A borrower came to us after falling into a difficult financial situation. Having refinanced her loan with VTB Bank (Kazakhstan) through another bank, she discovered three years later that VTB had not closed the agreement. A debt had accumulated and enforcement proceedings had been initiated against her.
This article explains how our lawyers protected the client’s rights at three levels of court, from the district court to the Supreme Court of Kazakhstan, and established that the bank had acted in bad faith.
The issue
February 2018: The borrower takes out a consumer loan with VTB Bank (Kazakhstan).
February 2019: The borrower refinances this debt through ATFBank JSC. The ATFBank agreement expressly states that part of the funds is intended for full early repayment of the VTB Bank (Kazakhstan) loan. ATFBank transfers KZT 1,049,211.88 to the borrower’s account with the payment purpose: «На погашение займа по договору…».
Almost three years later: The borrower starts receiving calls and text messages about arrears. VTB Bank (Kazakhstan) says that full early repayment was not made because the client allegedly failed to submit a written request two working days in advance.
The result: For three years VTB Bank (Kazakhstan) applied the funds to regular monthly instalments while charging interest. Once the funds ran out, the bank recorded a debt of KZT 452,323 and initiated enforcement by way of an enforcement endorsement.
In effect, the borrower was treated as owing two banks for the same loan.
VTB Bank (Kazakhstan)’s position
In court, VTB Bank (Kazakhstan) relied on its standard loan agreement:
Under the bank’s rules, the borrower must submit a written request in advance for early repayment.
As no such request was recorded, the bank argued that it could not treat the transferred funds as full early repayment.
The bank applied the funds to scheduled monthly payments, including interest.
Our strategy and legal arguments
Our lawyers based the client’s case on the following key arguments:
Payment purpose: ATFBank’s payment instruction clearly specified loan repayment. Under Kazakhstan’s Law on Payments and Payment Systems, if in doubt, VTB Bank (Kazakhstan) should have returned the payment to ATFBank or applied it in accordance with its stated purpose.
Good faith, Article 8 of Kazakhstan’s Civil Code: Individuals and legal entities must exercise their rights in good faith, reasonably and fairly. VTB accepted funds expressly intended to close the loan, but instead of returning them, applied them to scheduled instalments while continuing to charge interest.
Creditor delay, Article 366 of Kazakhstan’s Civil Code: Because the bank refused to accept proper performance of the obligation, the adverse consequences of the delay fell on the bank itself.
The court outcome
The case went through all levels of Kazakhstan’s courts:
Bostandyk District Court of Almaty, first instance: The borrower’s claim was partly upheld. The loan agreement with VTB Bank (Kazakhstan) was recognised as performed through early repayment. The bank’s assessment of KZT 452,323 in debt was declared unlawful. Court fees and representation costs were awarded to the client.
Civil Division of Almaty City Court, appeal: VTB Bank (Kazakhstan)’s appeal was dismissed and the Bostandyk District Court judgment remained unchanged.
Civil Division of the Supreme Court of Kazakhstan, cassation: A Supreme Court judge refused to refer VTB Bank (Kazakhstan)’s application for review, confirming the lawfulness of the court decisions.
Extract from the Supreme Court of Kazakhstan’s ruling (English translation):
«Вместо того чтобы исполнить положения законодательства и прекратить обязательство заемщика, Банк, избирательно, в выгодной для себя форме истолковав условия договора… на протяжении трех лет осуществлял погашение текущих платежей, что в свою очередь привело к искусственному образованию задолженности… Анализ ситуации по данному делу свидетельствует о злоупотреблении правом, вследствие которого Банк извлекает преимущество из своего недобросовестного поведения».
Lessons for borrowers
The law takes precedence over internal bank rules: Relationships with financial institutions are governed by their procedures and by the Civil Code of Kazakhstan, particularly the principles of good faith and reasonableness.
Keep your banking documents: Payment instructions, statements showing payment purposes and refinancing agreements are key evidence in court.
Timely legal assistance: Professional representation can help secure cancellation of unlawful debts and recognition that obligations to a bank have been fulfilled.
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