Features of the audit of the effectiveness of financial covenant application in the risk management system of commercial banks in Kazakhstan

Abstract

This article develops a practical framework for auditing the effectiveness of financial covenant application in the
risk management system of commercial banks in Kazakhstan. Financial covenants are treated as early-warning
contractual tools that allow creditor intervention before payment default occurs. The study combines Basel
credit risk principles, IFRS 9 impairment logic, Kazakhstan’s banking regulation, official ARDFM and National
Bank statistics, and the findings of the regular Asset Quality Review. The paper argues that covenant auditing
should go beyond formal document checking and test whether covenants are properly integrated into borrower
monitoring, escalation, waiver control, staging under IFRS 9, and provisioning. The evidence shows that the
Kazakhstan banking sector remained profitable and well capitalized in 2022–2025, but portfolio concentration,
strong retail credit growth, and the gap between NPL90+ and broader credit deterioration indicators increase
the value of covenant-based early intervention, especially in corporate lending. A weighted audit matrix is
proposed for internal audit units, supervisory reviewers, and audit committees to assess coverage, trigger
quality, data integrity, timeliness, remedial actions, and provisioning linkage.