Bank credit system of the Republic of Kazakhstan

 

In the global economic crisis banking system of Kazakhstan was one of the most affected in country's economy. Standard & Poor's attributes this to its structural weaknesses, which are due to the strong dependence on external financing, as well as high-risk concentration (including the connection with significant risk of some major banks in foreign loans), weak risk management, a significant share of unheeded loans and deposits denominated in dollars, coupled with the ineffectiveness of measures taken by regulatory authorities, as well as the rapid growth of banks over the last decade. The seriousness of these problems, evidenced by recent defaults of four Kazakhstan credit institutions, including two of the top four systemically important banks - JSC BTA Bank  and Alliance Bank. At stake are in default of BTA Bank, Alliance Bank, JSC Temirbank and Astana Finance "accounts for about one-third of total outstanding loans of the banking system, and their reporting rates of gross problematic assets (GPAs) and loan losses on settlements of Financial Institutions’ Association of Kazakhstan  will be significantly higher than the average for the system.In terms of Financial Institutions’ Association of Kazakhstan in the next few years the banking sector in Kazakhstan will be subjected to risks associated with the quality of assets and refinancing. Even if conditions improve, and economic growth resumes, banks can not quickly cope with the problems caused by their aggressive expansion in the lending market in the recent past. [see 8]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ChapterIII. Problems and perspectives of development of banking system of the republic of Kazakhstan

The crisis of the world financial system which has begun in 2007, has negatively affected the development of financial sector of Kazakhstan. Most painfully it was reflected in bank system of the country.

Following negative tendencies have started to be shown:

- decrease in possibilities of domestic banks to involve external financial resources lead a reduction of volumes of crediting of internal economy;

- decrease in rates of growth of actives and reduction of volumes of capitalization of banks;

- were problems with repayment of external obligations.

Each of the listed factors is in itself important and, anyhow, influences functioning of two-tier banks. But their set leads to system failures and threatens effective work of financial sector as a whole. Therefore the measures accepted by the Government, National bank and Financial Supervision Agency of RK on their elimination became paramount steps on overcoming of the crisis phenomena in national economy. [see 9]

According to the majority of bank experts, officially beginning of financial crisis in Kazakhstan it is necessary to consider the September, 2007. Throughout 2008 decrease in indicators of bank sector, in comparison with the previous periods was more than obvious. After considerable growth of crediting in 2006-2007, in 2008 rates of crediting have decreased more than in 2 times. But problems with a credit portfolio in first half of 2008 weren't such obvious yet. For June, 1st, 2008 the share of hopeless credits were 1,65 %, against 0,7 % for June, 1st, 2007.

  By that moment in the USA mortgage crisis has already burst, and the wave of shortage of liquidity has covered all developed and emerging markets. In Kazakhstan during this moment was observed the acute shortage of funding. So, from August, 2007 till February, 2008 index Kazprime reflecting the rate of interbank credits, has risen from 6,5 till 12,4 % that testifies to increase in demand at money resources and falling the offer.

  It is necessary to notice that as the most part of loans has been given out in 2006-2007 also the most part of loans is necessary for this period. Mortgage crisis in America and deficiency of liquidity in the world have led that banks couldn't obtain external loans in sufficient volume any more against decreasing volumes of crediting.

By this time reports of the international rating agencies draw not iridescent prospect for the Kazakhstan banks. So, Moody’s notices that increase of rates in the international debt markets for the long period can complicate refinancing for the Kazakhstan banks involving means from abroad. Agency Standard and Poor’s passed an opinion for a long time fears of steady growth of external loans of Kazakhstan banks. By estimations of S&P sounded in the beginning of 2008, the next 12 months on the refinancing purpose to the Kazakhstan banks will be required 3 bln. dollars quarterly, and 70 % of refinanced obligations will make the syndicated loans.

  Having problems with a credit portfolio and practically having lost of the operative income, under external obligations the largest banks of the country "have arrived" to margin call. In I quarter of 2007 the external debt of republic at the expense of growth of external loans of a private sector has increased up to 95,7 % of GDP. Experts have unanimously remembered that the Kazakhstan bank system – unique system which borrowed means in such quantity. As much as possible external debt of commercial banks of the country has reached 46 billion dollars.

  In the second half of the year 2008 index Kazprime has fallen on former level, but hasn't relieved the Kazakhstan economy and bank system of larger shock – the second wave of crisis which was already characterized not only local problems of banks, and pressure of their external debts upon all economy of Kazakhstan.

  Expecting such course of events, the government in November, 2008 has suggested to generate monetary "pillow" and to help backbone banks with volume of 5 bln. dollars by time occurrence in structure of their share capital. Technically the scheme looked so: banks let out additional volume of shares which the government through the authorized operator fund Samruk-Kazyna redeems for 5 bln. dollars, in the list of "happy" recipient of public funds are six banks among which were Kazkommertsbank, BTA,  Halyk,  Alliance, CenterCredit and АTF have entered. In aggregate, on all above-stated banks financing was necessary over 80 % of not raw sector of national economy.

Subsequently, because of support from the parent companies, АТF and CenterCredit haven't resorted to the help of the state. The remained distances the oral consent. According to the governmental plan, in each of four banks the state share in a share capital will be 25 %. Occurrence process should occupy no more than 2-3 months.

  The external debt of domestic bank sector has decreased for the end of 2008 to 39 billion dollars. From February, 2nd government session where were considered its joint actions with National bank and FSA on acquisition of shares of joint-stock company BТА bank and joint-stock company Alliance bank has taken place. With a view of maintenance of stability and safety of bank system the government has established control at the above-stated financial institutions on personal for each of banks scenarios. The chairman of board of directors of joint-stock company BТА bank Muhtar Abljazov and the first deputy of the chairman of the board of joint-stock company BТА bank Zhaksylyk Zharimbetov were discharges of performance of official duties by FSA decision, in connection with a recognition of their actions not corresponding to interests of investors and creditors of bank and current legislation requirements. The chief shareholder of bank Alliance – Financial corporation "Seimar Alliance"– has sold 76 % of common shares belonging to it to Fund  Samruk-Kazyna for 100 tenge.

  On February, 4th National bank of RK made devaluation of national currency on 25 % with the established corridor 150 tenge per dollar, plus-minus 5 tenge. One day later also was reduction of refinancing rates from 10 till 9,5 %. Government "occurrence" in a financial position of two banks considerably becomes more active.

  In March within the limits of a program government aid to banks the minimum reserve requirements decreased from 2 till 1,5 % on internal obligations and from 3 till 2,5 % on other obligations that allows to give liquidity to bank system at a rate of 50 bln. tenge. And on March, 27th, 2009 placing of 20,91 % of shares of joint-stock company Halyk Bank of Kazakhstan for the sum 27 bln. tenge in Fund Samruk-Kazyna has come to the end.

By April, 1st the sum of an external debt of banks was decreased up to 35 bln dollars. Simultaneously FSA has already considers possibility of re-structuring of obligations of some large banks.

The Alliance bank was the first which declared about re-structuring. On April, 13th the bank management officially declared impossibility of repayment of the debts under internal and external loans. The debts total sum is defined in 4,5 billion dollars. Agency Standard and Poor’s has established credit ratings of the counterpart of bank on a mark "SD" – a selective default. The estimation was based on the payment admission on one of financial obligations. Fitch Ratings has lowered a long-term rating of a default of the emitter bank from level "CCC" to "RD" (the limited default).

  A bit later, on April, 20th, 2009, BТА bank declared about stay of payments on the basic debt to the creditors and about plans on re-structuring of external debts of bank. Agency S&P has decreased long-term and short-term credit ratings of BТА bank from "CC/C" till "D" (default). Fitch Ratings also has decreased ratings of  BТА bank from "СС" till "RD".

  So started the first in the history of Kazakhstan process of re-structuring of banks external debts. It is necessary to notice that the Kazakhstan experience in this question was specific enough as in the world community before a problem with banks solved different ways. The most popular decision in the western practice was to divide banks on "bad" and "good". This scheme was also used in last decision of problems with banks in Iceland and the Baltic countries in 2008. The similar way of re-structuring provided division of all shares on "bad" and "good". Further was created a uniform bank for "toxic actives" or uniform bank for "good actives". The Kazakhstan experience had differences and became in some measure axiomatic.

  The latest (on November, 23rd, 2009) which declared about the re-structuring was Temirbank. Temir couldn't make payment on November, 6th, 2009 for the sum 5,8 bln. tenge, and also on November, 9th, 2009 for the sum 1,9 bln. tenge to the main shareholder  BТА bank. Also Temir Capital B.V. couldn't pay compensation for the 23,6 million dollars sum, subject to payment on November, 23rd, 2009 under the senior bonds.

  And in the meantime the Alliance bank has already signed the agreement with committee of creditors. In the Alliance agreement were contained five options for creditors and was registered the future corporate structure of bank with the mechanism of realization of re-structuring of debts. The given signing any more didn't leave doubts in successful procedure of re-structuring of debts of Alliance bank.

  It is necessary to note that Alliance and BТА in structure of external obligations great volume of debts has had on such credit product as the trading financing, having more difficult structure, rather than the usual syndicated loan. Aggravated a situation the fact that trading financing with participation of export-credit agencies occupied a considerable part in a credit portfolio especially of BТА.

Thus, banks have already to answer for obligations not private foreign company, but the state foreign company that gave to re-structuring process political color.

  Being in process of re-structuring in 2009, BТА bank the first from problem banks which declared about potential occurrence of the strategic partner in the capital. Till nowadays it is the Sberbank of  Russia. By this time the Kazakhstan none-bank financial organization Astana-Finance has already declared a default.

  On the end of the first half of the year 2009 the debt of BТА bank has been 2,5 trillion tenge, Halyk bank – 988 bln. tenge, АTF bank – 859 bln. tenge and  Alliance bank – 786 bln. tenge. For five months 2009 losses of all Kazakhstan banks have exceeded 2 trillion tenge.

  On September, 7th, 2009 BТА bank offered creditors four variants of re-structuring of the debts the total amount of which was 12 billion dollars. According to the first variant, it is offered to creditors to redeem a debt on 1 billion dollars for cash with discount of 82,25 %. The second variant provided prolongation of debts for seven years with discount of 60 % and decrease in the rate of compensation with a five years' delay. In the third variant debt prolongation for fifteen years without discount, but with decrease in the rate of compensation with a ten years' delay was offered. The fourth variant included an exchange of debts for shares with 80 % discount. The bank intended to re-structure 10,3 billion dollars debts and to reduce their total amount to 8,2 billion dollars. However creditors suggest to write off only 4,9 billion dollars debt against the sum offered earlier by bank. According to developed by program bank, creditors have been divided into the senior package which included three options, and on younger, including two options.

  The Alliance bank has given to creditors on a choice five options. The first option – the repayment for cash money with discount at a rate of 77,5 %. The second meant seven-year prolongation with discount of 50 % on the decreased interest rate, with amortization of the basic debt upon termination of 4 year preferential periods. The third option – payment of debts face value, but in 7 years of a preferential period during the following 10 years. The fourth option included debt payment at a face-value within 13 years after 10 years of a preferential period. The fifth option – converting of debts of creditors in a bank share from 75 to 80 %.

  Re-structuring of Temirbank was more simple because the portfolio of obligations was small.

In last months of 2009 proceeding reduction of a share of standard credits and growth hopeless, and also growth of expenses on formation of provisions became a principal cause of deterioration of the basic indicators of bank system. Such tendency, according to experts, obviously doesn't testify the recover of bank sector of the country. However news about successful re-structuring of the largest banks install optimistic hopes. Many bank analysts believe that Alliance bank, and BТА bank can successfully spend re-structuring, and remains to only a few time before end of this process.

  On the end of 2009 the external debt continues to make 39 billion dollars, and level of problem credits in a cumulative portfolio exceeds 30%. Banks, in view of closing of external sources of funding, were reoriented on home market. From the beginning of 2009year growth of depositary base in spite of the fact that in all 2009 bank sector of RK still uses mistrust from rating agencies is observed.

  On March, 30th, 2010 the first about re-structuring end declared Alliance bank. As a result of process the bank has written off almost 3,5 billion dollars debts, the volume of obligations was reduced from 4,5 billion dollars till 1,08 billion dollars. As a result the structure of shareholders has changed also. So, 67 % of bank shares are at fund Samruk-Kazyna, 33 % – at creditors who are distributed between two thousand the minority shareholders any of which has no share more than 3 % of shares.

  Already on July, 1st Temirbank declares that has executed all necessary payments for end of re-structuring of debts. As a result the bank has reduced the debts almost twice, from 1,4 billion dollars till 700 million dollars, and state fund Samruk-Kazyna – 79,9 % became its main shareholder. 20% more of shares remained with creditors, and an order of 0,1 % – at former shareholders.

  The last, on September, 1st, 2010, re-structuring process has finished BТА bank. By its results the bank debt was reduced from 12,2 to 4,4 billion dollars.

After re-structuring creditors became shareholders of bank, and on their share 18,5 % of a share capital are coming. Fund Samruk-Kazyna is the basic shareholder owning others of 81,48 % of a share capital of bank. On a share of monitaries 0,02 % of shares are coming.

As experts now ascertain, the Kazakhstan bank system has sustained the crisis, and a sharp phase is behind. Many banks have already developed and adhere to new more conservative strategy of development. However the bank sector is still deprived a possibility of high-grade carry out of the basic function – to finance of economy. Shortage of reliable borrowers is felt in each bank. In spite of the fact that the majority of banks predict increase in a credit portfolio at 5-10 % till the end of the year, upon their loan portfolio continues to decrease. [see 10]

Early to say that world financial crisis is finished also it became irreversible. Risks still remain, and Kazakhstan as the part of world economic system, also can be subject to repeated waves of this phenomenon.

At the same time the experience developed in the country, shows, it is impossible what to relax and it is necessary to undertake the preventive measures, capable to protect a country financial system henceforth.

"The Concept of development of financial sector of Republic Kazakhstan during the post crisis period" confirmed by the Decree of the President on February, 1st, 2010 is one of such measures.

All perspective directions of development of financial sector are in detail enough registered in the given document on the near future.

As a whole, the Concept solves following problems:

- increase of stability of financial sector;

- creation of conditions on a non-admission of lacks, factors of instability and the phenomena which have been found out during current financial and economic crisis;

- stimulation of investment activity during the post crisis period as tool of realization of macroeconomic decisions;

- trust strengthening to financial sector of the country both from investors, and from consumers of financial services.

Within the limits of the decision of a task in view the prospect of development of financial sector of the country will be connected with use, both internal resources of economy, and external loan. Thus the priority will be given to the first making.

Besides, the role of the state regarding supervision and regulation over a financial system will amplify. It is connected so that at early stages to reveal, prevent and overcome system risks and their displays. From the state procedures on maintenance of a transparency of the activity which is carried out by the financial organizations, protection of investors and consumers of financial services will be carried out also.

Priorities in post crisis development of financial sector of Kazakhstan become use of institute of state-private partnership as the basic mechanism of financing of development of national economy.

In whole, in Kazakhstan great attention is taken away to perfection of the financial system. It is defensible, as the financial system is a basis of development of national economy without which is inconceivable the further advancement of social development of the country.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     Conclusion

 During the work following conclusions have been made.

1. Role and objectives of modern Central Banks was defined.

           A central bank, reserve bank, or monetary authority is a public institution that manages a state's currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the nation's monetary base, and usually also prints the national currency, which usually serves as the nation's legal tender.

           While new functions were acquired as central banks evolved into public policy agencies, the accompanying change in underlying objectives was rarely explicitly stated. Given the context, one could infer that the objective underlying all functions was ― for the economic interests of the nation, consistent with government economic policy‖. Indeed, that is the type of general statement found in each of the 20th century statutes that both created a central bank and stated its objective.

           The primary function of a central bank is to manage the nation's money supply (monetary policy), through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis. Central banks usually also have supervisory powers, intended to prevent bank runs and to reduce the risk that commercial banks and other financial institutions engage in reckless or fraudulent behavior. Central banks in most developed nations are institutionally designed to be independent from political interference.

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.

          3. Definition of current basic problems.

• decrease in possibilities of domestic banks to involve external financial resources, hence, there was a reduction of volumes of crediting of internal economy;

• decrease in rates of growth of actives and reduction of volumes of capitalization of banks;

• were problems with repayment of external obligations.

At present, the bank system is an important link of domestic economy. Owing considerable accumulation of money resources, banks can make considerable impact on a rate of national currency, and on inflow of money in treasury, by operations with the state securities.

In the conditions of market economy the market of loan capitals represents itself as the original pump which is pumping out temporarily free financial resources from one spheres of economic activities and on them in other, providing, in particular, higher profit. For this reason one of the major problems of state regulation of bank system — rational definition of economic priorities and stimulation of attraction of credit resources in those branches or the regions, the accelerated development of which is objectively necessary from a position of national interests, instead of exclusively current benefit of separate subjects of managing. Process of concentration of the capital is a necessary condition of stability development of economy and the priority purpose of any subject of managing.