Bank credit system of the Republic of Kazakhstan

   In the transitional economy with its weak and underdeveloped banking system, the NB's interference is necessary as a financial markets' organizer. During 1994 the organized interbank currency market successfully formed. Since the first quarter of 1995, primary and secondary state securities markets and an interbank money market started to form. In December 1994 the NB Executive Board approved the Provision on Transactions for On-call Loans Provision and Repayment: on-call loans are interbank credits extended for a period under 30 days. Based on the results of the daily interbank short-term credit auctions, the average interest rate in December 1995 fluctuated between 39 per cent for one-day T 60 million loan and 68 per cent for 30-day T 100 million loans. The players in this market include only large and reliable banks, and they are subject to certain checks by the NB so that the money can be written off the banks' correspondent accounts unconditionally.

  In the first quarter of 1996, the NB drafted the Law on Currency Regulation. The major objective of the new version is further currency market liberalization.

  Only the second-tier commercial banks that have complied with the NB economic rules and standards during the previous period are allowed to participate in the NB credit auctions which are organized no less than twice a month. The introduction of the lombard credit system is planned; the NB will extend loans to commercial banks against the collateral in the form of securities, particularly treasury bonds.

  In 1995 the precious metals' market started to operate. It allows local commercial banks to purchase precious metals from Kazakhstan producers, to sell them, or to perform other transactions. At present, seven banks have acquired NB licenses for precious metals' transactions.

The commercial banks are also active in the market of state treasury bonds and short-term NB notes. In the majority of auctions, the demand exceeds supply greatly regardless of the constantly reducing income rate. The reason is the high reliability and liquidity of state securities.

The banking system's development was affected by a reduction in the centralized NB credit amount and the inflation rate. The banks lost a source of income in the centralized risk-free credits and started to earn profit ardently on their own money or money acquired through the auctions at a really positive interest rate. (Earlier, due to inflation, the interest rate was really negative.) Stricter NB reserves requirements, assets, liabilities and risk management, and numerous precedents of license revocation, bank closing, and liquidation urged banks to change their behavior. They began to realize the impossibility of activities based on the high risk for themselves and their clients. They started to diversify services in different financial markets including the market for regional debt obligations [see 11].

 

2.2 The Current situation of banking system of the Republic of Kazakhstan

For January 1, 2012 38 second-tier banks operate in Kazakhstan, including the city of Almaty where are registered 35 banks, 34 branches and 378 additional premises of banks, in 2011 the number of banks was 39, and in 2010 - 38, increase in the number of banks is due to an improving economic situation in the Republic of Kazakhstan. More detail the structure of the banking system of Kazakhstan can be observed in table 1.

 

Table 1 - Structure of the banking sector, [6]

Indicators:	Jan 1. 2010	Jan 1. 2011	Jan 1. 2012
Number tier two banks, incl.:	38	39	38
banks with 100% of authorized capital owned by the Government	1	1	1
Number of tier two banks’ branches	374	365	378
Number of tier two banks’ cashier settlement desks	1925	1881	1893
Number of tier two banks’ representative offices abroad	17	17	14
Number of non-resident banks’ representative offices in the Republic of Kazakhstan	32	29	29
Number of participant banks in mandatory collective insurance system for individuals’ deposits	36	34	35
Number of banks licensed to engage in custodian activity	11	10	10

         Table 1 shows that on January 1, 2012 there was an increase in the number of tier two banks’ representative offices abroad, number of non-resident banks’ representative offices in the Republic of Kazakhstan, number of participant banks in mandatory collective insurance system for individuals’ deposits, number of banks licensed to engage in custodian activity.  
Next, let’s consider the structure of assets of two-tier banks, of liabilities of two-tier banks, of capital of two-tier banks, of liquidity and profitability of the banking sector.

For 2011 the banks’ total assets increased by 790.3 bln. tenge (6.6%). Borrowing formed in accordance with the requirements of the authorized body increased by 562.3 billion or 21.3%

Table 2 - Structure of total assets of the banking sector, [7]

Indicators:	Jan 1. 2010	Jan 1. 2011	Jan 1. 2012
	bln. tenge	bln. tenge.	bln. tenge.
1	2	3	4
Cash, refined precious metals and correspondent accounts	1 037,0	845,6	1 396,4
Deposits in other banks	1 072,1	1 002,6	604,0
1	2	3	4
Securities	1 779,7	2 221,7	1 859,0
Bank loans and reverse Repo	9638.9	9 065,9	10 425,5
Capital investments	290.6	376,1	381,0
Reserves (provisions)	-4 002.3	-3 202,9	- 3 765,2
Other assets	1739.3	1 722,5	2 039,6
Total assets	11557.3	12 031,5	12 821,8

 

The banks’  asset mix shows the prevalence of loans to customers, followed by cash, refined precious metals and correspondent account balances, securities portfolio, deposits in other banks.

As of January, 1st, 2012 the bank sector is presented by 38 second-tier banks. Actives of banks of the second

Level in comparison with the similar period of 2011 bank loans have increased for 790,3 billion tenge or on 6,6 %, and

Operations « the return REPO » for the considered period also have increased for 1 359,6 billion tenge or on 15,0 %, reserves (provisions)

Under the loans, generated according to requirements of the authorized body have increased for 562,3 billion tenge or on 21,3 %.The size of actives and the conditional obligations which are a subject classification for 2011 has increased for 1 318,1 billion tenge or on 9,5 %. Provisions on actives and conditional obligations (generated under requirements of the authorized body) have decreased on 435,2 billion tenge or on 10,6 %.The loan portfolio of second-tier banks RK has increased for 2011 for 1 377,0 billion tenge or on 15,2 %. Standard Loans have increased for 301,3 billion tenge (12,6 %), doubtful have increased for 621,3 billion tenge (12,8 %), hopeless have increased On 454,4 billion tenge (25,0 %). Provisions under the loans generated under requirements of authorized body have increased on 530,5 billion tenge (18,9 %).

Figure 1 - Structure of assets, [see 7]

 

The largest share of the asset structure falls on Bank loans and reverse Repo as they bring great profit (figure 1).

During  2010, total liabilities of two-tier banks have increased by 2,255.1 bln. tenge. (that is by 28.2%), and totaled 10,256.7 bln.tenge, as of the end of the reporting period (table 3).

 

Table 3 - Structure of total liabilities of the banking sector, [7]

Indicators:	Jan 1. 2010	Jan 1. 2011	Jan 1. 2012
	bln. tenge	bln. tenge.	bln. tenge.
Interbank deposits	237.0	548,5	491,3
Loans from other banks and institutions engaged in certain types of banking operations	1247.5	1450.2	1247.5
Loans from the Government of the Republic of Kazakhstan	47.5	58,4	72,2
Loans from international financial institutions	98.7	77,8	54,9
Corporate deposits	4066.5	4 574,4	5 033,5
Retail deposits	1937.4	2 250,9	2 764,1
Special-purpose deposits of subs (SPV)	1795.5	25,4	1,5
Outstanding securities	1307.6	1 577,2	1 498,1
Repo securities transactions	534.7	577,2	497,0
Other liabilities	1264.4	810,4	997,3
Total liabilities	12536.8	10 715,2	11 516,3

 

Cumulative obligations of second-tier banks RK for 2011 have increased for 801,1 billion tenge or on 7,5 %. In structure Obligations there was an increase: contributions of the legal entities on 459,0 billion tenge or on 10,0 % and contributions of physical bodies - on 513,2 Billion tenge or on 22,8 %. Contributions of the affiliated organizations of special purpose have decreased for 23,9 billion tenge

Figure 2 - Structure of liabilities, [7]

 

The largest share of the liabilities structure falls on corporate deposits and SPV as they are based on large sums of money.

Line-item change in capital for 2010-2012 is presented in Table 4.

 

 

 

 

Table 4 - Calculated own capital of two-tier banks, [see 7] 

Indicators:	Jan 1. 2010	Jan 1. 2011	Jan 1. 2012
	bln. tenge	bln. tenge	bln. tenge
1	2	3	4
One-tier capital	958.0	1 418,5	1 491,8
Authorized capital	797.5	2 448,6	2 564,3
Supplementary capital	4.5	9,3	16,0
Two-tier capital	312.2	451,5	520,4
Subordinated debt	366.1	503,2	511,2
1	2	3	4
Tier three Capital	1.1	2,4	1,6
Investments of banks	0.4	50,6	50,6
Total calculated own capital	1270.9	1 821,4	1 961,4

* negative value of the calculated own capital is connected with decrease of own capital of BTA Bank, JSC and Alliance Bank, JSC

**data across the system is given without BTA Bank, JSC and Alliance Bank, JSC.

 

Year 2010 to date, total estimated equity of tier two banks has increased by 611.6 bln.tenge (52.3%) to reach 1780,2 bln. tenge as of January 1, 2011. Herewith, tier one capital increased by 57.3% to reach 1284.0 bln. tenge, while tier two capital increased by 45.0%, i.e. up to 558.9 bln. tenge.

Indicators:	Jan 1. 2010	Jan 1. 2011	Jan 1. 2012
	bln. tenge	bln. tenge	bln. tenge
Current liquidity ratio k46 (min value 0.3)	1.1	1,040	0,927
	5.9	5,722	6,873
Quick liquidity ratio k4-1 (min value 1)
Quick liquidity ratio k4-2 (min value 0.9)	3.2	3,311	3,395
Quick liquidity ratio k4-3 (min value 0.8)	2.4	2,476	2,444

Total estimated own capital of second tier banks increased by 167.7 bln.tenge (9.4%) from the beginning of 2011 and reached 1 947.8 bln. tenge as of 1 January 2012. Herewith, tier 1 capital increased by 18.8% and reached 1 525.1 bln. tenge while tier 2 capital decreased by 11.4% till 495.1 bln. tenge.

Tier one capital decreased by 2580.4bln. tenge, authorized capital by 397.6 bln. tenge, supplementary capital decreased by 0.4 bln. tenge, tier two capital decreased by 182.9 bln. tenge, subordinated debt increased by 24.8 bln. tenge, tier three Capital increased by 0.2 bln. tenge, investments of banks increased by KZT 99.3 bln.tenge.

Because of restructuring of BTA Bank, JSC the total calculated own capital of 2-tier banks of RK  for 2009 has negative amount. BTA bank’s shares were bought by state so the capital of this bank decreased. But if we don’t take it into consideration the total calculated capital for January1, 2010 is the least but positive.

 

Table 5 - Change in liquidity of the banking sector, [see 7]

*data across the system is given without BTA Bank, JSC and Alliance Bank, JSC.

 

In table 5, as of 1 January 2010, the liquidity of the banking system remained at excessive level. Composite current liquidity ratio, as of 1 January 2010, was 1.1 (vs. minimum standard for a particular bank of 0.3), short-term liquidity ratio was 0.97 (vs. minimum standard of 0.5).

As of 1 July 2010 the amendments in liquidity norms have come into force, aimed at regulation of term liquidity and term currency liquidity (up to 7, 30 and 90 days).

As of 1 January 2011 there wasn’t any violation of term liquidity and term currency liquidity coefficients (considering liquidity norms changes). Herewith, As of 1 January 2011 in banking system there are: coefficient of term liquidity up to 7 days (k4-1) constituted 5,722 (vs. minimum norm 1); coefficient of term liquidity up to 30 days (k4-2) constituted 3,311 (vs. minimum norm 0.9); coefficient of term liquidity up to 90 days (k4-3) constituted 2,476 (vs. minimum norm 0.8).

Composite current liquidity ratio, as of 1 January 2012, was 0.927 (vs. minimum standard for a particular bank of 0.3), coefficient of term liquidity up to 7 days (k4-1) constituted 6,873 (vs. minimum norm 1); coefficient of term liquidity up to 30 days (k4-2) constituted 3,395 (vs. minimum norm 0.9); coefficient of term liquidity up to 90 days (k4-3) constituted 2,444 (vs. minimum norm 0.8).

 

Table 6-Summary performance indicators reflecting the earnings of the banking sector [see 7]

Indicators:	Jan 1. 2010	Jan 1. 2011	Jan 1. 2012
	bln. tenge	bln. tenge	bln. tenge
Net income before tax to total assets (ROA)	-24.06	11,96	-0,08
Net income before tax to equity (ROE)	-1192.63	2 920,83	-0,72
Interest income to total assets	11.04	8,78	8,23
Interest income on loans to total loan portfolio	11.87	9,72	9,60
Interest expense to total liabilities	7.43	6,23	5,55
Provisioning expenses to total assets	50.27	18,3	20,41