AFS comments on forming provisions on credits, provided by BTA Bank JSC (Kazakhstan) to foreign borrowers

/IRBIS, February 25, 09/ - Agency of Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations (AFS) released today on its official website the information message: Quotation start Agency of Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations due to publishing of the list of issues regarding BTA Bank JSC in the newspaper "Republic - Delovoye obozrenie" #06 (141), dated February 20, 2009 (article "fix one thing and break another") considers it necessary to notify the following: "7. Whether prudential standards of Halyk Bank of Kazakhstan and Kazkommertsbank were recalculated on the basis of technology, applied to BTA Bank? In particular, on charging provisions on credits, issued to foreign borrowers? If not, why?" Applying of directions on additional provisions is a standard practice of the Agency. Provisions charges on foreign borrowers are conducted at hard basis due to additional risks for the bank. But it doesn't mean that banks are prohibited to grant credits to foreign borrowers, having coherent ownership structure, qualitative provisions and distinct designation. But BTA Bank instead of direct financing of foreign borrower, used practice of crediting nonresidents through the range of companies, registered in off- shore zones with opaque ownership structure and cash flow. Thus, the borrower of the bank was not transparent foreign company, but some company, registered in Panama or Seychelles, having no significant financial indicators and used for transferring the credit to another off-shore company, to the owner of third company and so forth. Usage of such schemes complicates analysis of purposive loan usage and makes it impossible to determine the market value of such credits and probability of mature, what led to provisions forming from 50 % to 100 % from the sum of such loans. According to the results of complex check of BTA Bank, made in Q1, 2008, the Agency pointed to such risk transactions and by results of joint meetings, the Board of the bank assured the Agency in elimination of such violations and remarks as soon as possible. In further, with the aim to analyze the actions, made by the bank and due to the growth of negative tendencies in the economy of Russia (where most part of projects of nonresident loaners located), the Agency decided to make selective inspection of bank's activity. Unfortunately, this check admitted violations and negative practice, ascertained by complex check at the year beginning and formal approach of the bank in conducting activities, provided by the action plan. In total, the check showed the absence of proper measures on the side of the Board of directors and Bank's Board in improvement of activity and implementation of banking risk management system. Taking onto account the abovementioned information, the Bank was rendered written notification on forming additional provisions, amounting 24.9 % of loan portfolio. If readers or editors office wish to get acquainted with normative and legal acts regulating provisions charges for banks, please, consult to the Agency's website : www.afn.kz, where the Resolution # 296 of the Board of the Agency of Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations dated December 25, 2006 "On establishing Rules of assets classification, conditional liabilities and creation of provisions (reserves) against them and including changes into the Resolution # 116 of the Board of the Agency of Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations dated March 26, 2005 "On including changes into some normative and legal acts of the Republic of Kazakhstan on the issues of regulation and supervision of financial market and financial organizations" are released. What come to other issues, published in abovementioned article, they are in jurisdiction of the Government of Republic of Kazakhstan, National Bank of Republic of Kazakhstan and NWF Samruk-Kazyna, we offer to address to mentioned organizations. Quotation end [2009-02-25]