolutely liquid. This means that the liquidity risk for the bank is the same in both cases: a depositor can withdraw funds instantly, from a card or from a deposit.

Consequently, artificially holding the rate on current accounts down to 1% does not solve the liquidity risk problem for banks. It merely lets them avoid paying clients for the use of the money that sits in their current accounts. Kazakhstan has in fact tried to introduce term deposits that cannot be withdrawn, but their share in the deposit structure does not exceed 15%, and, most importantly, they too can be withdrawn early. Global practice shows that countries are abandoning bans, and the best case in point is the United States.

Lessons from history: the rake the United States stepped on

Attempts to ban payment on account balances by administrative fiat are not a uniquely Kazakhstani invention. They are an old mistake that the world has already corrected. From 1933, the US had the famous Regulation Q, which prohibited banks from paying interest on demand accounts.

The ban was finally repealed in 2011. The American regulator acknowledged that it was harmful for three reasons, all of which are now being mirrored in Kazakhstan:

Flight of money into the "shadows." Clients who earned nothing at banks moved their liquidity into money market instruments (Money Market Funds). The ban did not protect banks; on the contrary, it deprived them of a funding base. Something similar is happening here right now with foreign-currency deposits and balances, as people simply move liquidity into foreign stock markets and cash.

An economy of workarounds. To get around the ban, banks and corporations spent resources building complex schemes (sweep accounts), in which money was automatically moved overnight into interest-bearing accounts and returned in the morning. This placed a useless burden on infrastructure without any economic sense. Many banks offer this option to large companies, and Freedom Bank has already launched a card linked to a deposit account.

Discrimination against small business. Large corporations had the resources to circumvent the ban, while small businesses were forced to keep their money at 0%. Repeal restored fairness. In Kazakhstan, besides small business, the losers include public-sector organizations, which are simply prohibited by law from placing money on deposit. As a result, the budget loses on average KZT 200–300 billion a year in forgone income, and that money ends up as bank profit.

Kazakhstan is ignoring this experience today. Instead of letting the market form a fair price, we force clients to make unnecessary transfers (moving money from a card to a deposit and back) or simply hand banks a free resource.

Windfall profits on a free resource

This situation creates a colossal arbitrage. With a base rate of 18%, banks obtain funding on current accounts (which total about KZT 6 trillion) practically for free, at 0–1%.

This gives the sector anomalous profitability. Banks' net profit is setting records (more than KZT 2.5 trillion in the first 11 months of 2025), and return on equity (ROE) reaches 30%, making our large banks the most profitable in the world. Many now acknowledge this: no large financial institution anywhere in the world earns such returns.

A blow to competition

This approach reinforces monopolization. Current accounts are distributed unevenly: they are concentrated in the top five banks. The large players gain access to an enormous volume of free money, which makes them still more profitable and stronger.

Meanwhile, medium-sized and small banks, which lack such a transactional base, are forced to attract expensive deposits and lose out on margin. Rather than leveling the playing field, a "cosmetic" reform with a 1% cap only widens the gap between the giants and the rest of the market, bringing no real benefit either to clients or to the financial stability of the sector. A partial clawback of profits has been planned through higher reserve requirements on foreign-currency deposits, which in essence creates two problems:

First, the reserve requirement applies to the entire sector, whereas the excess profitability is concentrated in the top five banks. As a result, the requirement will in reality hit small and medium-sized banks hardest and make entry into the sector even harder, which further strengthens the monopolization of the market.

Second, a higher reserve requirement specifically on foreign-currency liabilities will lead banks to reduce their attraction of foreign-currency balances, which will encourage money to move to the stock market. Banks may even do this for clients through their own investment arms, which on the whole will increase capital outflow.

Unfortunately, for now we are, as always, choosing not international practice but our own special path, one that benefits large banks, which are increasing their profits at the expense of public-sector organizations, individuals and small businesses, while real incomes of the population fell by 2% last year.