REFERENCE: Development Bank of Kazakhstan CJSC - characteristics of activities

/IRBIS, information of the KASE Listing commission, Feb 20, 02/ - The following information is published due to the admittance of the first issue indexed inscribed coupon bonds of Development Bank of Kazakhstan CJSC into official list of the Kazakhstan Stock Exchange (KASE) under category "A". The main goal of Development Bank of Kazakhstan CJSC is the mid- and long-term financing of investment projects in processing industry, as well as: financing of exports of resident of Kazakhstan in order to stimulate exports of goods produced in the country, using its own and borrowed funds; financing production sector of the economy by issuing guarantees on loans and credits granted to other credit institutions, including co-financing; improvement of financing of investment projects undertaken by the government of Kazakhstan. Since the bank can not use the deposits as the resources, the main source of its financing is the funds borrowed on domestic and external markets, as well those received from national and local budgets on agent contracts. Based on the Memorandum of credit policy, approved by the resolution #1187 of the government of Kazakhstan on September 12, 2001, the funds of the authorized capital of Development Bank of Kazakhstan CJSC can be used only for financing of short-term export credits not exceeding 20% of the authorized capital. Authorized capital of the bank serves as a collateral for borrowed funds raised on financial markets and placed in highly liquid financial instruments. This requirement determines financial stability of the bank and is due to the need in maintaining high liquidity under simultaneous growth of loan portfolio volume and borrowed funds portfolio. The major functions of the Development Bank of Kazakhstan CJSC based on its charter and law are: - borrowing; - financing of investment projects and exports on the return basis, including co-financing; - working as an agent: on servicing (without repayment obligations) investment projects, financed through national and local budgets, as well as state external borrowings which are guaranteed by the state; pay back of the funds drawn from national budget in order to meet the obligations on state guarantees and meeting other debt of the government of Kazakhstan; - conducting bank study of investment projects, which are offered to finance both at own risks, and through investment activities of the state; - monitoring of the investment projects financed through the national and local budgets, as well as non-state external borrowings guaranteed by the state; - receipt, servicing and repayment of non-state loans, including those guaranteed by the state as a borrower; - managing its own equity and others. BORROWING Based on current law, Development Bank of Kazakhstan CJSC can borrow both on domestic and international markets in any currency using any financial instruments that do not contradict with the law. The collateral for the loans are the assets of the bank. The bank also can borrow under state guarantees on terms coordinated with the Ministry of Finance of Kazakhstan. Funds are borrowed by the bank in volumes sufficient to finance concrete investment projects and exports. Based on the credit policy of the bank, reflected in the Memorandum, the volume of borrowed funds and conditional liabilities should not exceed the equity in the proportion of 6:1, and the limit on conditional liabilities is set at 2:1, and for direct borrowing - 4:1. The borrowing terms on repayment terms, interest payments are set based on the terms of the credits granted by the bank. FINANCING Development Bank of Kazakhstan CJSC finances legal entities (except for financial institutions) in accordance with the list of priorities set in the Memorandum, and based on the payback, term and return, including projects, financed through the national and local budgets, as well as non- state external loans, guaranteed by the state, where the bank bears solidarity obligation to return budgetary funds along with the final borrower. The main principle - financing of profitable projects - is maintained as a result of thorough selection of projects offered through conducting bank study of the project itself and solvency of the borrower. Apart from commercial profitability of the projects other principle of financial stability of the bank is: diversification of the loan portfolio based on sectors, gradual increase of payback periods and capital investments, division of the risks with other financial institutions, exclusion of political pressure and independence of the study when projects are selected. The mandatory condition of the financing is the proper collateral - liquid assets or the guarantee of the third parities. The bank should monitor constantly the implementation of the project, solvency of the issuer and liquidity of the collateral. The bank finances mid- (5-10 years) and long- (10-20 years) investment projects and short-term exports on payback basis. To finance the investment projects at its own risk the bank can use borrowed funds from national and local budgets on a payback basis and other borrowed funds including those raised by the bank under the state guarantee. To finance the exports the bank can use borrowed funds on a payback basis and its own funds not exceeding 20% of the authorized capital. Minimum volume of export credit - 1m USD, maximum - 5m USD. The decision on granting the export credits over 5m USD is made by the Board of the bank, including the representatives of the administration of the president of Kazakhstan, government of Kazakhstan and local executive bodies. The financing of the bank can be divided into three groups. 1. Infrastructure and other investment projects, financed through state and local budgets on a non-payback basis (expense financing), where the bank is a financial agent. 2. Projects on organizing potentially competitive production, which can receive budgetary credits through the bank on co-financing terms. These are the production of chemical and petrochemical products, agriculture and special machinery. 3. Projects financed through out-of-budget sources at the bank's own risk, which are: services of agricultural producers; oil and gas production services (except for surveys); construction of oil, gas and condensate transportation systems; production of food and beverages; textile and shoe industry; production of electricity and electronics; forestry and lumber; production of oil products and nuclear fuel; metals processing and machinery; construction; transportation (except for the road construction, power transmission); warehouses, communication; furniture. The bank can finance projects in almost all sectors of the industry, except for mining sector. Investment projects in mining industry are not in priority because of their high commercial and investment attractiveness to private investments. Besides, the capitalization of the bank does not allow big scale capital investments into mining sector. LOAN PORTFOLIO By the information presented to the KASE, for 2002 the bank plans to finance investment and export projects, selected now, for a total of KZT12.5bn. The bank has set following planned loan portfolio structure for 2002: By types of financing: to finance investment projects - 82% of loan portfolio, to finance exports - 18%. By types of financing instruments: credits of Development Bank of Kazakhstan CJSC - 96% of loan portfolio, documentary operations - 4%. By sources of financing: own funds - 17% of loan portfolio, borrowed funds - 79%, documentary operations - 4%. By industry: processing of agricultural products - not more than 50% of loan portfolio, oil machinery - 10%, production of construction materials - 10%. By regions: Almaty, South Kazakhstan, Atyrau regions, Astana and Almaty. The funds granted to companies of one region should not exceed 40% of loan portfolio. IMPLEMENTATION OF STUDY The major instrument in implementing its credit policy for the bank is to conduct bank study of investment projects, offered for financing at its own risks, both through borrowed funds of the bank and the funds of national and local budgets on a payback and expenses basis (national and local investment projects). The bank study is conducted in order to find and minimize the credit risks and it is overall. Besides, the projects financed through the budget on the expenses basis should meet requirements on substantiation and optimal expenses, priorities of the state, sectoral and regional investment policy. As of January 1, 2002 the bank received more than 40 investment projects in processing of agricultural products, production of construction materials, special machinery, railroad transportation, metallurgy, electroenergy, and only one project has been approved ("Construction of the plant for deep processing of corn" for $14m for 11 years) and one export project for $1.5m for 6 months. In late January 2002 the Board of directors of the bank approved the investment project "Production of paper, corrugated cardboard and paper-cardboard items" for $10.0m for 5 years. Soon these projects will be financed. Five projects on agent servicing are under the study. Another 15 projects have been declined due to their incompliance with the norms of the Memorandum and high credit risks. Other projects are under a complex bank study. AGENT SERVICES Development Bank of Kazakhstan CJSC is an agent on servicing investment projects financed through national and local budgets, as well as on non-state loans guaranteed by the state. The agent servicing of investment projects does not require from the bank to be responsible for their repayment by the final borrowers. The obligations of the bank on proper fulfillment of the agent functions are regulation by the agent contract. Agent servicing of investment projects includes: monitoring of the implementation of the projects, servicing and repayment of non-state loans including those guaranteed by the state; repayment of the funds drawn form the nation budget as a result of meeting obligations on state guarantees by taking a payment for offered services on terms specified in agreements based on the tariffs of the bank. As an agent of the government the bank monitors and takes measures towards borrower companies with overdue amounts on non-state loans including those guaranteed by the state. Now, the bank, as an agent of the Ministry of Finance of Kazakhstan, based on the agreements services the projects financed through the external non- state loans attracted under the state guarantee of Kazakhstan, including: - Gorkommunkhoz NCE project - "Modernization of removal of housing wastes and improvement of environmental condition of Astana" for $19,660.0 th. - Kazakhstan Temir Joly NSE project - "Reduction of commuting time of passenger trains between Almaty-Astana to 12-14 hours" for $27,400.0 th. - International airport Atyrau OJSC project - "Reconstruction of runway of Atyrau airport. - NOC KAZAKHOIL CJSC project - "Reconstruction and modernization of Atyrau oil refinery".