FSA described Kazakhstan banking sector as of January 1, 2005
25.01.05 11:08
/IRBIS, Assel Omarova, January 25, 05/ - The Agency of the Republic of
Kazakhstan for financial market and financial organizations regulation and
supervision (Financial Supervision Agency -FSA) in its report dedicated to
the financial market of the republic, described the banking sector of the
country as of January 1, 2005.
Banking sector is largest and most rapidly developing segment of the
financial system of the Republic of Kazakhstan. According to FSA in recent
years the Kazakh banking system grew at fastest pace compared to that of
other CIS country members.
According to the FSA as of mentioned date in Kazakhstan there were 35
second tier banks including 1 under conservation regime, 15 with foreign
capital (including 9 nonresident banks of the Republic of Kazakhstan) and
Kazakhstan Development Bank JSC. As of January 1, 2005 twenty six
commercial banks had branch network, total branches across republic
totaled 385 (in 2004 10 permissions to open a branch were given), including
the largest number of branches were that of Halyk Savings Bank of
Kazakhstan JSC - 148, Bank CASPIAN JSC - 34, Kazkommertsbank JSC - 23.
Total number of cash offices reached 1,105 (in 2004 permissions to open
cash offices of 17 banks were given, permission to open cash offices were
withdrawn from 11 banks).
As of January 1, 2005 11 second tier banks had 28 representative offices, 20
of the - out of the Republic of Kazakhstan. In 2004 the authority gave 14
permissions to open representatives offices. Moreover, 18 rliason offices of
foreign banks was operating in the Republic of Kazkhstna. In 204 a license
to open a liaison office of NATEXIS BANQUES POPULARIES (France) was given.
As of January 2005 start 26 aduint companies and 53 auditors had a license
that prmits conducting an audit of banks. In 2004 a banking audit licnse was
given to NAK ADAL AUDIT LLP and 6 authorized auditors. Moreover, a
license from Arhtur Andersen ZAO has been returned as this company no
longer operates.
Total equity capital of banking system equaled to KZT347.6 bn, up by
KZT114.0 bn from previous year. As of December 1, 2004 this was equal to
KZT324.7 bn. Aggregated assets of banks increased by 60.5% to KZT
2,689.7 bn (as of December 1, 2004 assets were equal KZT2,550.5 bn).
Adequacy ratios were as follows: k1 - 0.083; k2 - 0.159 (as of January 1,
2004: k1 - 0.089, k2 - 0.169).
Loan portfolio of banks including interbank loans rose 66.9% within a month
up to KZT726.8 bn. Stake of standard credits was 56.3%, doubtful - 40.8%,
bad - 2.9%. As of January 1, 2004 stake of standard credits was at 60.8%,
doubtful - 37.1%, bad - 2.1%.
Total sum of deposits of legal entities and individuals (excluding banks and
international financial organizations) by the beginning of January was
KZT1,607.8 bn having increased within the month by 65.4% (including legal
entities deposits - KZT1,159.8 bn, growth of 84.5%, deposits of individuals -
KZT448.0 bn, growth of 30.5%).
Total sum of second tier banks' revenues equaled KZT321.8 bn having
increased in comparison with similar period of last year by 38.5%. Total
expenses were KZT290.4 bn having increased in comparison with similar
period of last year by 42.7%.
Undistributed net profit (uncovered loss) of banks equaled KZT31.5 bn and
increased during the year by KZT2.7 or 9.4%.
Besides, FSA reported on its activities in 2004.
Regulation and supervision
With the purpose of establishment of standards for financial organizations
activities, creation of stimuli for better corporate governance and
concentration of the supervision resources at financial market, subject to
greater risks, FSA on January 1, 2004 introduced the Instruction on
requirements about the presence of risk management system and internal
audit in banks (the Instruction), that sets forth strict requirements for
second tier banks with respect to risk management systems and internal audit.
The Instruction describes requirements to banks that have to have an
adequate rsik management system and the system of internal audit, which
allows for usage of methods for risk control by banks and banking
organizations, that provides effective description, estimations and risk
limiting on banks and banking group taking into account the type and the
volume of operations.
The mission of the Asian Development Bank on risk management system
sent the questionnaire the main purpose of which was to evaluate the quality
of the risk estimations and completeness of risk management practices,
used in second tier banks, as well as to identify weak fields that require
improvement from the side of banks to bring it in compliance with
international risk management standards. Results of analysis of answers
showed that in many banks the role of the Board of Directors and the
Management are not entirely understood, and credit risk are poorly
managed. This touches only organizational issues. At the same time the
Instruction also lists practical procedures for risk management, including
those with systematic characteristics, the evaluations of which are only
possible if on-site due diligence is held. As a result of analysis it was
concluded that second tier banks don't fully comply with requirements of the
Instruction, and this is why within limits of distance supervision the
monitoring and punishments are needed.
FSA developed recommendations to internal auditors with respect to check
of system for compliance of risk management system of second tier banks
with requirements of the Instruction, which will help auditors to gave a more
detailed report on compliance of the risk management system of banks with
requirements of the Instruction.
Moreover, with the purpose of further improvement of prudential regulation of
activities of a banking group the FSA improved the calculation of a
shareholders' capital of a banking group and the mandatory submission of
consolidated financial statements on a quarterly basis is provided for
(Resolution of FSA Management dated November 27, 2004 #325 "On setting
normative values and methodic of calculation of prudential norms for banking
groups, as well as forms and timing of submission").
A the same time, taking into account outlined negative trend the asset
growth prevailing over growth of capital, that carries additional risks and
potential opportunities for banks and lowering potential opportunities for bank
to boost its capitalization, the FSA lowered the limits of foreign currency
positions and set the monitoring of currency liquidity. Moreover the banks
becoming active at external markets made it more vulnerable to country
risks. FSA made certain amendments to prudential regulation of banks that
prescribe capital adequacy ratios calculation, including taking into account
country risks. (Resolution of the FSA dated December 27, 2004 #390 "On
amendments and additions to the resolution of the Management of the
National bank of the Republic of Kazakhstan) dated June 3, 2002 #213 "On
approval of Rules of prudential norms for second-tier banks". Given
amendments will take effect from July 1, 2005.
For making monitoring of the financial market and financial organizations
with the purposes of keeping the stability of the financial system the FSA
held works on development of preventive measures against cresses at
market. Last episodes with cresses at international financial markets
underscored the need in more effective risk monitoring instruments, as well
as procedures of operative usage o measures with purpose of prevention of
the crisis within financial system. The FSA approved the Scheme of
immediate actions in case of increasing systematic risks (FSA resolution
dated December 27, 2004 #397 "On approval of the Scheme of immediate
actions in case of increasing systematic risks at financial market), which is
aimed at revealing crisis points and mitigating systematic risks. In this
connection, the scheme allows for indicators of stability of all sectors
(banking, insurance, pension and securities market, as well factors of
vulnerability and the complex of measures, which may be used the regulator
in case of increasing risks in any of segments of a financial market.
According to IMF and Wordlbank reports under the Program of financial
sector evaluation, the financial sector of the republic, where banks dominate
is one of the fast growing sectors of the economy. This is favored by better
economic conditions, fueled by sound fiscal policy, oil profits and
government's commitment to sound reforms of financial sector. Though
starting in 2000 reforms of legislative grounds of a financial market were
initiated, the realization of some of them lags behind, including consolidated
supervision.
In mission's opinion prudential indicators of liquidity risk show that in
general the liquidity of the system is at normal level, but liquidity
coefficients do not fully demonstrate the dependence of banks on risk arising
from wholesale financing. Bank are still subject to indirect risks, though such
risk are decreasing at the moment thanks to expected appreciation of tenge.
In accordance with President's address, the FSA developed and approved
the Concept of consolidated supervision that outlines further development of
supervising and regulating of financial organizations in Kazakhstan. (FSA
resolution dated 15 March, 2004 #79 "On approval of the Concept of
consolidated supervision that outlines further development of supervising
and regulating of financial organizations in Kazakhstan").
In order to stimulate the implementation of modern technologies, full
disclosure and availability of information to end users about the activities of
financial organizations and offered services and with the purpose of
realization of a State program for development and support of
entrepreneurship in Kazakhstan for 2004-2006, approved by the decree of
the President of the Republic of Kazakhstan on December 29, 2003 #128,
the FSA adopted a normative legislative act that allows cash offices of banks
to conduct borrowing activities, issue banking guarantees in favor of SMEs
and private persons (FSA resolution dated 12 July, 2004 #197 "On approval
of Rules of giving a permission to open a bank, permission to open a branch
of a bank and closure and opening of cash offices of the bank and Rules of
giving, suspension and withdrawing permission for conducting banking
activities").
Currently, one of the most dynamic directions of bank development is
consumer finance, which carries high level of risks and implies significant
operating costs, which as a general rule and in accordance with international
practice are lowered thanks to credit bureaus and application of risk scoring
models. The FSA prescribes the usage of a scoring models by banks (FSA
resolution dated 25 Sep, 2004 #269 "On amendments and additions to the
resolution of the Management of the National bank of the Republic of
Kazakhstan "On approval of Rules of maintaining documentation on crediting
by second tier bank in Kazakhstan", registered by the Ministry of Justice
under #904).
In 2004 the Agency received 460 requests from civilians and 217 from legal
entitles, including 234 request relating to banking. Main subject of complaints
are the following: procedure for compensation payments made by Halyk
Savings Bank of Kazakhstan on deposits of Kazakhstan citizens, repurchase
of certificates of Savings bank of the USSR and treasury bonds, bonds of
specific purposes non interest loan and other. Moreover, requesters were
interested in banks holding transfer operations, granting loans and
realization of a pledged property, preparing banking agreements and making
amendments to them etc.
The FSA suggested that the Government of the Republic of Kazakhstan
made some amendments and additions to the Law of the Republic of
Kazakhstan "On natural monopolies" (payments acceptance via own network
of cash offices, via agent on competitive grounds with the condition of full
identification of expenses), which are provided for and included into the Law
of RK "On amendments and additions to certain legislative acts of RK on
issues of activities of natural monopolies, introduced from January 15, 2005.
Such need was caused by significant number of request relating to
unjustified charging of commissions and fees by banks while accepting bill
payments for utilities.
The FSA initiated 11 inspection checks of 11 banks including 9 planned and
2 prescheduled. On the basis of the Code of the Republic of Kazakhstan "On
administrative law violations one bank was found guilty of violating
administrative law.
Moreover, within elapsed year FSA specialists were attracted for 9 planned
inspections by authorized bodies.
As a result of holding a distance control, the FSA forwarded notes to 6 banks
recommending them to improve the activities of the bank.
Information on realization of tasks in field of liquidation procedures
In compliance with the Law of the Republic of Kazakhstan "On state
regulation and supervision of financial market and financial organizations",
with the purpose of realization of main goals of the FSA on realization of
measures on preventing violations of rights and interest of financial services
consumers, conceptual changes to banking legislation were adopted that
promotes the role of the regulator in process of liquidation.
Thus, the institute of special manager was simplified so that authorized body
could carry perpetual control over the activities of the temporary
administration (from the moment of withdrawing a license from the bank) and
liquidation committee (from the date of its appointment), thereby preserving
the property.
Realization of FSA functions on coordination of list of expenditures of
liquidating committees helped to economize on expenses. In last period
liquidating committees repaid the obligations for a total amount of KZT290 m,
including repayments to private individuals for KZT72 m.
Beginning from 2004 the FSA has approved normative legislative acts aimed
at improvement of existing order of leading the process of banks liquidation,
regulating the specifics of liquidation of accumulative pension funds, as well
as procedures of temporary administration and liquidating committees
appointment.
According to results of analysis of the role of Kazakhstan fund of
guaranteeing deposits from private individuals in the process of bank
liquidation, amendments to legislation were made aimed at enhancement of
the effectiveness of the return of funds from liquidating amount of forcedly
liquidating bank - member of the Fund.
Based on function controlling the conformity with requirements of an existing
legislation in course of liquidation:
- a help was rendered to 6 liquidating committees of banks in realization of
measures on completing liquidation manufacturing;
- the activity of liquidating committees of 2 banks was checked, enabling to
reveal and eliminate such violations made by chairmen of liquidating
committees appointed by the court.
As of beginning of 2004 15 banks were in process of liquidation, on 5 banks
liquidation process is over: on one of them justice bodies registered its
liquidation on 4 of them liquidation reports are being filled out.
In field of control over liquidation of banks the FSA sees higher priority in
the development of the conceptual approach to the improvement of liquidation
procedures aimed at minimization of risks of not returning of funds to the
Fund and discriminating claims of creditors of liquidating banks.
[2005-01-25]