From May 15, 2023, Kazakhstan will have new rules for issuing HPS for loans and microcredits.
The Agency for Regulation and Development of the Financial Market obliged banks and microfinance organizations to indicate the annual effective interest rate (AEIR) in the same format as the nominal interest rate in contracts and when advertising their loan products.
To strengthen the protection of the rights of consumers of financial services and correctly provide information to borrowers on the full cost of bank loans and deposits, as well as microcredits, on February 20 of this year, the regulator adopted two resolutions. These are the Agency’s resolutions #7 “On Amendments to the Resolution of the Board of the National Bank of the Republic of Kazakhstan dated November 26, 2019, No 208 “On Approval of the Rules for Calculating the Annual Effective Interest Rate on Provided Microcredits’’ and No 8 “On Amendments to the Resolution of the Board of the National Bank of the Republic of Kazakhstan dated March 26, 2012, No 137 “On approval of the Rules for calculating interest rates in a reliable, annual, effective, comparable calculation (real value) for loans and deposits.” These documents are put into effect upon expiration of 60 calendar days after the day of their first official publication.
Thus, banks and MFI’s must adhere to the same design in terms of font size and style, when indicating the annual effective interest rate and the nominal interest rate in contracts and in their advertising.
The regulations state that banks and MFIs indicate AEIR in numeral terms, in the same size and style of fonts (italics, bold, highlighting) form with different remuneration rates:
- when the disseminating information on the amount of remuneration for services, including its publication,
- in an agreement concluded with clients, where the annual effective remuneration rate is printed using computer equipment in one sentence with other remuneration rates. If the general conditions are reflected in the contract in the form of a table, the AEIR is indicated in a separate line (column) following the indication of other rates.
What is the difference between AEIR and a nominal interest rate?
The borrower needs to understand that obtaining a loan is associated not only with the return of the loan amount, accrued interest (nominal rate), but also with the payment of other commissions and payments related to servicing the loan.
AEIR – is the interest rate in a reliable, annual, effective, comparable calculation (real value) for bank and MFI services, which includes all commissions, payments associated with the issuance and servicing of a loan, i.e. real rate of overpayment on the loan.
A nominal rate – is the rate at which the monthly interest for using the loan is calculated, excluding commissions and other payments.
Therefore, the AEIR is the key rate, which takes into account not only the bank’s remuneration on the loan (interest), but also all other commissions, payments associated with the issuance and servicing of the loan.
In this regard, it is necessary to pay not to the nominal interest rate, which takes into account only interest (bank fee), but to AEIR.
Since 2011, the AEIR for all types of bank loans and microcredits has been unified and amounted to 56%.
With the adoption of the resolution of the Board of the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market dated March 15, 2021, the maximum interest rates on bank loans became differentiated:
Read the loan agreement very carefully before signing, pay attention to the size of the AEIR and improve your financial literacy with Fingramota.kz!