The Ban on Paying Interest on Current Accounts

Most of us never think about losing, say, KZT 2–3 thousand a month, or KZT 24–36 thousand a year. For banks, though, it can add up to a very large sum. It's like the Soviet joke: send me a ruble and I'll tell you how to become a millionaire.

Now, to the substance. I often talk to government officials about the ban on paying interest on current accounts, and almost everywhere I hear the same thing: what's the problem with moving your money to a deposit and earning interest on it? I always answer with a question of my own: how much do you keep on your card? Naturally, nobody wants to say, so I narrow it down: more than KZT 100,000? Some say more, some say a little less. Then I ask why they don't move that money to a deposit. The answer is, of course, the predictable one: it's the amount I keep for spending, and it's very inconvenient to keep transferring money for every transaction.

In Kazakhstan, individuals hold about KZT 2.2 trillion in current account balances, and almost all current accounts are card accounts. There are about 10 million active card accounts, which works out to KZT 220,000 per card. Some people keep a couple of million and some a couple of thousand tenge, but the average is KZT 220,000. On KZT 220,000, a person forgoes 15% a year in interest. That is KZT 33,000 a year, or KZT 2,750 a month, or KZT 92 a day. For KZT 92 a day, people will not bother shuffling money back and forth. Some simply have never done the calculation. Some consider the amount too small. Some regard it as the price of convenience, and some lack the financial literacy to work it out.

Now let's calculate how much banks earn on KZT 2.2 trillion of liquidity that costs them nothing. The figure is roughly KZT 330 billion, or about 10% of the banking system's total profit. Second, everyone understands that 90% of all individual customers are concentrated in the 4–5 largest banks, which makes it clear who benefits from the ban on paying interest on current accounts. Anyone who thinks these sums are offset by cashback is badly mistaken. Banks in aggregate do not pay out anything like these amounts, and cashback is funded partly by interchange, partly by partners and partly by the marketing budgets of the international payment systems. Until 2019, many banks paid interest on card accounts. Many people may no longer remember this, but the result was that bank customers received that interest rather than the banks, because competition in this business immediately moves the market in the customer's favor.

So we all understand that the higher the base rate, the more banks earn, and unfortunately this arbitrage will be with us for a long time. The high profitability of the banking sector, especially of the top banks where most individual customers are concentrated, stems precisely from regulatory arbitrage, as I have written many times before.